The geeks shall inherit the Earth

It’s been called the scourge of newspaper classified advertising. Kryptonite for newspapers. One publisher compares it to “Sherman marching through Georgia.”

“It” is Craigslist, the enormously popular Web site that offers community-specific free classified ads and discussion forums to millions of people in more than 190 cities worldwide. Since arriving in Reno one short year ago, Craigslist has quickly become a formidable competitor in the local classified advertising market, drawing customers away from newspapers such as the Reno Gazette-Journal, the Sparks Tribune and the Reno News & Review.

Headquartered in San Francisco, the stripped-down Web site eschews banner, text and pop-up ads as well as any attempts at self-promotion. Operated by just 18 employees, the company earns an estimated $10 million in annual revenue by collecting below-market rates for employment ads in just three locales—the Bay Area, Los Angeles and New York City. It has steadfastly refused to charge for the vast majority of the classifieds on the Web site, forgoing millions of dollars in income.

At least some of those millions would have gone into the coffers of your friendly neighborhood daily or weekly newspaper. Now, some newspapers, including the Reno News & Review, are fighting back, offering their own versions of free online classified ads. How this will all play out remains unclear, but one thing is certain: The news business is about to get very interesting.

Interests conflicted
Craigslist was founded in 1995 by Java programmer Craig Newmark, but growth didn’t really take off until 2000. It was during this initial expansion phase that Craigslist hired my brother Eric, a self-trained computer programmer, as a systems analyst. He now serves as chief technical officer. OK, I know what you’re thinking. Jesus Christ, his brother works for Craigslist! No wonder this is such a puff piece! Can you say conflict of interest? But keep reading.

I first became aware of the potential economic threat Craigslist poses to newspapers when Eric e-mailed me earlier this year to inform me that the list was now available in Redding, Calif., where our parents live. He said the list had been in Redding barely a week when some folks began grumbling it might put the local daily newspaper, the Record Searchlight, out of business.

“Bury them!” I replied, still smarting because the Record Searchlight never responds to my job applications. But later I had second thoughts. How exactly is egging on the death of a local daily supposed to help me, a print journalist? In that sense, Craigslist is my enemy. Do I have a conflict of interest, or are my interests conflicted? It seems like the latter to me, but you make the call.

At any rate, founder Craig Newmark consented to an interview on the condition that I dish some childhood dirt on my brother. I’m not ashamed to say I agreed. (I hope he doesn’t give Eric too hard a time about the nickname I came up for him when he was a baby.) We arranged to get together to discuss the meteoric rise of Craigslist, the company’s eclectic business philosophy and the future of online journalism.

By the time I meet him in a San Francisco coffee shop, Newmark has already had a busy morning. The namesake of Craigslist has spent the past few hours fighting a handful of unscrupulous New York City apartment brokers who’ve been scamming thousands of dollars from individual customers by charging finder’s fees for apartments they advertise for free on the Web site.

“I don’t know about you, but that’s a good deal of money to me,” Newmark says.

It’s tempting not to take Newmark seriously. After all, Craigslist has become one of the most successful companies on the Internet. Surely a couple of grand is chump-change to him. But he means it when he says a couple of thousand is still a lot of money—especially when it’s coming out of the pockets of his customers. In fact, Newmark is so concerned with keeping customers satisfied that he stepped down from running the company six years ago to focus on customer service. When users e-mail Craigslist to complain, Craig himself often replies to their queries.

“My title is customer service representative and founder, and I really do put in a full-time effort in customer service,” he says. An espresso machine hisses from behind the counter as he reaches across the table and hands me his camera phone, which he’s been fiddling with throughout the interview. “That’s Bob the cat,” he says affectionately, referring to the digital photo of a slightly scruffy white cat on the phone’s display. After our interview concludes, he’ll hurry home to feed Bob, a stray that’s been hanging around the coffee shop.

You get the feeling that battling scam artists and ensuring that stray cats are fed hold equal importance to Newmark, 52, a self-proclaimed nerd who swears he really did wear pocket protectors in high school. Thickset with a bald pate, spectacles and a neatly trimmed goatee, he exudes sincerity. He appears to be that rarity in business, the nice guy who’s finished first.

This congeniality—call it craigness—permeates the company he founded a decade ago as a bulletin board for techies. The appearance of the site has changed little since its inception, with rows and columns of blue text on a light gray background, no graphics, no text ads, no banner ads, no pop-up ads. It’s simple and easy to get around on. From the very beginning, users have been given a remarkable say in how the site is run. The non-commercial style has inspired fierce loyalty among users, and Craigslist now receives 3 billion page views per month, ranking it among the top 20 sites on the Internet.

While most Internet companies were imploding thanks to the stock market tech bubble collapse, Craigslist was branching out, first to Boston, then to Chicago, Los Angeles, New York. Reno was added in November 2004. Overall, Craigslist receives more than 5 million classified ads and 1 million forum posts each month. At the time I wrote this, on the Reno site, there are 540 help wanted postings, 2,540 personal ads, 1,304 rental and real estate listing and 3,572 advertisements for merchandise, ranging from auto parts to musical instruments. Compare that to the ads in the RG-J or in the back of this paper.

I ask Newmark if he’s received any negative feedback from the newspaper industry because of his Website’s intrusion into the classifieds market.

“I’ve heard it indirectly,” he says. “I’ve been told that some of their classified ad directors aren’t entirely happy with us, but you can imagine that.”

It’s not hard to imagine.

Most daily newspapers charge a much higher rate for help wanted ads than ads for merchandise. For example, for a 12-line employment ad the RG-J charges $717.32 per week.

Enter Craigslist. The company funds itself entirely by charging a flat, below-market rate for employment ads, $75 in the Bay Area and $25 in New York City and Los Angeles. The ad can be as long as the customer desires and runs for up to 45 days. This is the economic engine that drives Craigslist, that makes it possible to run the rest of its classified ads in all of its locations, including Reno, for free.

“Most newspapers, especially the big chains, view themselves as profit centers, where they want relatively high profit margins,” Newmark says. “We view ourselves as a community service, and we’ve kind of proven it, by running an almost completely free site for over 10 years.”

“There’s a range of opportunities for all sorts of advertising,” Newmark insists. There’s room for everybody. Nevertheless, as the fortunes of newspapers decline, the industry is increasingly pointing the finger at Craigslist as the cause of its woes.

Bad news
There’s no doubt that finances are turning increasingly ugly for many newspapers. In the past month alone, a slew of daily newspaper organizations have announced major lay-offs, including the New York Times Co., the Philadelphia Inquirer and the Philadelphia Daily News. The San Francisco Chronicle recently announced that 200 employees have accepted the newspaper’s offer to buy out their contracts, a move made to address declining revenues, including a $65 million loss last year.

The problems newspapers are experiencing cannot be blamed totally on declines in classified revenue. For the past 20 years, overall circulation has declined as younger readers have flocked away from daily newspapers in droves. Still, while there are other factors behind the declining fortunes of newspapers, Craigslist has becoming the whipping boy du jour.

A recent article in Smartmoney magazine, titled “Stop the Presses,” opened with the provocative lead, “If you’re reading this you may already believe newspapers are dead.” It likened Craigslist to kryptonite for newspapers. In an article published in August, alternative newspaper columnist and cartoonist Ted Rall links Craigslist to the declining page count of the New York Press and the closings of three alternative newsweeklies this year. Posters at this summer’s Association of Alternative Newspapers convention in San Diego depicted Craig Newmark’s rounded, goateed visage overlaid with the red circle and slash symbol—"No Craigslist.”

“I’ve been harping on Craigslist’s threat to newspaper classifieds quite a bit recently, and what surprises me is that I still get pushback from some newspaper people that they’re not worried,” writes Steve Outing, a columnist for Poynteronline, the Web presence for the Poynter Institute, a respected journalism school. “I’ve met newspaper ad people who haven’t yet spent time looking at the Craigslist site in their market. You’d better be paying attention and figuring out how to compete.”

There’s no question that Craigslist has carved into the fortunes of both daily and alternative newspapers. For many alternative weeklies, classifieds have provided crucial cash since the 2001 stock market crash. It can’t help that Craigslist is now siphoning off customers by offering free classifieds in alternative markets across the country. The Website may have put an even bigger dent in dailies. The report by Classified Intelligence found that Craigslist may have cost newspapers as much as $65 million in lost revenue last year.

However, John Zappe, an associate editor for Classified Intelligence, thinks it’s absurd to single out Craigslist as the cause of newspaper woes. “Craigslist has become shorthand for the evolution of the marketplace,” he says. He’s kept close tabs on the company during its emergence as a major player and notes that its rise didn’t occur in a vacuum. Other Internet concerns, such as eBay, Monster.com and Auto Trader, have taken a serious bite out of classified revenues as well.

“Craigslist has caused the classified industry to take a very close look at what it is doing, how it is doing it, and to reconsider its basic business model,” Zappe says. “Why would a client of newspaper X pay $25, $35 or $150 for an ad when they can get it free from Craigslist? The answer is obvious. They wouldn’t.”

Despite the obviousness of the equation—and repeated prodding from various trade and business magazines, such as Poynteronline’s Outing—the newspaper industry has been slow on the uptake. Most major dailies didn’t begin offering some form of free online classifieds until this year, when the Arizona Republic, the San Diego Union Tribune and the Sacramento Bee joined the club. So far, their offerings are but weak imitations of Craigslist.

A visit to Tribe.net, a Craigslist copycat site funded in part by newspaper chains such as Knight Ridder and the Washington Post Co., vividly illustrates what’s missing from the mainstream approach: The site is riddled with banner ads, and when you click on an item, pop-ups spring forth like Hare Krishnas at the airport.

In a word, Craigslist’s would-be competitors lack craigness.

“That is a difference people see between Craigslist and virtually every other Internet operator of size, mainly the lack of all the money-making opportunities with which most large sites are festooned,” explains Craigslist CEO Jim Buckmaster. “Whereas people notice our site is somehow miraculously free of all those things.”

Higher-ups from the RG-J and the Sparks Tribune refused to comment for this story. But Reno News & Review publisher Jeff vonKaenel, who has long predicted the threat Internet classified advertising ["Newspapers R.I.P., RN&R, March 12, 1997, http://www.newsreview.com/issues/sacto/2005-10-05/cover.asp] poses to newspapers, is bracing for the Craigslist challenge.

“I don’t think Craigslist is plotting out the demise of anyone,” says vonKaenel. He’s concerned that Craigslist may cut into the News & Review’s personal-ad revenue, but thinks the weekly, which recently launched its own version of free online classifieds, will weather the Internet storm. But other papers, particularly dailies such as the RG-J and the Tribune, may not be so lucky. “Craigslist is hungry and eating grass, and other people don’t have as much grass to eat.”

Heavy traffic
Classified advertising managers across the country may be wringing their hands over Craigslist, but there’s no sign that anyone at the company is returning the favor. When I arrive at the three-story Victorian in the inner Sunset that serves as the company’s headquarters, the atmosphere is decidedly laid-back.

“We just don’t think in terms of competition,” says CEO Buckmaster. “We don’t worry about so-called competitive offerings from wherever they may spring. Classifieds is a huge market, and it’s beneficial to end users to have all the possible outlets that they can.”

My brother Eric, who monitors the 2,600 page views Craigslist receives per second, jokingly pleads with me to write something negative, anything to cut down on the number of users visiting the Website. Problem is, there’s just not all that much dirt on craigslist.

Like any company that offers personal ads, Craigslist has had occasional problems with prostitutes using the site to ply their wares. Because the site has so many visitors, it’s become a target of e-mail harvesters and scam artists, such as the by-now-familiar Nigerian money laundering scheme. Craigslist addressed the e-mail harvesting issue by making it possible for users to post anonymously. As for the scam artists, there’s the customer service department and Newmark.

Since users are given a say in how the Web site is operated, many potential conflicts are avoided. For example, when Craigslist attempted to raise the price for Bay Area employment ads from $45 to $90, a flurry of complaining e-mails caused the company to lower the proposed fee to $75.

“There’s certainly times when we thought we had a clever idea, and we made a change to a chorus of boos, and just had to roll it back,” Buckmaster says.

For some users, the fact that their fellow Craigslist community members have a say in the site’s content smacks of censorship. “Craigslist has a self-righteous, smug, and virtually communist ethic towards business ads, but if you can place your own ad there and not get booted off, it’s a great place to post so long as you’re in an active area,” wrote one user on a media blog.

“We ask what is the right way to do things, what is appropriate, and people have never been shy about telling us,” Newmark says.

“Even when users don’t get their way—as when eBay managed to purchase a 25 percent share of the privately-held company last year for an estimated $10 -$12 million—it’s wound up working to the advantage of Craigslist.

“There were a lot of fears from posters” who were worried that Craigslist had sold out, says Classified Intelligence’s Zappe. “But that hasn’t happened. I think eBay’s interest was to invest in a company that’s pointing toward the future.”

Everything Newmark touches seems to turn to gold. It’s no wonder some newspapers are quaking in their boots. I ask Buckmaster and Newmark what accounts for their success and their unique approach to doing business.

“I think what people find striking is that we could be making far, far more money, especially in the short term, than we do,” Buckmaster says. “Because our users aren’t asking us to do that, we don’t do that. We are user-driven to an extreme.” He admits that most businesses don’t enjoy the luxury of being “completely user-driven and still have a very healthy business.” In a certain sense, Craigslist came along in the right place at the right time. Despite the company’s progressive approach, he downplays the label.

“We don’t feel like we’re being martyrs or altruists,” he says. “At a certain point we do very well for ourselves. It’s not like we’re wearing hair shirts and living in cardboard boxes.”

When I ask Newmark if there’s anything in his background that accounts for craigness, he gives me a bemused look, as if there’s nothing at all unusual about it.

“It’s how we’re all brought up,” he says. “The spiritual values of any religion say that helping people comes first.” Though he wasn’t raised in a religious family he adds, “You still hear that. A lot of people profess these values, but some of them don’t follow through. Power attracts people who don’t practice what they preach.”

And then the interview is over, and Craig’s off to feed Bob the cat.