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Competition in the Online Classified Ad Marketplace

· September 7, 2017

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As Craigslist turns 22 this year, many believe its time as a leader in the online classified ad business is coming to a close, specifically pointing to Craigslist’s unwillingness to expand into mobile. New entrants are attempting to seize on its absence, creating mobile classified ad marketplaces.

In the more than two decades since Craigslist’s inception the company has grown significantly: it now totals 55 million users per month; its revenue surpassed more than $690 million last year; and, by Forbes estimates, the company is worth $3 billion (at least).

Craigslist’s platform, however, remains relatively unchanged. When Craigslist was released in 1995 its website contained a list of blue hyperlinks similar to what you see when you log on to the site today.

More surprising than its long-standing bare-bones aesthetic: Craigslist remains a platform exclusively for desktop.

This is particularly surprising considering mobile and e-commerce trends.

As we discussed in another DisCo post, Americans spend 28% of their time on mobile devices and “52% of the time individuals spend on digital media is on mobile apps.” Smartphone penetration is also at an all time high.

E-commerce is, similarly, thriving; as we noted in our discussion of the changing nature of retail, the e-commerce industry has had record breaking sales, totaling almost $400 billion in 2016.

While Craigslist shows no sign of combining these two trends, the same cannot be said for their competitors.

EBay is aggressively leaning into mobile. It acquired Rumgr, “a mobile app centered around local buying and selling,” in 2015. Together they launched Close5, which has similar capabilities — letting users within the same area buy and sell products, then exchange them directly.

There are also new entrants, like Facebook, which released its own online classifieds service, Marketplace, accessible on both desktop and mobile, last year. Marketplace, like Close5, allows users in the same area to buy and sell products.

There’s also OfferUp which, similarly, allows users to browse through a “Pinterest-style photo feed, haggle with a seller… and then arrange an in-person transaction”; LetGo, which has raised $375 million since being founded in 2015; and Naspers, the South African-based e-commerce platform.

With so many players on the scene some are still speculating about who will be the “Craigslist of the mobile era.”

It’s not an easy question because all these apps bring something to the table.

The average OfferUp user, as reported last year in Mary Meeker’s annual Internet Trends report, spends 25 minutes on the app — “on par with the likes of Snapchat and Instagram.” What’s more, “OfferUp’s total volume hit $14 billion after five years,” and, as “Meeker noted, it took eBay three years longer to pass that mark.” And OfferUp has 14 million monthly users.

While LetGo reportedly has 13.4 million monthly users, it is able to greatly outspend OfferUp in advertising thanks to Naspers, one of its primary funders.

Meanwhile Facebook only needs to attract a fraction of its large user base to become a leader in the space.

And then there’s Craigslist with its ~50 million monthly users, 22 years of name-recognition, and its ability to make a profit — which neither OfferUp nor LetGo can currently claim.

But new entrants will not only be up against Craigslist’s brand awareness (and enormous profits), they will be competing with verticals — companies that have developed around one of Craigslist’s ad categories.

The most popular classified ad categories are: dating, fashion (buying/selling clothes), real estate, and jobs. Verticals within these categories include: OkCupid and Match.com, marketplaces exclusively for dating; Poshmark and Depop, clothing exchange sites; Airbnb, which allows users to shop for short and long-term rentals, and Zillow, which lets them browse and compare homes for sale; and LinkedIn, which enables users to search for jobs while maintaining their professional network.

Perhaps surprisingly, general classified ad marketplaces (i.e. sites like Craigslist that list products from a variety of categories) will also be competing with print.

Although print classifieds have seen a severe downturn since the rise of Craigslist, they remain people’s first choice when searching for certain products — namely, cars, also one of the most popular products sold on online marketplaces.

McKinsey reports that “in the U.S. only 28 percent of consumers surveyed turned to online ads first when searching for a used car, compared with an average of 43 percent in other developed markets.”

It’s worth remembering, however, that Craigslist has been successful in spite of print classified ads’ popularity and despite competitors with similar general online marketplaces. And, though it has lost some users to category-focused companies, like Airbnb and LinkedIn, these same categories on Craigslist still attract millions of users.

Competition

Some, if not all of society’s most useful innovations are the byproduct of competition. In fact, although it may sound counterintuitive, innovation often flourishes when an incumbent is threatened by a new entrant because the threat of losing users to the competition drives product improvement. The Internet and the products and companies it has enabled are no exception; companies need to constantly stay on their toes, as the next startup is ready to knock them down with a better product.

Innovation

New technologies are constantly emerging that promise to change our lives for the better. These disruptive technologies give us an increase in choice, make technologies more accessible, make things more affordable, and give consumers a voice. And the pace of innovation has only quickened in recent years, as the Internet has enabled a wave of new, inter-connected devices that have benefited consumers around the world, seemingly in all aspects of their lives. Preserving an innovation-friendly market is, therefore, tantamount not only to businesses but society at large.