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At a recent barbecue in Cambridge, the discussion turned to many of the partygoers’ passion for Craigslist. As you may know, Craigslist has a series of local web sites (at last count: 450 city sites in 50 countries) and together, it is the leading classified medium in the world. Every month it has over 9 billion page views, 30 million classifieds, and 2 million employment ads. What’s interesting is that while Craigslist does charge for apartment ($10 for brokers New York) and employment listings ($25 - $75), the vast majority of its classified ads are free.
In between bites of Costco sushi, I casually remarked that Craigslist ought to charge something (a dollar…50 cents…25 cents) for all of its classified ads...not just the apartment and employment ones. Wow…talk about a crowd turning on you…once cheery faces suddenly morphed into anger “That will ruin it…it’s a great community” one shaken academic carefully lectured to me.
Of course, as long as he controls the company, founder Craig Newmark can do whatever he wants with the site (note: eBay holds a 25% ownership stake). Revenues are expected to reach $80 million a year and with operating costs ball parked at $7.5 million, it’s a nice cash cow. One result of Craigslist’s existence is that now, who really needs to advertise in a newspaper’s classified ad section? In San Francisco alone, it’s estimated that defections to Craigslist are costing local newspapers $65 million in revenue annually. Talk about a disruptive technology!
When you think about it, Craigslist is giving away a lot of value. After all, what is a classified advertiser's next best alternative? Here in Boston, it would be to advertise on Boston.com ($45 for 7 days) or buy a Boston Globe/Boston.com combo listing package ($69 for 7 days). C’mon…would you really stop selling your old garage sale knickknacks on Craigslist if it charged you $1? Sure…everyone loves free (including me) but my bet is that we’d still advertise our items. A dollar is still a great deal and Craigslist could donate it to a worthy charity if it saw fit. And really…would a dollar destroy the Craigslist community? The last I checked, eBay has a thriving community and it amply charges for its listings.
So…what do you think? Should Craigslist charge for its classified listings? OK, now how would you feel if you were a shareholder (which you in essence you are if you own eBay shares)?
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Last Monday’s New York Times mentioned that congestion pricing may be implemented in downtown Manhattan. The idea is that during peak times, drivers will be charged $8 to enter a high traffic zone below 60th Street. The purpose of this $8 charge is, of course, to reduce traffic. This results in faster drive times and lower emissions/gas usage. The cash reaped from this peak traffic tax isn’t bad either. Over $500 million in annual revenues are expected to be collected, which would be dedicated to mass transit improvements.
Congestion pricing has its merits. Leila Abboud and Jenny Clevestrom wrote a fact-chocked Wall Street Journal article on a 2006 congestion pricing experiment conducted in Stockholm. To alleviate traffic, drivers were charged the equivalent of $2.76 to drive in Stockholm’s city center during the peak time of 4 PM to 5:29 PM. However, by waiting until after 6:30, passage was free.
One of pricing’s greatest attributes is its ability to change people’s habits. The results of Stockholm’s congestion pricing experiment emphatically demonstrate this power of persuasion: traffic over a busy cordon decreased by 22%, accidents involving injuries decreased by 5% - 10%, and city exhaust emissions dropped by 14%. Additionally, use of all forms of public transportation increased by 6% while ridership on inner-city bus routes jumped by 9%. Pretty impressive, don’t you think?
I’m on the fence about implementing congestion pricing. Sure…I understand the efficiency arguments that my economics brethren highlight as a key benefit of congestion pricing: only those that value it most will drive during capacity challenged times. That said, there’s something that makes me uneasy about congestion pricing. After all, all of us pay the taxes that build and maintain public roads. Perhaps it’s my penchant to drive through downtown Boston during peak hours (except when the Red Sox are in town, traffic is surprisingly smooth).
Even without charging for peak usage, there is a deterrent to driving during high traffic times. How many of us have changed our plans because we think traffic is going to be "a nightmare.” Somehow this self-policing behavior seems more “fair” in allocating usage of a publicly funded good compared to only granting passage to those who pay.
We all know that pricing can do a great job of allocating scarce resources…but its implementation raises a wealth of ethical questions for publicly funded services. If congestion pricing is implemented…what’s next? Charging to enter local parks on weekends? Allocating peak time police, fire, and emergency medical services to those with the largest wallets? Prioritizing winter street repairs to neighbors who contribute to a pothole collection kitty?
I’d love to hear your comments on what’s potentially the start of a new pricing trend in our society. |
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Last week US Airways became the first major U.S. airline to start charging for non-alcoholic beverages. So instead of enjoying a bevy of non-stop complimentary Diet Cokes on my flights, I’ll now have to shell out $2 a can. This pricing policy change is expected to garner the airline $500 million in new revenues. There is one way to avoid these charges however, US Airways’ flight attendants union has stated that it will not collect money from fliers who “balk” at the charge. Just to be clear…I’m not advocating being anything but pleasant to flight attendants…they have enough stress in their lives.
It’s interesting, the number one issue that my friends want to discuss is this trend of unbundling airline prices in favor of a la carte pricing. “It’s crazy that they are going to charge me for a [insert complaint: good seat, soda, luggage and today there’ll be plenty of grumbling over JetBlue’s decision to charge for pillows and blankets]… just charge us more so we don’t have to pay these fees” they vent. Then, without missing a beat, they fret about how expensive it is to fly these days. C’mon guys…fuel prices have surged 71% this year (fuel now accounts for roughly 42.5% of operating costs, up from its usual 10% - 15%), Delta and American announced a combined $2.5 billion loss in Q2/08 and in just one week in April, three airlines shut their doors (Aloha, ATA, and Skybus).
Airlines have to make a profit too. The challenge is that especially in our current economic environment, we as airline customers are price conscious. For example, in response to consumers complaints about tight seating, in 2001 American offered extra legroom for all coach seats (by taking out seats) and charged a small premium. Four years later, they added back the 12,000 seats they had taken out as they discovered consumers weren’t willing to pay for more breathing room. The reality is most of us focus on a key price and pay scant attention to ancillary charges…this is why loss leaders are such a popular marketing strategy.
So if the lowest “key” price nabs the flier…it makes sense to offer the best price tethered to plenty of asterisks and small print. Additionally, travel booking sites like Orbitz present the lowest priced airline in the premium first slot – a valuable marketing advantage. Thus it’s understandable that if one airline unbundles its fares, other airlines have to follow suit or risk placing themselves at a competitive disadvantage.
This move to a la carte pricing is the last step to completing the deregulation of airlines. Up to 1978, airline prices were regulated. In other words, all airlines offered the same prices on every route. With identical fares, airlines competed by bundling in a wealth of amenities like unlimited champagne and fancy chateaubriand meals. A key result of deregulation is unbundled services.
With JetBlue’s new pillow and blanket charges…what’s left to charge for? My bet is a new asterisk is going to pop up for flashy discounts indicating: “this fare is for middle seats only.”
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