Rafi Mohammed

Memo to Myself: Don't Discuss Pricing in Social Settings

Posted on August 19th, 2008 (2 Comments)

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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Readers' Comments on This Blog Entry

From Ivana Taylor on August 19th, 2008
Hi Rafi - I think the point you're bringing up is that Craig's List has now earned enough recognition and brand value - not to mention devoted audience - that it should explore the possibility of charging. I'm a little surprised you didn't mention the possibility of not charging for some basic services - but creating a bit of a value-added option for which you would have to pay a little extra (or am I complicating things)?
From Randy on August 19th, 2008
I think ultimately what keeps Craigslist from charging for posting an ad is the low entry barrier in this marketspace and the current ease of use. To start charging for ads means customers now must now put more effort (account creation, credit card info) into something that currently is quick and near effortless. Beyond that, as pointed out, Craigslist operating costs are fairly low because the site is pretty basic. If they started charging it would be pretty easy for competitors to create a similar site that doesn't charge. Sure, Craigslist would make some money but I think over time, people will typically gravitate towards free classified sites rather than pay-for-space sites.