craignewmark has done it his way. Craigslist has changed the world with a nimble team that has dozens, rather than hundreds, or even thousands of employees.
Conventional wisdom: Design matters. Design wins. Craigslist says content matters and free is hard to beat.
Social commerce: Other sites tried to fight Craigslist with a social component. Craigslist says people who are buying and selling would rather not get bogged down with social distractions.
Greed is irresistable. Craig Newmark believes in their mission. In order to continue their mission, he has resisted the temptation to maximize the monetization of the platform. He has kept Craigslist independent and free of controlling interests from outside investors.
Before Craiglist, people sold their used goods via classifed ads in the local newspaper. Here’s how it worked.
- The seller called the classfied number. The seller dictated to a customer service agent what the ad should say.
- The customer service agent quoted the seller the rate to run the ad per week.
- The seller sent the newspaper a check or paid for the ad with a credit card.
- Once the payment was complete, the ad would run.
- The communication for details between buyer and seller would be conducted via a phone call.
With the advent of the Internet, Craigslist effectively killed the traditional classified ad business.
- Instead of a few dollars per word or line, a classified ad listing is free.
- Posting the ad is completed via a simple internet form.
- Buyers and sellers communicate via phone or email.
- Photos of the items can be included.
A threat from the north — OfferUp
Seattle-based, OfferUp is threatening to dethrown Craigslist.
Here is how OfferUp is besting Craigslist.
- Streamlined photo feature. Easy to snap and include pics of the product in question.
2. Communications using mobile notifications and chat.
3. Visual, Pinteresty view of all relevant and local offers.
4. Mobile location awareness.
OfferUp is on schedule to process $14 billion through its service this year. Craigslist needs a mobile app desperately. People use Craigslist because its free, but also because it works. If customers start buying and selling on OfferUp, it won’t matter if they charge for the service. Currently OfferUp is free for both buyers and sellers. So long as people can get their unwanted goods to a new home and make a couple of bucks in the process, they will list where the action is.
It’s all about speed and effectiveness. Craigslist has brand recognition and a vibrant buying and selling community, but OfferUp is not going to wait for them to get their mobile game together.
By launching a mobile app, Craigslist could fend off the OfferUp threat. They better get moving soon. As the local newspaper classified ad department heads can attest to, once a community moves to a new platform, they don’t come back.
Young adults have grown up with the understanding that classified ads are free and easy. If OfferUp continues its popularity, the easy part will remain, though the free part will disappear. That is fine. The listing source is entitled to a profit for creating demand. Unless Craigslist gets a mobile app to market soon, the next generation will use OfferUp and look upon Craigslist as a strange footnote in history. A brief period in time when buying and selling goods was free.
Monetization is coming
If and when OfferUp finds a clean way to integrate a mobile payment system, they can easily charge a transaction fee without sellers crying foul. Classified ad sales have been difficult to monetize due to the lack of payment facilitation. In a market where a high volume of listings is critical to drive traffic from potential buyers, instituting a paid gate (pay to list) system is counter to that objective. With the face-to-face nature of classified ad transactions, a high percentage of the payments are in cash. As peer-to-peer payments gain traction, mobile payments will eventually replace cash. Text-to-pay and mobile app payments can be integrated into OfferUp’s process. As people opt to pay via the mobile app rather than in cash, OfferUp can take a transaction fee. Restaurants and shops still take cash, but if they don’t have the Visa/MC sticker on their window, potential customers who prefer to pay in plastic take their business elsewhere. In a similar fashion, an OfferUp listing can show the buyer if the seller takes mobile payments or not. Overtime, more sellers will offer mobile payment options, and more buyers will prefer to pay that way. When games and apps are sold on Apple’s app store, Apple takes 30% of the sale price. Developers have no way to market and sell their apps on iOS without the app store. With the simple download and automated payment experience of the app store, customers have little friction when considering buying an app. There is no credit card information form to stall the sale. The trick is get get sellers to accept a popular mobile payment option. Once that begins to take off, the monetization plan can work.
What of eBay?
eBay is going through challenging times. Amazon has won the e-commerce wars. Auctions are interesting, but for everyday purchases, customers prefer brand-new products, fast-shipping, and reliability. Areas that Amazon dominates. Even with “Buy It Now”, eBay is having difficulty shedding it’s auction history. The selling experience on eBay is also a tough sell. Listing and selling on Craigslist and OfferUp is simple. No need to calculate the shipping cost, package and ship the item. When the purchase is face-to-face, there is a low return rate. In person sales don’t have the miscommunication challenges that hamper on-line transactions. Questions such as size, color, condition are answered pre-purchase.
With all the additional challenges with listing and selling on eBay, the selling prices will be better, right? Not so in many instances. For the buyer, the instant gratification of getting an item immediately, and the confidence that they can inspect the item in person allows the Craigslist and OfferUp seller to secure a higher selling price. eBay does well for rare collectables. For everyday and hard to ship items, OfferUp and Craigslist have the advantage.
Mobile is no joke
Social commerce has not delivered on expectations, but mobile commerce is the real deal. As mobile payments fees lower to the point where fees for payments go down to a couple of percentage points, and more importantly become more popular, sites like OfferUp will have a path to profitability. An interesting tie up would be for Paypal to link up with OfferUp. It would be the eBay/Paypal merger in reverse. One highly profitable internet site, acquiring a promising but money-losing company that nicely compliment each other. Paypal could use OfferUp as a killer use-case to further their goal to become the payment api for frictionless mobile commerce. At this point, OfferUp has plenty in their war chest. They shouldn’t need an acquisition partner for the foreseeable future, but could work on interesting bus dev opportunities with leading mobile payment providers.
Winner take all?
The history of e-commerce has shown a preponderance for winner-take-all, or at minimum, winner-take-most.
Customers only have so much mind share. Amazon won the e-commerce wars, eBay won the auction wars, and Craigslist won the classified sales wars.
OfferUp has $210 million in investments betting that OfferUp will take over the classified market from Craigslist. Investors include T Rowe Price, Jackson Square Ventures, Warburg Pincus and Andreessen Horowitz.
Price is important, but not everything. When eBay took the lead in auctions, they were one of the more expensive sites. Yahoo! Auctions tried everything, including far lower fees to displace eBay. They won in Japan, but lost everywhere else. Sellers quickly determined that listing on eBay was where the buyers were. The situation for Craigslist is more promising than the challenge Yahoo! Auctions faced against eBay. Without a horse in the mobile classified race, OfferUp is getting a free head-start in their drive to unseat long-time incumbent Craigslist.
