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April 1, 2006
When Non-Profits Attack!
In Sunday's paper the Times has a different take on the Craigslist story. The piece muses about how difficult it can be to compete with companies who refuse to play fair and extract the maximum they can from their chosen market:These are new-media ventures that leave the competition scratching their heads because they don't really aim to compete in the first place; their creators are merely taking advantage of the economics of the online medium to do something that they feel good about. They would certainly like to cover their costs and maybe make a buck or two, but really, they're not in it for the money. By purely commercial measures, they are illogical. If your name were, say, Rupert or Sumner, they would represent the kind of terror that might keep you up at night: death by smiley face.I'm not sure it's really a trend, but it's a good hook for a story about Craigslist, LaLa.com, and Chowhound. After all, while leaving money on the table, as Craigslist does, might seem a fine strategy, all it does is attract incremental competition from people who are less economically high-minded. The upshot: More competition and (eventually) lower margins for everyone.
[Update] Tim O'Reilly apparently disagrees with me, although he rightly points out that it's too early to tell if this is an "economic abberation". My take: The market here has moved faster and along a more unusual path (community-driven companies) than competitors could respond, so we're confusing a short-term market dislocation with a trend toward "purpose-driven" companies.
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That's a great point -- it isn't so much that Craigslist set out to compete with newspapers in classified advertising, it's that Craigslist is taking advantage of an entirely different infrastructure, which just happens to compete with newspapers. And the fact that Craig couldn't seem to care less whether he makes any money or not just rubs salt in the wound :-)