Craigslist is one company that requires no introduction. The platform has become such a ubiquitous part of the internet culture that we tend to forget that it was founded nearly 30 years ago, in the early days of what we might consider the modern internet. However, despite its popularity, many people do not understand how the Craigslist Business Model works. This article seeks to clarify this, explain how the company generates revenue, as well as point out the strengths, weaknesses, and opportunities of the Craigslist platform.
Contents
A brief history of Craigslist
Craigslist is a popular online classified ads service that allows users to advertise things like job opportunities, housing, services, items, and so on. The platform is headquartered in San Francisco, California, and employs about 50 employees. With an estimated market valuation of $2-3 billion, Craigslist is the leading figure in the world of online listings and advertisements. However, its success tends to make people forget its humble beginnings.
Craigslist started as the pet project of the founder and current majority shareholder, Craig Newmark. Working as a software engineer in the Bay Area, Newmark initially started the service as an email distribution list in 1995. His goal was to help his friends, as well as other tech industry members in the area, connect by advertising local events.
However, he noticed the rapidly growing popularity of the platform, as well as how certain members have taken advantage of its large reach and ease of use to advertise additional content, such as job listings. This led to the subsequent creation of new subsections within the service as well as the launching of the Craigslist website (craigslist.org) in 1996, widening the scope of the original email distribution list to a sort of electronic newsletter.
After a brief change of name, the platform was officially incorporated as a private for-profit company in 1999. At this time, Newmark decided to quit his job as a software engineer and focus solely on building the company. He was joined in early 2000 by current CEO Jim Buckmaster, who helped pioneer some of the most revolutionary improvements made in the platform. The platform continued to operate within the San Francisco area until 2000, when it decided to expand its services to other states within the U.S.
Initially, the services offered by Craigslist were basically free. However, in 2000 it began monetizing its job listing section in Boston, before moving on to New York and Los Angeles in 2004 by charging potential employers $25 per job listing. In that same year, the platform made headlines when the online e-commerce company eBay became a board of directors member when it invested $32 million to purchase a 28% stake in the company. This, however, led to over a decade of legal battles and disagreements on several key features of the platform, such as monetization of many of the services which the platform offered for free, as well as accusations of intellectual property theft.
Despite these challenges, the company continued to grow. In the years following this, the platform grew to provide services to over 570 cities in 70 countries all around the world. Its websites are now available in over 14 languages, including English, French, German, Dutch, Spanish, Italian, Portuguese, and so on. Eventually, the site bought back its 28% stake from eBay in 2015, ending the conflict and allowing them to focus on its core values instead of profit.
The official site is one of the most visited websites in the world, ranking 26th in the US and 92nd worldwide. The platform boasts over 80 million new ads every month, which collectively pull in an estimated 20-50 billion views per month from over 250 million visits. This has translated to a healthy growth rate and a more than modest revenue of $660 million in 2021, making it one of the most profitable companies in the world.
However, according to the CEO of the company as well as several other trusted sources, the primary aim of the Craigslist platform is not solely to generate profit. This probably explains why most business analysts believe that the platform is underperforming and could be raking in significantly more profit than it currently does.
Who Owns Craigslist
Craigslist is a private for-profit business and is therefore owned by whoever controls the majority of its shares. Currently, the founder Craig Newmark owns the highest amount of stocks in the company (estimated to be about 42% in 2017), while Jim Buckmaster also controls a significant amount of stocks as well.
Craigslist Mission Statement
According to their official website, the company’s mission is about:
- Giving each other a break, getting the word out about the everyday, real-world stuff;
- Restoring the human voice to the Internet in a humane, non-commercial environment;
- Keeping things simple, common-sense, down-to-earth, honest, very real;
- Providing an alternative to impersonal, big-media sites;
- Being inclusive, giving a voice to the disenfranchised, democratizing…;
- Being a collection of communities with a similar spirit, not a single monolithic entity.
How Does Craigslist Work?
Despite its widespread success and longevity in the industry, Craigslist has changed a little from the original business model developed by Buckmaster and Newmark back in the early 2000s. The company operates using a basic peer-to-peer (P2P), agency-to-peer (A2P), or agency-to-agency (A2A) model.
Essentially at its very core, Craigslist is an advertising service that allows users to post ads for a diverse array of items and services, including house listings, online retail, job vacancies, gigs, and even personals. Users are then required to pay a fee, which may range anywhere from $0-75, depending on the particular type of listing, as well as other factors.
The platform then connects both parties by allowing them to communicate and reach an agreement on the terms of the exchange. The site does little to interfere with or facilitate this process, acting merely as a conduit for negotiation, and will only intervene if a complaint is laid by any of the parties involved. The platform also offers a chat forum where users can freely discuss a wide range of topics and issues. This helps create engagement and drives traffic to the platform as well.
One distinct feature of the platform is its staff’s relatively scarce amount of moderation. Right from the beginning, the company has encouraged platform members to act as self-moderators and flag any harmful or offensive content, which will then be promptly removed from the site.
Another interesting feature of the platform is that its services are mainly concentrated around urban areas (or, in some cases, metropolitan areas). Not only does this form of location-based advertising make it easier for those living in or around these regions to navigate the site and connect, but it also helps the company streamline its services since most of the traffic to the platform is concentrated in urban areas.
How Craigslist makes money
Let’s further explore how the Craigslist platform generates revenue.
Advertising Fees
While it’s no secret that Craigslist’s management tries to keep the company as nonprofit and free as possible, certain services on the platform are monetized. For certain listings, platform members are expected to pay an advertising fee which varies depending on the product or service being advertised, as well as its location.
Some of the various fees include:
- Job listings in the U.S., which are charged between $10 and $75;
- Offers for the sale of items or products which cost between $3 to $5;
- Automobile listings are charged $5;
- Freelancing services in the US and Canada are charged anywhere between $3 to $10, and so on.
Rounds of Funding
While this does not form a major part of its revenue, Craigslist did initially receive a round of funding in 2004 where the company received $13.5 million from eBay. This figure is surprisingly low compared to the investments other comparative tech giants received, as well as the company’s sheer size today.
Is Craigslist Profitable?
The answer to this question is yes, the company is quite profitable. Craigslist has grown rapidly since its incorporation as a for-profit company in 1999. In 2021, it posted an annual revenue of $660 million, representing a 17% increase from its income in the previous year. However, there is still significant room for growth, as many business analysts project that many of the services on the platform have not been monetized to their full potential.
Craigslist Business Model Canvas
Let’s explore the Craigslist business model canvas to understand the core prim behind how the company operates.
Craigslist Customer Segments
Craigslist’s customer segments consist of:
- Employers and potential employees;
- People seeking to buy or sell homes;
- People seeking to advertise or purchase a wide range of goods and services;
- Landlords and potential renters.
Craigslist Value Propositions
Craigslist’s value propositions consist of:
- Craigslist offers users a much cheaper alternative to the classified ads traditionally operated by newspapers and other forms of print media, and in many cases, its services are free;
- By leveraging the widespread usage and ubiquity of the Internet, the platform offers a much wider reach than other forms of traditional classified advertisement;
- The platform has changed very little since its original launch and offers a simplified and easy-to-use user interface, making it easy to navigate through the various subsections of the website;
- The platform is self-regulating and allows users to flag illegal, fraudulent, or potentially dangerous listings on the site;
- The geographical location-based advertising system allows users to look for goods and services which are nearby to their location or in a particular area of interest.
Craigslist Channels
Craigslist’s channels consist of:
- Website
- Headquarters
- Customer support services
- Mobile application
- Social media platforms
- Marketing and advertising
Craigslist Customer Relationships
Craigslist’s customer relationships consist of:
- Self-service
- Sense of community
- Social media marketing
- Content marketing
- Dedicated personal assistance
- Customer feedback solicitation
Craigslist Revenue Streams
Craigslist’s revenue streams consist of:
- Revenue from advertising fees
- Paid posts in selected categories
Craigslist Key Resources
Craigslist’s key resources consist of:
- The first-mover advantage gives the company widespread brand recognition and an almost cult-like following;
- The platform enjoys widespread popularity and has a large chunk of the market share, with over 250 million visits per month;
- Craigslist also has a key advantage over competitors in the form of its various location-based sites, which operate in over 570 cities in more than 70 countries all over the world.
Craigslist Key Activities
Craigslist’s key activities consist of:
- Site maintenance
- Customer support services
- Payment processing
Craigslist Key Partners
Craigslist’s key partners consist of:
- eBay
- Advertisers
- Content providers
Craigslist Cost Structure
Craigslist’s cost structure consists of:
- IT maintenance
- Payment Processing
- Overhead costs, e.g., wages, rent, etc.
- Administrative fees
- Research and Development
- Marketing and advertising costs
Craigslist Competitors
Let’s take a look at some of the top competitors of the Craigslist platform.
- eBay classified: Despite being one of the earliest investors in the Craigslist company, eBay was at the same time one of their top competitors. Even though the company invested a significant amount of money into owning a stake in Craigslist, it launched its own classified ads platform, originally known as Kijiji, in 2005.
The platform was rebranded as eBay classifieds in 2010 and allowed users to create classified ads, which can be assessed through the eBay homepage. It has a more advanced search function than Craigslist and also offers greater search visibility by allowing ads to stay live for as long as 30 days.
- Facebook Marketplace and Facebook Buy and Sell Groups: Facebook Marketplace, as well as the Facebook Buy and Sell Groups, are not an ads classified site, yet it is a popular way for people to advertise goods and services amongst friends (and, in some cases, friends of friends). This is one of the key advantages of the platform, as many users are much more comfortable selling or buying goods and services from people with whom they are familiar.
The platform is also quite easy to use as users simply have to post an item on their page, along with some basic details on the item, and then share it amongst their Facebook friends. These friends can then share the post with their own Facebook friends, helping the advertisements reach a much wider audience.
- Apartments.com: This is an online advertising service that lets users advertise rental properties. These properties can be grouped according to location, as well as price. The platform currently lists over 1.1 million apartments, ranging from single properties to multiple apartment buildings.
The platform offers a much more interactive experience than Craigslist, allowing users to take 3-D virtual tours of the properties, as well as access vital information such as the number of schools, hospitals, and recreational centers in the area. They also offer users basic information on trends within the housing market.
- Carvana: Just as Craigslist faces significant competition in the areas of house listing and the sale of goods and services, Carvana is another platform that seeks to carve a piece of its car listing market share. The service deals specifically with used cars and does not offer any new vehicles. This, in turn, aligns with their key value proposition of offering buyers a safer method to purchase second-hand, accident-free vehicles.
They provide a 360-degree view of the vehicle, as well as various technical stats like the make and model, fuel efficiency, price, and other important features. They also support various forms of payment, such as outright cash payments, and loan financing, which can be done through the platform or a third-party lender and trade-ins. The company delivers these vehicles right to your doorstep after making a purchase.
Craigslist SWOT Analysis
Now that we have a more well-rounded understanding of the platform, let’s take a look at a detailed swot analysis of Craigslist business model.
Craigslist Strengths
- Enhanced user experience: It offers members an enhanced user experience by prioritizing this over profit;
- First-mover advantage: This offers the platform a large degree of popularity and creates a strong sense of community among users;
- Exclusive rights: The platform has exclusive rights to its content, preventing competition from other services;
- Simple UI: The platform has a simplified user interface, which has not seen significant changes since its creation. This makes it quite easy for members to navigate and prevents attrition due to user dissatisfaction with changes in the user interface.
- Sheer mass of content: This shit amount and diversity of new listings posted on the platform on a daily basis gives it a significant advantage over its competitors, since the platform has developed repetition as being a place where members can find virtually any item or service.
- Low overhead costs: Officially, Craigslist employs only 50 employees. Combining its relatively small workforce with a large revenue means it can generate significant profits while keeping its overhead costs low.
- Cheap services: The platform operates basically as a female model, with most of its listing services being 100% free to members of this site. Even monetized services, such as house listings, job listings, and car sales, are much cheaper than other alternatives.
Craigslist Weaknesses
- Past controversies: The platform has dealt with a significant amount of controversy in the past, including its past inclusion of erotic and adult services, as well as the significant number of scams and fraudulent activities which are perpetrated through the platform;
- Lack of monetization. Even though the platform is quite profitable, most analysts agree that its failure to monetize a significant number of its services poses a challenge to the site achieving its full potential;
- Refusal to adapt: Though its refusal to change the basic functionality of its websites over the years is seen by some as an advantage, it also means that the platform loses out on many of the modern advancements used by its competitors in terms of user interface and functionality;
- Failure to specialize: While the platform’s versatility is one of its strongest advantages, it is also a significant weakness because it prevents it from offering the best possible services by specializing in a particular sector.
Craigslist Opportunities
- Increased monetization: The platform can significantly increase its revenue by monetizing a wider number of services while still maintaining cheap prices and enough freemium options to keep its loyal user base.
Craigslist Threats
- Increased competition: Craigslist is facing increasing competition from different platforms, especially platforms that offer more restricted — yet dedicated and innovative — services;
- Redundancy: Failure of the platform to adapt to changing times could easily lead to its loss of significance and eventual redundancy.
Conclusion
As things stand currently, Craigslist looks poised to continue its dominance over the classified ads market. Its first-mover advantage, loyal followers, easy user interface, and versatility give it an advantage over its competition. However, with the rise of ever-increasingly sophisticated advertising services, the platform could see itself fall from this pedestal if significant improvements are not added to its current business model.