Craig’s Curse

What makes a good market? Plenty of buyers and sellers certainly. But with competition in the web classifieds space pushing the value of all listings to zero, capturing critical mass through disruptive pricing tactics will no longer work. Market leadership now depends on moving past the ‘newspaper ads on the web’ model to creating true value exchanges.

It took years for newspapers to acknowledge that print classifieds were under attack by the Internet, and it may take even longer for them to realise that their newly launched web operations are also sitting ducks. The problem is in the numbers. Although the vast bulk of classified revenue still exists offline, the overall share of the combined online/offline market captured by newspapers is shrinking and all the growth is on the web. It is easy to see why this is the case. In the old days, a major metro publication had a good chance of aggregating most of the area’s eyeballs, thus making it the logical place to host a market of buyers and sellers for a variety of categories. The explosion of alternative media choices, both in print and online, has meant that at best, classified advertisers will reach some buyers, some of the time.

For markets to work, they need to aggregate close to 100% of the available inventory for sale. For example, if you are looking to buy a house, you would naturally prefer searching the real estate website which has the majority of available properties in your area. The importance of gaining total coverage has led to the rise of players such as Craigslist which offered free listings and meta classified engines such as Simply Hired which aggregate and redistribute listings from multiple sources. The problem is, the more listings become a commodity, the more difficult it is to sustain classified yields on any platform. The McKinsey geeks call it price destruction. Newspapers are calling 911.

Worse still, the price destruction effect will accelerate as the online giants Google, Yahoo and MSN use listings to acquire eyeballs and provide better integration with their web applications. In this vein, no surprise that Yahoo recently announced that Hotjobs will scrape job listings from company websites and display these ads free in its search results. Offering job seekers a consolidated view of the marketplace removes the need to use competitor services, increases the value of premium paid for listings, and also allows Yahoo to make more money on targeted keyword searches on its general index. Google will not be far behind, and may speculate that there will be a clever integration of Adwords with a meta classified job search engine.

For traditional media players to build a sustainable position in the space requires differentiating between classifieds and a true market. Like a ‘horseless carriage’, online classifieds is already an anachronism. The auction space is a good example. You could say that eBay is nothing more than the “General For Sale” and “Automotive” classified categories translated online, but that would be to miss the point. eBay’s competitive advantage doesn’t come from its critical mass of listings, but from its use of community feedback rankings and transaction fulfilment technology to create an efficient online marketplace. It is no longer enough to just introduce buyer with seller – you have to help them consummate the deal.

The same will shortly apply in the recruitment space. When all listings are free, and anyone can use a meta search engine to access 100% of the available job market – consumers will choose the aggregation service that adds value to the search process. When it comes to a job, people aren’t interested in a million jobs, they just want the one right one. And finding that magic job, as the old saying goes, is all about who you know. Viral hiring is already the biggest single source of successful hires in the corporate sector. Charlene Li from Forrester makes the interesting point that sooner or later the portals will integrate their social networking applications with listing results, which should make the candidate matching process more efficient. If you look at the deal between Simply Hired and Linkedin, and the recent acquisition of Workzoo by Jobster – you can see this consolidation trend in action.

Even if newspaper groups successfully transition their classified properties into online exchanges, the game is not yet over. The reason why eBay’s stock is so well down on its previous highs has nothing to do with user disgruntlement over price hikes or rumours of Meg’s hopeful defection to Disney. In the longer term, the real dark horse in the classifieds space is job candidates and retail merchants creating their own virtual markets through the use of structured RSS feeds to advertise availability, and vertical search engines to deliver demand.

If that happens before the media incumbents figure out their counter offensive, you can bet there will be more than a few extra entries in the ‘positions vacant’ supplement.   

Comments

[John Bennewith]

As a headhunter I feel that some of the comments about recruitment slightly misguided. Yes the web is becoming more and more active in how people find jobs and how companies find people, BUT this tends to create a major spam problem for the clients involved, as they then have to perform the sifting of thousands of generally under qualified candidates WHO think they can do the job when they can’t.
I am actually finding more clients are coming to me and my competitors now because they get a personal and professional service and ultimately save them a huge amount of time in the recruitment process. Also most A1 candidates don’t have time to trawl the web for jobs as they are very busy being the best at what they do! This leaves the poor to average candidates to fight it out on how many jobs than can apply for in a scatter gun effect, using the very average job board options.

[Ben Barren]

John - poor candidates are simply poor. And can apply for Centrelink. Others are SimplyHired.com Or in the case of those in the workzoo.com, are looking at developing end-end web based social networking meets applicant referral viral web based systems ala jobster.com, that delivers recruiters the candidates what they want.

Or more to the point, cut out useless recruiters who dont care about the candidates and take 20% of the first year salary for adding no value. The real 'middleman' to be cut here is the recruiter who adds no value.

Stage 1 : 1997-2003: Job Boards - Seek, Monster, Careerbuilder etc
Stage 2 : 2003-5 : Meta-Search and Networking : Linkedin, Jobster, Workzoo, Simplyhired, Indeed
Stage 3 : 2006 : Employers go to direct to end-end online recruitment companies who have the candidates, the networks, opt-in databases, search tools and performance based model for employers (CPC, CPA) No more 20% of first year salary or worse.

Does anyone really think that meta-job search players business model is the Long Tail or Google ? Of course not. Its go direct to employers once they get enough users. Duh. If you dont believe that, you are only kidding yourself, speak to anyone within these companies off the record.

Average CPC in search is $1-2 per click - Lets say $1.50, in recruitment maybe I pay $3 CPC and it then works out at $15 per (converted post click) candidate for a shortlist of 5 candidates ie $75 total cost to employer and I get 5 candidates from a trusted network, who are scored/tested etc - This will be the pitch from 3.0 meta-job end-end players, followed by Yahoo/HotJobs, then copied by the New Microsoft "emulate and extend": Google.

And it is also now an employees market again. The Gravy Days are over again recruiters. So. What does a recruiter do ? Ring up a candidate they placed 18 months ago and convince them to shift, then do the same again each day - rather like an Indian Call Centre (although the Indian call centre staff are usually university educated in the field they work in, which isnt true for recruiting)

Recruiters, "Wake Up". Your days are numbered. You always had the 'employers' commission first and foremost, and now they have or will increasingly have better options. Us candidates hate you, because you do not have our interests at heart.

Recruiters, get a job. Decide what to do with your life. For $5K I can help you with some IQ and psychological profiling tests and will see what your real career path is. I, unlike you, will have your best interests at heart. But I will take your money, not some dodgy hidden 20% commission from the employer, yet smile to a candidates face !
This debate is already raging at http://benbarren.blogspot.com/2005/07/meta-job-search-consolidation.html
jobster.com buy workzoo.com and founder of simplyhired.com comments on my blog wondering if ziggy the cat, the mascot for workzoo.com added an increased stock component to the workzoo acquisition !

[Joel Cheesman]

Nice insight, Mike.

[Konstantin Guericke]

Agree on the trends--listing are becoming commodities and you have to add real value (placement being the easiest).

A key area of value-add lies in giving hiring managers the ability to search for independent references (people who worked with the candidate in the past, but were not offered as references). There is only so much info you can glean from a resume or interview.

Referrals are another key element. There are two aspects to referrals, and both are needed for a complete solution--one, you want to be able to filter incoming applications from people who see a listing through your network, so you don't get overwhelmed by a flood of applications and to bring the right people in for interviews. Second, you want to be able to use your network to proactively ping fellow employees or other trusted contacts to forward the job to people they think are good. This feature is very popular among people who post jobs on LinkedIn Jobs since it builds on typical email behavior of hiring managers, but makes it smoother.

Finally, the third and most important aspect of recruiting (at least for those hard-to-fill positions) is to be able to search for candidates in a large pool of employed, professionals with rich, accurate and current career information. For executives, this info is on the Web and in trade pubs, but you usally only get limited info, and often you are looking for Directors, Senior Managers, etc. who are not findable on the Web or resources that rely on the Web (and trade journals/news feeds).

I do not think that good recruiters who add real value will get squeezed out. Many HR people or hiring managers don't have the time to search for candidates or are not good at performing these searches. Also, there is an important human element in attracting good candidates to come in for an interview and otherwise smoothing the transaction for both sides as things progress.

[Ben Barren]

What I am interested in is how long will it take for meta-job search players to be able to make a play (as they have an extremely small percentage of employment category web traffic) Once they get to get critical mass (and therefore some negotiating power) and pre-emptive moves from yahoo/hotjobs etc have established meta-jobs market in a massified sense, I'm interested to see how this will that affect the offline economics of what recruiters charge ? (esp in certain technology, internet, portal, search, 2.0 areas) I'm also realistic that the finance departments that sign off on new hires accept the ridiculous percentage gained by recruiters for little other than scanning of databases by monkeys, plus a few phonecalls and culling to a shortlist. I also know there are good recruiters : But 20% of 1st year salary when I pay Yahoo $75 for a great shortlist : Big Difference long term.

The web in every category has taught us there are periods of fast transformation (google's search/contextual ad program changed marketing budgets for SME's and shifted them out of Yellowpages and weekend newspapers) but there are also periods of biding time/educating the marketplace etc. Thats why Im happy people like jobster have corporate clients, linkedin has a great database of candidates (but needs something to do once there, esp for more senior people - think platinum credit card or business flying programs here people) and love the simple (yet high user control) of simplyhired.com search (eg meta-search fortune 500/my linked in contacts/specific companies etc) I think some of these 'announcements' are actually foreplay to the one long e-hr org....

[Dean La Velle]

Excellent piece. The key to successful classifieds online is to embrace the "price destruction" Mr. Walsh describes above. The price point for a classified ad online is FREE. And that holds true whether the ad is for a $10 used lawn mower, a $2 million horse farm or (gasp) a job. I know, as we've been offering free classifieds for these types of ads in Central Florida for 7 years... and we're publishing more classifieds to more visitors in more cities each year.

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