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.   

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