The geeks shall inherit the earth

It’s been called the scourge of newspaper classified advertising. Kryptonite for newspapers. One publisher compares it to “Sherman marching through Georgia.”

“It” is Craigslist, the enormously popular Web site that offers community-specific free classified ads and discussion forums to millions of people in more than 190 cities worldwide, including Sacramento. Since it arrived in the River City five years ago, usage of Craigslist has spread like a California wildfire. In fact, with 70 million page views per month, Sacramento Craigslist ranks 10th in usage out of the 190 cities and grew by 300 percent in the last year, strictly on word of mouth alone.

Headquartered in San Francisco, the stripped-down Web site eschews banner, text and pop-up ads as well as any attempts at self-promotion. Operated by just 18 employees, the company earns an estimated $10 million in annual revenue by collecting below-market rates for employment ads in just three locales: the Bay Area, Los Angeles and New York City. It has steadfastly refused to charge for the vast majority of the classifieds on the Web site, forgoing millions of dollars in income.

At least some of those millions would have gone into the coffers of your friendly neighborhood daily or weekly newspaper. Now, some newspapers, including both SN&R and The Sacramento Bee, are fighting back, offering their own versions of free online classified ads. Meanwhile, the founder of Craigslist is hinting that he may enter the online journalism business. How this all will play out remains unclear, but one thing is certain: The news business is about to get very interesting.

Interests conflicted
It was during its initial expansion phase that Craigslist hired my brother Eric, a self-trained computer programmer, as a systems analyst. He now serves as chief technical officer (CTO). OK, I know what you’re thinking. Jesus Christ. His brother works for Craigslist! No wonder this is such a puff piece! Can you say conflict of interest? But keep reading.

I first became aware of the potential economic threat Craigslist poses to newspapers when Eric e-mailed me earlier this year to inform me that the list was now available in Redding, where our parents live. He said the list had been in Redding barely a week when some folks began grumbling it might put the local daily newspaper, the Record Searchlight, out of business.

“Bury them!” I replied, still smarting because the Record Searchlight never responds to my job applications. But later I had second thoughts. How exactly is egging on the death of a local daily supposed to help me, a print journalist? In that sense, Craigslist is my enemy. Do I have a conflict of interest, or are my interests conflicted? It seems like the latter to me, but you make the call.

At any rate, Craig Newmark consented to an interview on the condition that I dish some childhood dirt on my brother. I’m not ashamed to say I agreed. (I hope he doesn’t give Eric too hard of a time about the nickname I came up with for him when he was a baby.) We arranged to get together to discuss the meteoric rise of Craigslist, the company’s eclectic business philosophy and the future of online journalism.

By the time I meet him in a San Francisco coffee shop, Newmark has already had a busy morning. The founder and namesake of Craigslist has spent the past few hours fighting a handful of unscrupulous New York City apartment brokers, who’ve been scamming thousands of dollars from individual customers by charging finder’s fees for apartments they advertise for free on the Web site.

“I don’t know about you, but that’s a good deal of money to me,” Newmark says.

It’s tempting to not take Newmark seriously. After all, Craigslist has become one of the most successful companies on the Internet. Surely, a couple of grand is chump change to him. But he means it when he says a couple of thousand is still a lot of money—especially when it’s coming out of the pockets of his customers. In fact, Newmark is so concerned with keeping customers satisfied that he stepped down from running the company six years ago to focus on customer service. When users e-mail Craigslist to complain, Craig himself often replies to their queries.

“My title is customer-service representative and founder, and I really do put in a full-time effort in customer service,” he says. An espresso machine hisses from behind the counter as he reaches across the table and hands me his camera phone, which he’s been fiddling with throughout the interview. “That’s Bob the cat,” he says affectionately, referring to the digital photo of a slightly scruffy white cat depicted on the phone’s display. After our interview concludes, he’ll hurry home to feed Bob, a stray that’s been hanging around the coffee shop.

You get the feeling that battling scam artists and ensuring stray cats are fed hold equal importance to Newmark, 52, a self-proclaimed nerd who swears he really did wear pocket protectors in high school. Thickset with a bald pate, spectacles and a neatly trimmed goatee, he exudes sincerity. He appears to be that rarity in business, the nice guy who’s finished first.

This congeniality—call it Craigness—permeates the company he founded in 1995 as a bulletin board for techies. The appearance of the site has changed little since its inception, with rows and columns of blue text on a light gray background, no graphics, no text ads, no banner ads and no pop-up ads. It’s simple and easy to get around on. From the very beginning, users have been given a remarkable say in how the site is run. The noncommercial style has inspired fierce loyalty among users, and Craigslist now receives 3 billion page views per month, ranking it among the top 20 sites on the Internet.

Growth really began to skyrocket in 2000, when Newmark bumped up systems analyst Jim Buckmaster to the CEO position, in charge of running the company’s day-to-day operations. The site began branching out, first to Boston and then to Chicago, Los Angeles and New York.

Sacramento was the 10th city added to the list, in October 2000. Currently, more than 5 million classified ads and 1 million forum posts are received each month. On the Sacramento site, there are 5,236 job listings, 8,032 housing ads, 37,562 merchandise-for-sale posts and 17,729 personal ads. “The growth has been remarkable, given the relatively smaller size of Sacramento compared to the other cities among our top traffic sites,” says Buckmaster.

I ask Newmark if he’s received any negative feedback from the newspaper industry because of all this growth.

“I’ve heard it indirectly,” he says. “I’ve been told that some of their classified-ad directors aren’t entirely happy with us, but you can imagine that.”

Indeed I can.

In 1996, SN&R owner and then-Publisher Jeff vonKaenel wrote a cover story for this newspaper titled “Mainstream Newspapers: RIP.” The article predicted the nationwide demise of local daily-newspaper chains within 10 years. The demise would be hastened, he wrote, by declining readership; high overhead costs; and the move of classified ads, which on average accounted for 40 percent of daily-newspaper revenue, to the Internet.

“There are all kinds of predictions about what the online medium will mean for the future,” he wrote way back then. “But one thing is certain: It’s a medium made for classified listings—i.e., for helping people effectively buy and sell things.”

I was on the SN&R staff at the time. Unable to conceive of a world without daily newspapers, I recall thinking what the hell is he talking about?

Now I know.

Most daily newspapers charge a much higher rate for help-wanted ads than for merchandise ads. For example, the Bee charges $11 per line of copy for employment ads on weekdays and $16 per line on Sunday. For a short, 10-line ad, that adds up fast—$720 per week—which helps explain why help-wanted ads have been a mainstay of daily newspapers’ revenue for decades.

Enter Craigslist. The company funds itself entirely by charging a flat, below-market rate for employment ads: $75 in the Bay Area and $25 in New York City and Los Angeles. The ad can be as long as the customer desires and runs for up to 45 days. This is the economic engine that drives Craigslist, that makes it possible to run the rest of its classified ads in all of its locations, including Sacramento, for free.

“Most newspapers, especially the big chains, view themselves as profit centers, where they want relatively high profit margins,” Newmark says. “We view ourselves as a community service, and we’ve kind of proven it, by running an almost completely free site for over 10 years.”

According to a report by industry consulting firm Classified Intelligence, classified advertising is an enormous market, with newspapers, magazines, PennySavers, Auto Traders and online sites such as eBay and Craigslist raking in a total of $30 billion in the United States alone. With an estimated $10 million in annual revenue, Craigslist has sliced out a relatively razor-thin slice of the pie.

“There’s a range of opportunities for all sorts of advertising,” Newmark insists. “The whole field of advertising is changing dramatically.”

Nevertheless, as the fortunes of newspapers decline, the industry is increasingly pointing the finger at Craigslist as the cause of its woes.

Bad news
There’s no doubt that finances are turning increasingly ugly for many newspapers. In the past month alone, a slew of daily-newspaper organizations have announced major layoffs, including The New York Times Co., The Philadelphia Inquirer and the Philadelphia Daily News. The San Francisco Examiner is but a dim shadow of its former self, and last month the San Francisco Chronicle announced that 200 employees have accepted the newspaper’s offer to buy out their contracts, a move made to address declining revenues, including a $65 million loss last year.

The problems newspapers are experiencing cannot be totally blamed on declines in classified revenue. As vonKaenel pointed out in his 1996 article, for the past 20 years, overall circulation has declined as younger readers have flocked away from daily newspapers in droves. Since the mid-1990s, they’ve been turning toward new sources such as the Internet, where sites like Craigslist provide many of the same services as the dailies. Although there are other factors behind the declining fortunes of newspapers, Craigslist has becoming the whipping boy du jour.

A recent article in SmartMoney magazine titled “Stop the Presses” opened with the provocative lead “If you’re reading this you may already believe newspapers are dead.” It likened Craigslist to kryptonite for newspapers. In an article published in August, alternative-newspaper columnist and cartoonist Ted Rall links Craigslist to the declining page count of the New York Press and the closings of three alternative newsweeklies this year. Posters at this summer’s Association of Alternative Newsweeklies convention in San Diego depicted Craig Newmark’s rounded, goateed visage overlaid with the red circle and slash symbol— “No Craigslist.”

“I’ve been harping on Craigslist’s threat to newspaper classifieds quite a bit recently, and what surprises me is that I still get pushback from some newspaper people that they’re not worried,” writes Steve Outing, a columnist for Poynter Online, the web presence for the Poynter Institute, a respected journalism school. “I’ve met newspaper ad people who haven’t yet spent time looking at the Craigslist site in their market. … You’d better be paying attention, and figuring out how to compete.”

There’s no question that Craigslist has carved into the fortunes of both daily and alternative newspapers. For many alternative weeklies, classifieds have provided crucial cash since the 2001 stock-market crash. It can’t help that Craigslist is now siphoning off customers by offering free classifieds in alternative markets across the country. The Web site may have put an even bigger dent in dailies. The report by Classified Intelligence found that Craigslist may have cost newspapers as much as $65 million in lost revenue last year.

However, John Zappe, an associate editor for Classified Intelligence, thinks it’s absurd to single out Craigslist as the cause of newspaper woes. “Craigslist has become shorthand for the evolution of the marketplace,” he says. He’s kept close tabs on the company during its emergence as a major player and notes that its rise didn’t occur in a vacuum. Other Internet concerns, such as eBay, Monster and Auto Trader, have taken a serious bite out of classified revenues as well.

“Craigslist has caused the classified industry to take a very close look at what it is doing, how it is doing it, and to reconsider its basic business model,” Zappe says. “Why would a client of newspaper X pay $25, $35 or $150 for an ad when they can get it free from Craigslist? The answer is obvious. They wouldn’t.”

Despite the obviousness of the equation—and repeated prodding from various trade and business magazines, such as Poynter Online’s Outing—the newspaper industry has been slow on the uptake. Most major dailies didn’t begin offering some form of free online classifieds until this year, when The Arizona Republic, The San Diego Union Tribune and The Sacramento Bee joined the club. So far, their offerings are but weak imitations of Craigslist.

For example, the Bee provides free ads for certain merchandise under $150 in value but, like all of the dailies listed above, continues to charge premium rates for employment and real-estate ads. A visit to Tribe.net, a Craigslist copycat site funded in part by newspaper chains such as Knight Ridder and The Washington Post Co., vividly illustrates what’s missing from the mainstream approach: The site is riddled with banner ads, and when you click on an item, pop-ups spring forth like Hare Krishnas at the airport.

In a word, Craigslist’s would-be competitors lack Craigness.

“That is a difference people see between Craigslist and virtually every other Internet operator of size, mainly the lack of all the moneymaking opportunities with which most large sites are festooned,” explains Craigslist CEO Buckmaster. “Whereas people notice our site is somehow miraculously free of all those things.”

Adds Zappe, “[Craigslist is] perfectly willing to leave money on the table. They don’t want to extract every last dime.”

Ed Canale, vice president of strategy and new media at the Bee, doesn’t think it’s necessary to replicate the Craigslist model in order to compete. Although McClatchy Co., which owns the Bee, has faired better than other newspaper chains over the past 20 years, he admits that growth in the Bee’s readership has been flat for the past several years.

“We take Craigslist and all of our competitors very seriously,” he says, admitting that the tiny company has “gained some traction” in Sacramento. “I cannot isolate Craigslist as the cause of any specific decline, but I can certainly say the Internet has impacted our print classified advertising. … Our advantage is the combination of print and online. It allows an advertiser to reach audiences across two platforms.”

SN&R’s vonKaenel has been impressed with the exponential growth in ad content Craigslist is achieving in Sacramento. “What they’ve done, what I love about them, is that they aren’t greedy,” he says. “The dailies set it up for them, by charging too much.” He’s concerned that Craigslist may cut into the News & Review’s personal-ad revenue but thinks the weekly, which recently launched its own version of free online classifieds, will weather the Internet storm.

The News & Review’s site is much closer to the Craigslist model. Like Craigslist, the Web site is easy to get around on, with rows and columns of text against a solid background. All of the ads are free, and there are no banners or pop-ups on the site. What’s missing—admittedly it’s early in the new site’s existence—is the sense of community encountered on Craigslist. There are no discussion forums and no personal ads, the latter of which provide some of the most interesting content on Craigslist. It’s a worthy start, but the competition is formidable.

“Do I think it’s going to replace Craigslist?” vonKaenel asks rhetorically. “No.” Still, he’s not too worried. Like Newmark, he thinks there’s enough room for everyone, or at least the News & Review.

“I don’t think Craigslist is plotting out the demise of anyone,” he continues. “They’re hungry and eating grass, and other people don’t have as much grass to eat.” Because the News & Review doesn’t require as much grass to eat as the relatively gargantuan Bee—particularly when it comes to classifieds—he likes his papers’ chances in the evolving market. Pointing out that mainstream newspapers continue to face additional challenges, such as persistent declines in circulation and readership, he doggedly sticks by his prediction that the dailies will be more or less extinct within the next few years.

“I still have some time to be proved right,” he says.

Heavy traffic
Classified-advertising managers across the country may be wringing their hands over Craigslist, but there’s no sign that anyone at the company is returning the favor. When I arrive at the three-story Victorian in the inner Sunset that serves as the company’s headquarters, the atmosphere is decidedly laid-back.

“We just don’t think in terms of competition,” says CEO Buckmaster. “We don’t worry about so-called competitive offerings from wherever they may spring. Classifieds is a huge market, and it’s beneficial to end users to have all the possible outlets that they can.”

With 75 million page views per day, you’d think there’d be dozens of people running around like crazy, but I find my brother the CTO alone on the bottom floor, monitoring the flow of visitors to the site by himself.

When Eric was hired in 2000, Craigslist was run on a single PC clone with a mere 128 megs of RAM—not too much more powerful than the G4 iMac I’m writing this story on. The site received 250,000 page views per day back then. It now runs on 100 servers, each with 50 times the computing power of that original clone, situated in a co-location facility in downtown San Francisco.

A team of 10 techies, including my brother and Buckmaster, manages the Web site. Eric monitors the 100 servers via eight multicolored graphs analogous to electrocardiograms located on his outsized computer screen. The graphs break the numbers down to page views per second—2,600 of ’em, from users in cities ranging from Albany to Zurich, Sacramento to Seoul. On his monitor, this traffic looks like eight separate heart attacks all happening at the same time.

“We’re getting close to the point where we can’t count the number,” he explains. “We’ve outgrown every software package that we can find.”

My brother jokingly begs me to please write something negative to cut down on the number of visitors to the site. But other than a spate of articles claiming that Craigslist is cutting into the revenue of newspapers, inspired by the release of Classified Intelligence’s report last December, there’s surprisingly little negative comment on the company.

“We’ve been very impressed with the firewall between business and editorial at newspapers, generally speaking,” says Buckmaster. “We’ve gotten almost uniformly good press. You would think if there was some idea of Craigslist as an enemy of sorts among the business side, if they had the ability to cause their writers to slant and be unfavorable toward us in the coverage, [they would]. We certainly haven’t seen it.”

Like any company that offers personal ads, there have been occasional problems with prostitutes using the site to ply their wares. Because the site has so many visitors, it’s become a target of e-mail harvesters and scam artists, such as the by-now-familiar Nigerian money-laundering scheme. Craigslist addressed the e-mail harvesting issue by making it possible for users to post anonymously. As for the scam artists, there’s the customer-service department and Newmark.

“It’s a real community, and we need a police force, and we have one,” says Eric. “His name is Craig.”

Since users are given a say in how the Web site is operated, many potential conflicts are avoided. For example, when Craigslist attempted to raise the price for Bay Area employment ads from $45 to $90, a flurry of complaining e-mails caused the company to lower the proposed fee to $75.

“There’s certainly times when we thought we had a clever idea, and we made a change to a chorus of boos and just had to roll it back,” Buckmaster says. “A few years ago, because of harvest and spam operations, we had the bright idea of trying to remove e-mail from our site operation entirely and just have a reply form for every posting. That was our bright idea on how to address it, but people didn’t really like it. They wanted to operate from the comfort and familiarity of their own e-mail account. They wanted to do things like have attachments. Rather than try to quickly address a whole bunch of concerns, we just quickly scrapped it and found another way to protect people’s e-mails.”

For some users, the fact that their fellow Craigslist community members have a say in the site’s content smacks of censorship. “Craigslist has a self-righteous, smug, and virtually communist ethic towards business ads, but if you can place your own ad there and not get booted off, it’s a great place to post so long as you’re in an ‘active’ area,” wrote one user on a media blog.

“We ask what is the right way to do things, what is appropriate, and people have never been shy about telling us,” Newmark says. Many of the categories on the list feature a series of buttons in the upper right-hand corner that permit users to rate individual posts from “best of” to “miscategorized.” The latter rating allows users to “flag” inappropriate posts off the list.

Such a fate recently befell Sacramento’s “Goat Boy” after users became irritated with the bestiality-tinged jokes he frequently posted in the “Missed Connections” category. Exactly how many flags it takes to get bumped from the list is a closely held secret, since users could flag competing merchandise off the site if such knowledge was publicly available. The secrecy inspires the occasional “Craigslist is run by a bunch of jackbooted thugs” e-mail.

On the other hand, one Sacramento woman recently made the “Best of” Craigslist for a top-10 list of her own missed connections, in which she decried the quality of available men in tomato-land. Potential new visitors to Craigslist beware: Goat Boy’s ruminations are far from the most ribald content on the site, and many of the personal-ad categories feature ample warning before entry: “Postings may be explicitly sexual, scatological, offensive, graphic, tasteless, and/or not funny.”

Even when users don’t get their way—as when eBay managed to purchase a 25-percent share of the privately held company last year for an estimated $10 million to $12 million—it’s wound up working to the advantage of Craigslist.

“There were a lot of fears from posters” who were worried that Craigslist had sold out, says Classified Intelligence’s Zappe. “But that hasn’t happened. I think eBay’s interest was to invest in a company that’s pointing toward the future.”

Everything Newmark touches seems to turn to gold. It’s no wonder some newspapers are quaking in their boots.

What’s next?
Newmark has been “paying a lot of attention to journalism in general and the plight of news organizations,” but not because he’s worried about putting them out of business. He still reads the Chronicle every day but also keeps up with current events on Web sites and blogs such as Daily Kos, BuzzMachine and Bayosphere. Like many users of new media, he’s become suspect of mainstream journalism.

“To me, the big issue is loss of trust leading to a loss of circulation,” he says. “There are other [reasons for the loss of circulation] that are less understood. For example, the new Carnegie Report talks about the younger you are, the more you tend to get your news from the Internet. As new technology comes on board, I think newspapers will thrive and survive, but paper delivery will become a bit of a luxury. I love paper, but it’s expensive, and it has ecological implications.”

Newmark made waves earlier this year when he met with the Associated Press to announce his interest in participating in some form of online/community journalism. The concept is still in its early stages—and will be completely separate from Craigslist if it comes to fruition—but he envisions a multitude of citizen journalists covering the events that really matter to their communities. He’s recently made a breakthrough with the project, he says, but isn’t ready to publicly announce it yet. I ask for a hint, and at first he declines to answer.

“Let’s say we need Web-based tools to locate the most trustworthy versions of the really important stories,” he says. “For example, there seems to be corruption in the handing out of Katrina cleanup contracts, and it’s being underreported badly.”

Meanwhile, Buckmaster continues to refine the feel of the site and has been contemplating changing the home page. Since its origin, Craigslist has greeted users with a Bay Area-based home page, since the majority of its users once came from there. Now that it has expanded to offer sites in more than 200 cities worldwide, Bay Area users constitute only 23 percent of the online traffic. Craigslist is literally conquering the world, and a homepage that reflects this global reach is being contemplated.

It’s the kind of problem most companies long to have, and in typical Craigslist fashion, the users will have the last word. That’s Craigness in a nutshell.

I ask Buckmaster and Newmark what accounts for this unique approach to doing business.

“I think the company has attracted people for whom money is not the primary thing,” Buckmaster says. He likens what I call “Craigness” to a new model for philanthropy. “The robber-baron method” was “to ream the general public for every dollar you could squeeze out of them, then give back some percentage of that back in good works,” he says. “Our approach is to leave all that money out there and not collect it in the first place, beyond what we collect. I think what people find striking is that we could be making far, far more money, especially in the short term, than we do. Because our users aren’t asking us to do that, we don’t do that. We are user-driven to an extreme.”

Still, he admits that most businesses don’t enjoy the luxury of being “completely user-driven and still have a very healthy business.” In a certain sense, Craigslist came along in the right place at the right time. Despite the company’s progressive approach, he downplays the label.

“We don’t feel like we’re being martyrs or altruists,” he says. “At a certain point, we do very well for ourselves. It’s not like we’re wearing hair shirts and living in cardboard boxes.”

When I ask Newmark if there’s anything in his background that accounts for Craigness, he gives me a bemused look, as if there’s nothing at all unusual about it.

“It’s how we’re all brought up,” he says. “The spiritual values of any religion say that helping people comes first.” Though he wasn’t raised in a religious family, he adds, “You still hear that. A lot of people profess these values, but some of them don’t follow through. Power attracts people who don’t practice what they preach.”

And then the interview is over, and he’s off to feed Bob the cat.