First off. Lets be clear. We have to kill the phrase 'online classifieds'. At best, it has the weary note of strained metaphors like moving staircases and horseless carriages. At worst, its symptomatic of a dated way of thinking about the world. These days, winning in classifieds really means winning in markets. And that, dear readers, is a much tougher job.
If you wind back the clock, classifieds were a newspaper shaped solution to a market based problem. Whether it was houses or jobs, markets need a critical mass of buyers and sellers to work. For a while, the best way to aggregate those eyeballs was to use the primary media channel in the community - namely the local newspaper. Lineage ads weren't pretty - but as the only game in town - they worked.
WIth the arrival of the Internet, the print ad model was grafted onto the new channel. The online classified giants may have seemed to be leading a revolution, but most of the time they were just republishing old fashioned print ads online, tarted up with extra pictures, bigger distribution and better response tracking. When that happened, the real problem for the print guys was not price pressure but the fact that online publishing simply worked better. Consumers began to discover that calling up about high demand apartments or cars listed in a print publication was pointless. Most of the time, they would have already sold to someone who had seen an online listing days before.
If some classified players were dragging their heels, there were however two categories where radically new approaches had been developed. The first was online auctions. Saying that eBay was a version of 'general for sale' classifieds online would be to understate their achievement. eBay created an entirely new market for both collectibles, and eventually, all kinds of second hand items. The reason that eBay's auction model worked so well compared to traditional classified listings - is that in many cases the intrinsic value of a second hand item is unknown. Auctions not only provide a market for buyers and sellers, they improve the efficiency of those markets by communicating relevant price information. Not to mention the fact that everyone loves the fun of a bidding war.
The other key vertical transformed by the web was personals. The 'Desperately Seeking Susan' columns of newspapers had always been a source of amusement and hope for a small segment of the community. Online dating sites like Match.com however opened up the space to a much broader demographic. WIth online profiles, video chat services, and closed network messaging - they both created a new form of entertainment as well as a lucrative annuity based business model. Rather than advertisers paying for individual listings, online dating sites convinced both buyers and sellers to pay for the privilege of talking to each other.
Not surprisingly, it is now my view that the employment, real estate and car verticals also deserve a major shake up. If you were going to go after the incumbents in these spaces you don't need a bigger marketing budget or better technology - you just need to be able to create more efficient markets for the underlying matching problems that exist between buyers and sellers.
More efficient markets require three magic ingredients - liquidity, trust and completeness.
Liquidity refers to a critical mass of people offering and people looking. The best way to achieve liquidity is to make sure you have aggregated close to 100% of the available market of stuff for sale, and then create the best possible search experience for buyers. This has been the approach of meta job players like Simply Hired or Indeed, who have forsaken advertising revenue and focused instead on aggregating the entire listings market. As a seller of listings, you can also reverse this process and focus on distributing ads as widely as possible. Thats the game plan adopted by high profile startup Edgeio - which is building a distributed network for classified advertisements.
The second critical component is trust. How can you purchase or transact with someone you have never met? Ebay got around this problem by creating an exchange which tracked people's entire transaction history, so that you could not only get a sense of someone's past actions but feel confident that the person on the other side of the deal would behave responsibly rather than jeopardise their future trust credits. Could trust exchanges ever be good enough to support much larger transactions or life decisions? Well - its provided good enough to sell lots of secondhand cars on Ebay. Investment real estate won't be far behind.
That brings us to the final magic ingredient - completeness. Well functioning markets allow you to come very close or entirely complete a market transaction. Generating leads is fine for advertising based models, but is far from ideal when you are trying to get a defined result. The bizarre situation where an employer who posts a job ad on an employment classifieds site and then has to deal with thousands of irrelevant responses is a symptom of a broken system. A good market contains mechanisms to allow you to close the loop on a transaction, and ideally to only pay on success. Charging a fortune to list, and then wiping your hands of the result is an unsustainable business practice. Auction sites make their money by apportioning a small amount of money to the listing, but the majority on a value indexed success fee.
Of course, one great way of rocking the boat if you want to make your competitor's life hell is to change the rules of the game. If you have some good ideas for achieving liquidity, trust and completeness - why not make listings entirely free and make money using a media strategy. This has been Yahoo's approach with their jobs site for the last year or so. Selling advertising is never easy, but when the effective value of online listings start to go to zero, it may be easier than selling classifieds.
So what happens to newspapers? Well, some will undoubtedly get bought by rich billionaires as ego toys to go along with their super yachts and jet planes. Most however will finally accept the fact that traditional transactional lineage is dead, and that the classifieds advertisements that continue to exist in print must do so for a reason. And that reason is branding. Whether it be recruiting agencies making a name for themselves, or luxury properties looking to generate more demand for their auctions - there will always be a role for brand based advertising in general media products.
But that is a both a different market and story altogether.
