Craigslist’s Latest Moves Show It Cares More About Its Market Position Than Delivering Value to Its Users (Forbes Cross-Post)

By Eric Goldman

Craigslist is resorting to increasingly desperate measures to control its users’ classified ad listings. Last month, Craigslist sued 3Taps and Padmapper for scraping and repackaging its classified ads.   Since then, it has extracted greater IP rights from its advertisers and reportedly may de-index the listings from Google.

Why is Craigslist making these moves?  Because third parties are threatening to interpose themselves between Craigslist and its users–in effect, to disintermediate Craigslist.  If a third party can interpose itself between an intermediary and its users, the new intermediary can draw the users away from the incumbent, thereby undermining or even eliminating the incumbent’s franchise.  Not surprisingly, the incumbent will try anything–even desperate anti-user measures–to negate this threat.

The archetypal example of an online intermediary striking back against distintermediation came, ironically, from Craigslist’s arch-enemy eBay ($eBay).  About a dozen years ago, a start-up, Bidder’s Edge, sought to create a super-set of auction listings from multiple Internet auction sites.  At the time, there were serious rivals to eBay, including Yahoo Auctions and Amazon Auctions, but eBay still had the bulk of online auction listings.

From eBay’s perspective, having its listings in Bidder’s Edge database threatened eBay’s franchise.  While Bidder’s Edge might have brought some new buyers to eBay’s auctions, one of eBay’s competitive advantages was that it already had the largest pool of prospective buyers.  From a prospective buyer’s standpoint, it would be more advantageous to browse the super-set of all listings on the Internet than to browse only eBay’s listings; more auction vendors means more choices and more competition for the buyer.  If Bidder’s Edge interposed itself between eBay and its buyers, sellers could go to the other auction sites (Yahoo or Amazon) and get exposed to the same pool of buyers that they could have gotten on eBay.  In effect, then, by siphoning off eBay’s buyers, Bidder’s Edge would allow eBay’s competitors to siphon off eBay’s sellers too.

We know how the story turned out.  eBay technologically blocked Bidder’s Edge from scraping its website for auction listings.  When Bidder’s Edge routed around eBay’s blocks, eBay sued Bidder’s Edge and won a landmark injunction based on the ancient legal doctrine of trespass to chattels.  Bidder’s Edge kept going for a while by aggregating the auction listings from other auction sites, but without eBay’s listings, Bidder’s Edge’s offering wasn’t very compelling to buyers, and it faded away.  Meanwhile, without the exposure to eBay’s buyers that Bidder’s Edge would have provided, the other auction sites also eventually faded away.  eBay effectively rolled up the online auction industry, creating billions of dollars of wealth for its stockholders.

Craigslist is fighting the same fight against online aggregators that eBay fought–and won–a dozen years ago, for exactly the same reasons.  If Craigslist succeeds with its lawsuit, we can expect that Craigslist will retain its market leader position for at least a little while longer.  But if Craigslist can’t control its listings, they can help seed a competitive aggregator’s database.  This, in turn, would give a big boost to existing and new competitors to Craigslist.

This situation is forcing Craigslist to assert more control over its users’ advertisements.  But this devolves into a zero-sum game between Craigslist and its advertisers, i.e., Craigslist improves its competitive position only by delivering less value to users.  For example, taking exclusive copyright licenses to advertisements would prevent Craigslist advertisers from pursuing other advertising venues that could help them reach more potential buyers.  (If Craigslist is asking for less copyrights than that, its move is legally ineffectual).  Similarly, de-indexing from Google would severely cut off advertisers’ exposure to potential buyers.  Less potential buyers = less money for advertisers = less reason to use Craigslist.

This could start a downward spiral for Craigslist.  Either Craigslist lets third party competitors aggregate its users’ advertising into their databases, or Craigslist reduces the value of its services to advertisers and drives them to competitors.  Thus, even though it might look like Craigslist is making bizarre moves, I think its moves are quite rational.  They’re exactly the kind of moves you’d expect from a panicked company realizing its uncomfortably precarious marketplace position.