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Why isn't my newspaper classified site more like Craigslist?

February 23, 2007

Why is my local newspaper classifieds site so hard to use? Why do they have different searches for different types of classifieds? Why are their multiple logins? Why can’t I set up an RSS feed of the newspaper classifieds search? Why are newspaper classifieds $10s or $100s while Craigslist ads are nearly all free?

The answers I often hear are the cost of acquiring user generated content is very low; the cost of the infrastructure for online classifieds is low; users are attracted to the marketplace with lots of buyers and lots of sellers–‘they [newspapers] just don’t get it.’

Not so fast. Back-of-the envelope estimates show newspaper behavior is coolly rational.

Newspapers have operated with a local monopoly on attention. The "value" of the newspaper to advertisers is audience–circulation and demographics. The traditional way to realize the value of this audience has been through an elaborate revenue-cost relationship between the large costs of news reporting, printing and distribution and the very high-margin businesses of collecting advertiser-generated content for publication.

There are three main sources of newspaper revenue: Classifies (30-40%), Circulation (10-20%) and Advertising the remainder.  For a quick calculation, assume the Classifies are 35% of a given newspaper’s revenues. Expenses are driven by these operations, but also include news reporting, printing and distribution, these two are large fixed costs.  It is clear that traditionally, newspapers have realized huge margins on Classifieds.

Looking at the larger picture, though, its part of an overall system that used to work great.  This is how the newspaper business has worked in the past–advertising paid the bills, reporting and community drew the audience.

Why not free online classifieds? Moving to free classifieds overnight throws things out of balance.  Look for the newspaper industry to try something more incremental.


[Housekeeping: Technorati Profile

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