Can Craigslist Stay Oddball?

The Web phenom was never into maximizing profits. A scrap with eBay may change things

by Jon Fine

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Craig Newmark: Don't underestimate the anticapitalist capitalist Patrick Fraser/Corbis Online

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For years, I've been amused to watch craigslist—the stupefyingly successful, mostly free online classified ad site—leave many business types red-faced and exasperated. Here is a homely, text-heavy site that's among America's top 10 in monthly page views and time spent on it. Yet to a remarkable degree it staunchly refuses to turn on any moneymaking machinery. It's also very tough to beat, as many newspapers with double-digit revenue declines have discovered, since it's hard to compete with free.

But craigslist has turned out to be very good business. Research company Classified Intelligence expects the site to take in $81 million in revenue this year, up from $55 million last year, from paid real estate and help-wanted listings in a few cities. Craigslist founder Craig Newmark—hewing to his well-honed impish, profit-oblivious persona—declines to confirm those figures and says, "I only have a vague idea" of what revenues are. Mere revenues, though, understate the cultural primacy of craigslist, and the way in which it's propelled the 55-year-old Newmark—a friend of mine—into one of the more unlikely quasi-celebrities of our time. (In the past 12 months alone, Newmark has been interviewed by Charlie Rose, Jon Stewart, and Stephen Colbert, who thanked Newmark "for killing the American newspaper.") Even in his arch and oblique manner, one can detect the mien of an admitted nerd profoundly tickled by a fame that's arrived unexpectedly and late in life. Still, craigslist employs just 25 staffers, profit margins are considered astronomical, and Silicon Alley Insider's Henry Blodget hazards that craigslist could be worth $5 billion. This is a mostly academic figure. Newmark and CEO Jim Buckmaster seem completely uninterested in selling, or doing anything other than what they've done all along, only in more cities, more countries, and more languages.

But minority investor eBay (EBAY) sued them on Apr. 22. EBay owns just under 25% of craigslist—down from 28.4%, according to a court filing that alleges craigslist, among other things, improperly diluted its stake. Craigslist, which is readying its legal response, has mostly restricted comment to two of Buckmaster's blog posts. In one he wrote that eBay had no cause for fear "unless they're planning a hostile takeover of craigslist, or the sale of eBay's stake to an unfriendly party."

But eBay's move into low-cost classifieds via its kijiji.com unit clearly rankled. In July, 2007, the lawsuit says, Buckmaster cited kijiji's U.S. expansion to express "a wish to explore our options for repurchase, or otherwise [find] a new home" for eBay's stake. EBay's then-CEO Meg Whitman responded that eBay would like to buy craigslist when craigslist was ready. Many legalities may now hinge on the minutiae of contractual agreements that remain unclear to outside parties.

Also unclear: whether craigslist's anticapitalist capitalists understand the implications of having a very well-heeled and ticked-off investor, or what buying out eBay could entail. I've long assumed that Buckmaster and Newmark are much smarter about workaday matters than they let on, although I'm told they can still be naive about business. But buying out eBay could very well involve, oh, $1billion, which would force a company that has stressed community over cash reserves into a new world—of taking on substantial debt, dealing with bankers, and adopting the lingua franca of business that it insists is not its native tongue.

You may wonder why eBay invested in a company so patently indifferent to many standard business mores. (EBay also bought another company with a very vague business model—Skype, the free Internet telephone service—in a $2.6 billion deal widely considered to be a big bust.) But eBay was not the only one to mull such a move. "It would be a very unconventional investment," says one media executive who considered it. But "it's a significant phenomenon on the Web. It has value."

Value, of course, that was built in a supremely unbusinesslike manner. The outcome of the eBay/craigslist flap will determine whether those unbusinesslike but extremely profitable ways can continue, or whether real-world pressures will change the complexion of one of the Web's oldest-school players.

Fine is BusinessWeek's MediaCentric columnist and Fine On Media blogger .