Internet May 22, 2009, 5:11PM EST

Craigslist Fuels Online Classified-Ad Surge

The growing popularity of Craigslist revives questions about the company's reluctance to charge fees for most of its classified ads

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Use of online classified ads is surging, thanks mainly to Craigslist. Almost half of all adults who use the Internet in the U.S. now rely on classified sites, according to a study released May 22 by the Pew Internet & American Life Project. That number has more than doubled since 2005, when only 22% used online classifieds, and has increased faster than almost every other online activity covered by the researcher, including online banking, travel booking, and shopping on e-commerce sites like Amazon.com (AMZN).

Craigslist gets the vast majority, or 93%, of traffic to classified listings sites, with about 46.5 million visitors in April, according to comScore (SCOR). The next largest competitor, eBay (EBAY)-owned Kijiji, had only 3.9 million visitors that month. San Jose-based eBay owns part of Craigslist. Pew found that 62% of 25-to-44-year-olds have used Craigslist and similar sites, more than any other age group. Internet users with a college education and a household income of at least $50,000 are most likely to use online classified sites.

Fresh evidence of the surging popularity of Craigslist revives questions about the company's reluctance to make money from online ads—say, by charging ordinary users fees for classified ad placement. It also provides context for the friction between minority owner eBay and Craigslist over increasing competition between the two companies and Craigslist's unwillingness to have eBay exert greater board control.

Moving Beyond Metro Areas

More people are using Craigslist in part because the site has stepped up its expansion beyond major metropolitan areas such as San Francisco. While city and suburb dwellers are most common on Craigslist, according to Pew, the site has more than tripled the number of regions it supports since 2005. There are now nearly 350 U.S. cities or regions with their own local listings, up from around 90 four years ago. Residents of Shreveport, La., and Pueblo, Colo., for example, now have their own communities of buyers and sellers on Craigslist. "The growth in usage of online classifieds is largely a channel shift," says Forrester Research (FORR) analyst Sarah Rottman Epps. She says Craigslist has lured consumers away from classified ads in print newspapers, but also from online shopping sites like eBay, which struggles to compete with the no-frills, hometown interaction the classified site enables. That's no coincidence, says Epps: "A lot of the decisions they make seem to be more driven by what's in the interest of consumers, rather than what's in the interest of their business."

No kidding. Compared with the losses in classified ad revenue suffered by the newspaper industry over the past decade, Craigslist's profits are paltry. In 2008, newspapers made just under $10 billion in revenues from classifieds—a sharp drop from the peak of $19.6 billion in 2000. By comparison, Craigslist took in $81 million in revenue last year, according to the estimates of Altamonte Springs (Fla.)-based classifieds consultant AIM Group. "It's not that 10 billion [dollars] have shifted online necessarily," Forrester's Epps says. "It's that value has evaporated overnight."