How Craigslist stays at 1 by not moving on from the year 2000

In the open thread, I made a casual comment that I’ve become a bit more skeptical of market efficiencies lately. Remember, in the perfect market, the profit of the firms should converge upon zero. Is this to anyone’s benefit? Obviously, it is to the benefit of the consumer. But what happens in the long term when firms can’t make any money?

This crossed my mind recently in regards to Craigslist. Craigslist is notoriously no-frills and reflects an aesthetic and functionally stuck in the year 2000. The founder, Craig Newmark, is a pretty weird person. The company has 50 employees and does not maximize profit. But Newmark and Craigslist have had a culturally huge impact. They destroyed the newspaper classifieds.

And yet Craigslist stays stuck in the year 2000. This was obvious to me when they went after Padmapper. Padmapper was clearly a service which added value to Craigslist. And yet today I wonder if this behavior by Craigslist actually allows it to continue providing the services it does.

Imagine that Craigslist opens up its API and all sorts of other web applications develop around it. What I can imagine is that Craigslist would become the locus of massive and highly efficient arbitrages. Consider programs which match buyers and sellers in a way which minimizes the “deals” that sellers can today gain from buyers who are naive. Perhaps instead of two people going into an exchange, an ecosystem of “runners” who would transport products.

My thoughts on this are vague and cloudy, but perhaps reduced efficiency and rationality actually means Craigslist can persist for far longer?

16 thoughts on “How Craigslist stays at 1 by not moving on from the year 2000

  1. I hadn’t heard of any of this until now, but yeah. I think you’re correct. Think about what’s happened to eBay over the years–and that’s on purpose. It hasn’t been taken over by vendors. It’s still for amateurs.

  2. You do know that drudgereport.com is #1 and is who/what got Trump elected…

    Rust Belt/de-farmed/lower-half America got no fancy browser, son. Cheap-laptop screen failed 5 years ago. All is viewed via monitor adjuncted a few years back. XP/Vista works fine. I could go on, but the dogs are whining to be let back in. Then it’s off to The Dollar Store.

  3. Remember, in the perfect market, the profit of the firms should converge upon zero.

    I don’t think it converges to zero in this theoretical market. Rather, it converges to the “natural” rate of profit, which is essentially “the minimum returns necessary to keep a set of producers in the market, with the number of producers depending on economies-of-scale”.

    The exceptions are stuff where the cost of replicating it is basically zero, which unfortunately includes a lot of things like music and video reproduction.

  4. The stylized economic theory is that profit should converge to zero, but we should remember that this “profit” has a very technical meaning here – it is not what we usually call “profit”, but that profit deduced by the “interest” corresponding to the invested capital and the “wage” corresponding to the work of the owner of the bussiness.

  5. Markets are not perfect in real life. For example, Craigslist’s brand recognition acts as a barrier to entry for new firms: you cannot just set up a duplicate Razibslist and start competing on a level playing field.

    As I see it, there are two main problems with the influence free-market economics has. 1 is the insistence on free-market policies even though there is not perfect competition: this will lead to inefficiencies that benefit firms in less than competitive markets. 2 is that instead of trying to make their models approximate the real world, economists prefer to use political influence to make the real world approximate their models, which inevitably it fails to do.

  6. This is pretty basic economics. There are plenty of natural monopoly scenarios (in this case due to network effects) where profits don’t go to zero.

    If the government doesn’t intervene, the expected outcome is eventually new tech can leapfrog the old tech (think smartphones over Microsoft PCs), which cracks the old monopoly and its profits.

    In craigslist case, the market-consumer problem is clearly not that severe. So barring government action, at some point a new network will uptake the role of craigslist and start to displace it. Asia has plenty of examples (also network driven quasi monopolies) where the role of craigslist is filled by other kinds of networks. Won’t happen here for a while. But since craigslist is stagnant, wouldn’t be surprised if it starts to happen in, say, 5 years.

  7. “Remember, in the perfect market, the profit of the firms should converge upon zero. Is this to anyone’s benefit? Obviously, it is to the benefit of the consumer. But what happens in the long term when firms can’t make any money?”

    Brett covered this above, but zero “economic” profits does not equal zero “accounting” profits in this model. An economic profit is a return greater than the generic cost of capital given your risk profile. You still earn money, it’s just that Apple would make the same amount of money that every other firm with the same assets and in the same market would.

  8. What is surprising about CL is that it hasn’t tried to financially capitalize on its popularity, to the extent that it could.

    CL also does not have a function that allows one to search regionally or nationally, which is a gripe I have heard from people into reselling and or looking for uncommon items. Third party websites do offer free regional and national search service for CL. CL -by design- wants to limit itself locally.

  9. What is surprising about CL is that it hasn’t tried to financially capitalize on its popularity, to the extent that it could.

    if they tried that though i think it would hasten their fall from dominance.

  10. Interesting discussion. I used Craigslist a lot back in the day, but for reasons I’m still not clear about, here in Canada it has been almost completely killed by Kijiji. Kijiji is owned and managed by eBay, but there is no integration with eBay functions at least at the user level (accounts are not shared, the websites are totally different).

    Kijiji does basically the same thing as Craigslist but with more frills and more annoyances (e.g. it has a messaging app built-in, but poorer quality photos, more “pro seller”-focused, more spam listings).

    Kijiji advertised a lot here, but otherwise I can’t see why it gained dominance. I get the impression that it is not known or used very widely in the USA.

  11. The more a company approaches 9-10x or greater service to a given market, the more likely they’ll gain dominance over entrenched competition. Craigslist did that to newspapers, but what would it take to do that to Craigslist? “Good enough” + network effects is a powerful combination.

  12. For example, Craigslist’s brand recognition acts as a barrier to entry for new firms: you cannot just set up a duplicate Razibslist and start competing on a level playing field.

    If you are merely duplicating, you are not adding value. Overcoming the barrier to entry requires an improvement of some sort that brings a benefit to the consumer over the existing service.

  13. I think there’s something to the idea that we can increase productivity (economic returns) in a couple of ways namely by inventing or adopting a new better way of doing something or by squeezing optimization out of our current methods. The first is difficult because technology/innovation appears to be heavily path dependent (you can’t have the IT revolution without mass electrification).

    The latter approach is limited too because at some point we’re going to plateau where additional effort toward optimization yields minuscule improvements.

    Greg Cochran gives a great example of this when he talks about the camel example around the ~1 hour mark: https://soundcloud.com/user-519115521/greg-cochran-part-2#t=1h2m30s

    Camels were superior to horses. They could carry a lot more, eat just about anything, can traverse over a variety of terrain. As a result middle eastern people adopted the camel and slowly abandoned the wagon & horse combo. This produced a lack of centralized roads and the roads which remained were very narrow. Now this equilibrium point is deep. It’s a social black hole from which upgrading back to wagons or the vastly superior automobile is relatively harder since a lot of society needs to change accordingly where as the jump from wagon to automobile is a smoother transition.

    You need a driver or “delta” that is sufficiently large to incentivize people to try to go with the new innovative route (creation or adoption) instead of the optimization. Optimization can produce significant social “inertia” where “good enough” is the new normal.

    In this context Craigslist is either just a lazy monopoly benefiting from network effects or they are backing off to try and give people a bigger “delta” to innovate.

  14. I guess I’m not totally clear on what the problem is that CL poses for economic theory. For whatever reason, a Y2K look seems to keep working for CL, so they keep doing it. If it were not working for them, they would either do something different or go out of business. Are you saying theory predicts that they should be forced to do something different to stay in business?

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