Insights Into eBay’s Classifieds Strategy via eBay vs. Craigslist

EBay is expected to dramatically boost its efforts in classifieds in 2010, so we welcome clues into its historical and current thinking into classifieds via eBay vs. Craigslist.  EBay has been seeking redress from Craigslist, which has diluted its 28 percent ownership share to 24 percent in a bid to squeeze out its influence. Craigslist, meanwhile, is seeking to force eBay to sell its shares, saying that eBay had an oral commitment to dispose of its shares if it ever chose to directly compete against the company, a la Kijiji.

Highlights: eBay feared Google’s entrance into classifieds via Craigslist, and wanted to buy Craigslist as a pillar for a broad international vertical and classified play.

As noted in AimGroup’s excellent, comprehensive coverage of the trial, pretrial depositions showed that eBay’s initial vision was to merge all its acquired classified titles into a single entity that included Craigslist.  EBay also believed Craigslist wasn’t fully monetized and that it could add immediate value with its expertise in product search, trust and safety and international expansion. Another reason that eBay wanted in with Craigslist was to prevent Google from taking a similar position.

But it quickly became apparent that there was a major culture clash between “Top Down” managed eBay, which sought to maximize profits, and “Bottom Up” managed Craigslist, which was driven by its appeal to its community – a position that it took so seriously that it consciously took out a “.org” URL.

Craigslist also turns out to be very conscious of its public image. Desiring not to look greedy to its users, Craigslist did not publicly reveal that Craig Newmark and Jim Buckmaster received $16 million in “extortion money” from eBay to allow it to receive shareholder rights.

A major issue in the trial is whether there was an agreement that eBay would dispose of its shares if it started to compete against Craigslist, as it did in 2007 when it launched Kijiji, and started buying search ads on Google to divert Craigslist users. While eBay acknowledged that there was some kind of understanding, it was never formally included in a contract. Indeed, Buckmaster testified that he felt  eBay was using sensitive, proprietary information to build its competing brand. He said eBay’s behavior directly led to  Craigslist taking its actions to dilute eBay’s shares.

A decision in the case is expected in early January. The judge in the case has said that both sides will be unhappy with the outcome, and he scolded them for not reaching a settlement.