When you mention classifieds to any American, the first thing that comes to their mind is Craigslist. Craigslist took off amidst the dot com bubble. What started in 1995 as an email distribution site, it has come a long way since then. Moreover, the Craigslist business model grew into a lucrative website that now handles around 50 billion views each day. So, you can literally say that most Americans resort to Craigslist when they need to buy or sell anything.
During the dot com bubble, Craigslist started off as a not-for-profit organization. However, when founders saw the scope of their business entity, they moved to a for profit model in 1999. In its initial days, Craigslist depended on word of mouth marketing. During the early years, digital marketing was not as strong as it is today.
Nowadays, Craigslist is synonymous to online classifieds. Furthermore, Craigslist paved way for different online classifieds around the world. Craigslist is very popular in the States and has no competition over there.
To learn how Craigslist makes money, we need to understand the entire business model of the classifieds company.
What is Craigslist in a nutshell?
Craigslist is an online classified website that is region-specific. Moreover, the website has separate web pages assigned for different categories of classifieds such as jobs, services, housing, gigs, buying and selling, forums and many more.
Most of the advertisements that are put on Craigslist are free. Users can go on Craigslist and put up an ad in the respective category that adheres to the needs of their classified. However, depending on the region and the type of classified, you might need to pay to put an advertisement.
How Does the Craigslist Business Model Work?
Being the pioneers in the field of online classifieds, Craigslist works by listing different advertisements in their respective categories. Advertisements are categorized to avoid any confusion and to make sure the viewer can easily navigate all the relevant listings in one place. Also, the advertisements are listed according to their region.
Online classifieds have transformed over the ages. Classifieds can still be found in newspapers. However, there are more reasons now to switch to online classifieds instead of the ones included in newspapers. Advertisements that are uploaded on Craigslist have a longer life when compared to the classifieds in a newspaper. Most important of all, advertisements uploaded on Craigslist are usually free of cost. The little to no cost involved in uploading a classified is the biggest reason why Craigslist was so quickly adopted back in the days.
The best part about Craigslist classifieds is that they are available online for a longer duration. Moreover, they can easily be searched through Google or their own built-in search engine. The region specific classifieds make it easier for the user. They no longer need to sort listings to find the ones that are in their region.
Lastly, the ads that you put on Craigslist can be easily modified. Unlike the ones that are put in newspapers, you can easily navigate to your listing and make the necessary changes.
How Does The Craigslist Business Model Make Money?
A question that bothers many users is that how does Craigslist make any money when they do not charge money for any classifieds? This question will be shortly answered as we probe deeper in their business model in the next few paragraphs.
The reason why Craigslist has been able to stay afloat over the years is because they have a solid revenue model. Their revenue model has helped them to grow as a unit and this is the reason why they have been able to sustain themselves over the years.
The idea to stop spam and the introduction of paid advertisements
A certain business practice was included by Craigslist in their business model to avoid spam listings. This inclusion was not part of the proposed revenue model in the initial days. However, the successful run of this strategy meant that it was quickly incorporated in the revenue model.
Craigslist started to charge fees for putting up ads in competitive categories. Categories such as jobs used to see a lot of spam listings added to them. To fight the spam, they started charging money to put listings in some categories. This fee varied from region to region. Moreover, this fee was only applicable to categories that saw thousands of listings added to them daily.
For example, customers were expected to pay $25 for putting job listings in San Francisco. Not only this helped combat spam, but it also helped to pay for the running cost of the website. This particular step proved to be lucrative for the founders and they introduced this scheme in other popular categories too.
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You can refer to the image below to see the cost involved for putting up certain advertisements in different categories. Moreover, there is a repost cost involved in Craigslist as well. This repost cost is only included in the categories that require you to pay for a classified. Lastly, the reposting cost is lower than the posting cost.
What is the net worth of Craigslist Business Model?
Craigslist is a private entity which has never relied on any investor to raise money for their corporation. Hence, we only have an estimated net worth of this online classifieds website. Craigslist had about $700 million worth of revenue with a profit margin of 80% in year 2016. Keeping the statistics of the year 2016 in mind, the estimate net worth of Craigslist is about $3 billion.
It currently sits as the most successful and profitable online classifieds website. The reason for its success is the employment of the ‘network first, profit later’ strategy. The website was completely free for users in its early years. They only added a paid advertisement option when Craigslist got popular among the consumers.
Craigslist business model enjoys distinction as the pioneer online classifieds website. The region-specific listings with different categories for various classifieds helped to gain much needed approval from its consumers. After allowing the consumers to use their product for free, they introduced paid advertisements in popular listings. These paid advertisements are their biggest source of revenue.