Craig Newmark at January iBreakfast

Alan Brody, founder of iBreakfast, reports on their recent event with Craig Newmark (posted by permission).

A Community of Yankees in the Court of King Craig

Remember the saying, “Freedom of the Press belongs to those who own them?” Well guess what, the people now own them, at least if you think of the Internet as a gigantic digital press, and they’re giving away the ads.

According to a recent report, Craigslist had taken $64 million out of the classified ad sales of 4 San Francisco area newspapers. So it is no understatement to say the January iBreakfast audience of classified advertising executives, realtors, entrepreneurs and investors was interested in what Craiglist’s founder Craig Newmark had to say.

With over 6.5 million unique viewers serving up 1.8 billion monthly pageviews. Craigslist has become America’s great almost-free classified marketplace. When you consider that Time Magazine has a circulation of about 2.5 million – about the same as the top-rated cable news program, The O’Reilly Factor on Fox News or that the NY Times numbers just 1.2 million, his threat becomes palpable. And not just to local newspapers. He might presage the end of capitalism as we know it! Who else would give away millions in ad business just to “serve the community” or refuse Microsoft’s advertising money because he didn’t like banners just? Or that he wouldn’t take Microsoft’s advertising money because he didn’t like banners and he didn’t need the money?

If Fidel Castro got wind of this, he could turn Cuba into a giant server farm and systematically take down capitalism. Luckily, Castro is no Craig. And there’s the rub for all would-be competitors who, according to Newmark, have appeared, only to fade away. Craig is the real deal and his dedication is unstoppable. Craigslist is in fact the definition of a cult brand and for the most part, all those Corporate hired guns haven’t a prayerS?.

How do you compete with an institution that began when Craig, a lonely programmer from Morristown, NJ and self-confessed nerd lacking in social skills who was new to San Francisco, figured he could get invited to parties if he listed them. This was quite common in the early days of the net when people distributed free lists to look cool. The difference was that, as people made requests like, “could this be a website, could we sell things?” as a programmer, he could respond. Since he had a well-paid job in customer support at Charles Schwab, he could incubate this site without giving a hoot about the money.

As with most business legends it took off because it responded to a unique business situation: in this case, apartment shortages in San Francisco brought on ironically, by the growth of dot.com businesses. Eventually, he figured that recruiters and hiring companies, typically small-to-medium sized businesses, could pay the freight, so he introduced a $75 job-listing fee ($25 in NY and Los Angeles) which is still a fraction of the traditional newspaper listing rate. (Apartment brokers are next in line for a modest listing fee.)

Out of this small, paying base, the company is reported to earn between $7-10 million and supports a staff of 18. “We make enough money.” Says Craig. Handling their traffic are 75 Linux-based servers and enough free open source software to put Microsoft on notice.

Craigslist is now in over 75 cities in the US, Canada, Latin America, Europe, Asia and Australia even though it remains English language only. Opening up in new cities is simply a matter of hitting a certain request threshold. No money is spent on marketing. Since all listings are self-service transactions, Craig doesn’t have to do much to get it going. New cities like Dublin might exhibit less than a thousand listings. But New York has a 130,000 on any given day with a strong interest in Real Estate and dating. San Francisco is all about dating and selling stuff. Londoners love their “casual encounters” category and all of them feature uncensored categories that would make your Aunt Hilda blanch.

What transformed Craigslist from an underground hit (how many suits had heard of him just 12 months ago?) into a serious world enterprise was the purchase by eBay of a former Craigslist employee’s 25% share in the company. The sum is undisclosed but it is generally believed to be in the $10 to 20 millions. Craig admits that he may have erred in allowing what was an informal employee ownership arrangement to become the sale of equity to another company. He allows that he ought to have used lawyer when shaping that agreement. But the eternal optimist in him sees this as a happy situation since eBay appears to match his philosophy of operating in what he calls “a climate of trust.” He also looks to eBay to help him weed out fraud.

eBay charges its users and many of them have discovered they can get what eBay offers for nothing Craigslist. In addition, eBay just raised its small business user fees dramatically, so there are enough differences that the public is wondering when eBay might rear its corporate head. Craig pooh-poohs any of this. eBay is no more than a minority owner and they have not reinvested in any way in his company.

The culture of trust that Craig prizes most and which he enforces in his title role as the very humble Customer Service Rep (no Chairman for the Board title for him!) speaks volumes for his commitment to his enterprise. It also describes its soul. Craig is the brand (his friends told him to keep it that way) and the site has no look other than pure functionality. On the West Coast, the community’s tendency to trust is powerful, though it diminishes as the site fans out across the universe.

Craig spends most of his time monitoring the sites, taking messages and putting out fires from scammers, spammers and other abusers. Most of them can be reasoned with, he says, the rest respond to his personal calls to ISPs or visits to One Police Plaza where he is always happy to cooperate within the confines of the law. Generally though, the site has limited liability and is protected by Safe Harbor laws. He laments that he has little control over what he descries as fraud gangs in Roumania and Nigeria.

Unlike eBay, the site has no user rating system but it does have a flagging system where anyone can list an objection to a post and if Craig agrees with the flaggers, down it goes.

If you want to know about Craig’s world view, you have only to turn to Scott Adam’s cartoon character Dilbert whom he considers his patron saint. Accordingly, it is hard not to admire the simple decency of Mr. Newmark and walk away with the feeling that a good guy can succeed on a global scale and with such modest panache. His articulateness, his spare loquaciousness and the audience’s intense but good-natured questioning were signs of the real thing: even a nerd appreciates vindication, even his competitors have admiration.

So how does the paid classified media compete with the likes of Craig? The fact is, the Internet has delivered a number of cult-like brands that defy conventional marketing analysis and have unnerved traditional businesses. And you can’t compete. At least, not directly. They are too pure, too much the archetype, too much like religions that are both unpredictable and unstoppable. They often turn on some personal sacrifice that no paid employee is likely to exhibit and they have a tendency to help the masses at the expense of the vested interests.

They are best understood in terms of early missionaries such as the apocryphal preacher who persuaded a King that he could build him a fabulous new palace but instead, gave away the money to the poor. Surely that is why Amazon undersold bookstores, Yahoo gave away email accounts and other goodies, or JetBlue offered cheap, quality flights or that Craigslist gives away ads. The net result, as the King discovered after he sentenced the missionary, Thomas Judas to death, is that the fabulous castle really was built, but in the afterlife. And that is precisely what happens, at least in the perceptions of the public, the apparent sacrifice results in an extraordinary new brand that cannot be beat.

So if you want to compete in the world of self-sacrificing brands, our advice is to rethink your business and figure out where plainly mercenary enterprises are still welcome. Or find the saint in your organization and start thinking about what to give away in order to get something back.