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Craigslist Network Effects

While Craigslist has been around for over a decade, the classified advertisements website has remained mostly unchanged.   By today’s standards, its layout and interface are primitive, yet according to Shah’s article, it is still used by people in over 700 cities and has over $100 million in annual revenue.  Many start-up companies have been trying to create better websites that offer similar services, but many simply can’t compete with Craigslist simply because Craigslist already has such a large user base – network effects are obviously in play.

So, both users and developers of competing websites face a dilemma.  Many users probably want more features on Craigslist, but have nowhere else to turn to that has as comprehensive a listing as Craigslist.  Developers want to create better websites, but they need a large user base to provide good content.  Some have tried to use data from Craigslist, but as the article states, Craigslist is quite against this and has been sending out “Cease and Desist” letters to those startup companies.

The next best solution would be to turn Craigslist into a platform.  Then, people can contribute their own products and services within Craigslist, much like what many app makers have done in Facebook.  However, according to Shah, in order to do this, Craigslist would have to overhaul its site and systems.  Although this might be a setback, it would be of great benefit to the user and developer/startup community.  The only problem is that Craigslist is already making a lot of money, and there is not too much of an incentive for Craigslist to catch up with the times; while there is much to be improved, the website works, and users still it.  Hence, we arrive at the dilemma that the article illustrates.


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