How 20-employee-strong Craigslist scared eBay into Yahoo

Google is getting much of the credit for the Yahoo-eBay deal, but I think Craigslist played a role. Craigslist has been eating up a large chunk of the person-to-person ecommerce pie. If not for Craig Newmark and Jim Buckmaster’s steadfast determination to stay independent, Craigslist would be an eBay subsidiary. For now, eBay has to settle for a 25% stake and (presumably) no final say over pricing.

Thanks to money-making pressures, eBay is forced to structurally slow the flow of commerce, whereas Craigslist is designed without wind resistance. Craigslist permits buyers and sellers to freely communicate. In order to maintain profits, eBay must collect commissions on auctions. To do so, messaging is kept on eBay’s website. In contrast, all emails can happen off Craigslist. Frictionless commerce ultimately wins because it is the easiest customer experience. Craig Newmark’s altruistic culture enables Craigslist to do what eBay cannot without upsetting Wall Street. 

But it does not come without cost. Fraud is easier to perpetrate on Craigslist because anyone can post and there is no feedback system.

 

Trending down the bay. Craigslist rolls along.

Craigslist is gaining on eBay, and eBay’s air balloon is hovering. Google Trends data shows strong growth for eBay queries the last few years, but stagnation in 2006. Meanwhile, Craigslist grows steadily.

A Craigslist Store product would stand to bring a world of hurt upon eBay. A Craigslist feedback system would attract eBay Store operators. In order to avoid disrupting Craigslist’s browse-ability by permitting bulk-uploading by Store operators, the Store product would be separate from normal listings. Store listings would be incorporated into regular search results, translating Craigslist’s huge reach into customers for stores.

Storeowners on eBay are done a disservice because they systemically are shielded from negative feedback, leading to underwhelming customer experiences and complacency. I know someone who has had this experience several times. Without going into detail, he had a poor customer experience with a power-seller. However, his motivation to leave negative feedback as a good neighbor was overwhelmed by the risk that the seller would likely in retaliation post even worse feedback in order to undermine his credibility. Because he rarely uses eBay and thus has not amassed a high quantity of positive feedback ratings, he is easily subjected to bullying by power-sellers. As a result, no negative feedback was recorded, and the power-sellers miss an opportunity to receive an honest report about their services. Lack of transparency in customer opinion means power-sellers operate sub-optimally.

 

craigslist ebay   

Steady as she goes. Craigslist continues a steady climb.

Of course, most power-sellers achieved high feedback for good reason, but even they could derive some benefit from an improved system. A power-seller does not even need to be an overt bully in order to scare a buyer into not receiving feedback. One negative past experience can be enough to freeze a buyer.

A Craigslist Store feedback system would do away with the risk of bullying, enhance feedback between parties and lead to better service at a lower cost of business compared to eBay. Craigslist Store operators would be required to accept feedback from anonymous buyers. The feedback would include an anonymous version of the buyers’ email addresses so they could be contacted for follow-up. The buyer then has an opportunity to be honest. Some eBay Store operators may not like seeing more honest feedback, but ultimately it is in their best interests because a Store is more credible when some weakness is acknowledged. Psychology research shows it is more persuasive to acknowledge challenges than to ignore them. Remember, a Craigslist Store would cost significantly less than eBay and reduce transaction friction, freeing the Stores to serve customers more completely.

PayPal really needs Yahoo to expand its usage across payments outside the eBay network. Google Payments risks gaining share in the outside-eBay space if PayPal does not act quickly. GPayments position squarely at the heart of the Google Economy makes PayPal’s position seem tenuous. On the bright side, Yahoo still has significant search share, so the Yahoo Economy will have to do as a counterweight. 

For now the Yahoo-eBay deal bandages the Craigslist-effect and structural challenges, but it could turn out to be a beautiful combination. Absent a strong push from a Craigslist-type competitor, eBay could maintain person-to-person ecommerce dominance, and Yahoo could serve to cement that. On the downside, if Craigslist decides to aim for eBay’s jugular, it could heighten competitive pressure on eBay.