18 Jun 2006

The Benevolence of Craigslist

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It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.
–Adam Smith

Brian Carney interviews Craigslist CEO Jim Buckmaster in the Weekend Wall Street Journal, and finds a man operating a sensationally successful business operation based on an atypical, casting one’s bread upon the waters, model of customer service.

I put the question to Mr. Buckmaster: Google has turned unobtrusive text ads into a multibillion-dollar revenue stream. And posting a Google-type ad or two next to its search results wouldn’t cost Craigslist users one thin dime. So why not cash in?

“In the big Internet boom, thousands of companies were set up,” explains Mr. Buckmaster, who also counts himself as CFO and COO of the company. “With the exception of us, pretty much all of them were set up with the primary objective being to make a lot of money.” And yet, he continues, “Almost all of those businesses went under and never made any money. Even businesses like Amazon still haven’t made any money. They are still, over their entire lifetime, net negative. Here we are, we’ve been in the black since 1999 — six or seven years.”…

Mr. Buckmaster figures that Craigslist employs 21 people, and starts to count them on his fingers. It never brought in venture capitalists with their grand designs and exit strategies. “We didn’t want to have those voices at the table,” he says. So Craigslist has remained beholden to no one — except, as Mr. Buckmaster constantly intones, its “users,” who pay nothing for the privilege of posting or searching the millions of pages of apartment listings, moving sales and personal ads that make up the Craigslist ecosystem. “If it’s not something that users are asking for,” he says, “we don’t consider it.” The money that does come in comes from businesses posting in just two categories of classifieds in three cities — job listings in San Francisco, New York and Los Angeles and, this week for the first time, brokered apartment rentals in New York…

We’re much more comfortable charging companies than charging individuals,” Mr. Buckmaster says. “Businesses are better equipped to afford a small fee and businesses can pay for fees out of pre-tax dollars where on average users are less able to pay a fee and they have to pay in post-tax dollars.” Giving users something free and denying money to the government at the same time? This man is no commie. What’s more, he runs a lean outfit. “There are big advantages to focusing exclusively on user wants and needs as we do, and blocking out everything else. That’s one of the ways we keep our staff small and our operations simple.”

As for the banner ads, “It’s not something our users have asked us for,” Mr. Buckmaster deadpans, his 6-foot-8-inch frame slumped in a leather chair in his living room and his eyes fixed on some distant point out the window. It turns out this is something of a mantra for Mr. Buckmaster; what Craigslist’s users want, they tend to get. No more and no less…

When asked whether there’s a Craigslist model that other companies could emulate, the unflappable Mr. Buckmaster, his eyes once more fixed firmly on the horizon out the window, waxes lyrical for a moment: “It’s unrealistic to say, but — imagine our entire U.S. workforce deployed in units of 20. Each unit of 20 is running a business that tens of millions of people are getting enormous amounts of value out of each month. What kind of world would that be?”

Before I have time to object, Mr. Buckmaster comes back to our world. “Now, there’s something wrong in the reasoning there,” he admits. “You can’t run a steel company in the same way that you run an Internet company” — more points for understatement. “But still, it’s a nice kind of fantasy that there are more and more businesses where huge amounts of value can flow to the user for free. I like the idea, just as an end-user, of there being as many businesses like that as possible.” As an end-user, I suppose I do, too.

Buckmaster’s approach to capitalism as an exercise in serendipity clearly works for Craigslist. It could be argued that this sort of business model in which adversarial friction is minimized, and the delivery of value is maximixed, is closer to the original free market ideal than today’s more commonly encountered vastly regimented and hierarchical bean-counting organizations.


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