This is not another story about the newspaper industry's Internet-induced march to the tar pits. Then again, it's not a contrarian "everything's OK after all" article.
That's because one of the most important trends of the digital age--the shift of classified advertising from newsprint to the Web--isn't a cut-and-dried failure or success story for the newspaper industry.
Newspaper-owned Web sites--Cars.com, CareerBuilder.com and others--actually crowd the top ranks of classified-ad businesses on the Internet. Many have succeeded through a business-to-consumer strategy, focusing on the car dealers, employers and property managers who long have made the classified business lucrative.
But the Internet, the hot spot for ad growth, is a lot more competitive than traditional print classifieds, the newspaper industry's cozy but increasingly archaic niche. Indeed, it is not a given that newspapers are going to survive the digital era.
Craigslist, a quirky San Francisco-based site, doesn't charge for most advertisements and has been hugely successful. And the "free" model made popular by Craigslist is growing.
Internet superheavyweights Google Inc. and Microsoft Corp. are launching efforts that could lead to an avalanche of free listings. Google recently started testing Google Base, which includes classifieds, while Microsoft's Fremont service reportedly is due out soon.
These type of ventures "are ultimately all targeted at the audience and revenue associated with print classifieds," said Rich Gordon, director of the new media program at Northwestern University's Medill School of Journalism. "It's going to put more pressure on newspapers."
Newspapers have been in the news a lot lately, starring in tales of layoffs and cost cutting. Chicago-based Tribune Co., the Chicago Tribune's owner, has been no exception, eliminating 900 jobs this year, primarily in its publishing arm.
Publicly traded newspaper chains continue to make profits that many businesses would envy. The problem is sustaining those profits while the Internet savages the traditional newspaper business model.
Classified ads long have been critical to newspapers' health. Print classifieds make up about 35 percent of the newspaper industry's ad revenue, as they have for some time.
Print classifieds held up well in 2005. Year-over-year revenue rose by 5 percent during the past two quarters, a balm for weakness permeating other newspaper ad markets.
Print ads still bring in the most revenue for newspapers; online makes up only 3 percent to 5 percent. But that will change over the next few years as online advertising grows at a double-digit clip.
Overall, online newspaper advertising is expected to soar 29.5 percent this year, and about half of that will come from classified ads, according to the Newspaper Association of America.
The Internet ended the days when newspapers had a de facto monopoly on most classified advertising. It's a woolly new frontier, where Craigslist, a site that wasn't even founded as a business, has helped remake the classifieds landscape.
Craigslist started 10 years ago in San Francisco when Craig Newmark, a computer programmer, began sending an e-mail list to friends, informing them of coming Bay Area events. The list grew, with subscribers trading apartment and job listings. Craigslist.org was thus created to display the posts.
Nowadays, it covers the nation and a few dozen countries and includes scores of forums where people can vent about various topics. In short, Newmark created an online community, not just a business, and a popular one at that.
In November, Craigslist had 8.1 million unique visitors, up 154 percent from the same month last year, according to ComScore Media Metrix.
It was the most visited classified site, with Trader Publishing Co.'s family of sites, including the popular AutoTrader.com, placing second, with 6.1 million unique visitors. Trader was first a year ago.
Trader is owned by newspaper publishers Cox Enterprises Inc., which owns the Atlanta Journal-Constitution, and Landmark Communications Inc., owner of the Virginian-Pilot of Norfolk. In September, Landmark announced plans to sell its stake in Trader, a move some analysts say may be a reaction to growing competition in classified.
Until the past couple of years, newspapers didn't really see Craigslist as competition, said Northwestern's Gordon. "There didn't seem to be a business model associated with it," he said.
Indeed, while Craigslist is a business, it's not run like a business, with the company's leaders referring to it as a sort of public service.
"They operate Craigslist very much like a non-profit," said Peter Zollman, head of Classified Intelligence, a Florida-based consulting firm. "Craigslist isn't about the money."
That doesn't mean the company, which doesn't disclose sales, doesn't make money.
Craigslist charges employers for job listings in three cities: San Francisco ($75) and New York and Los Angeles ($25 in each). It's likely to start charging for help-wanted ads in several other cities next year.
Several analysts say Craiglist has taken business from newspapers, though it's not clear how much. Nevertheless, the site clearly has posed a vexing question to newspapers. As Zollman put it, "What do we do in a world of free?"
Focus on businesses
The answer for newspapers lies partly in ensuring that they retain their hold on ads placed by such businesses as car dealers, property managers and real estate firms, the bread and butter of the classified world.
"If you look at Craigslist, it is more of a consumer-to-consumer site as opposed to business to consumer," said Dan Jauernig, head of Classified Ventures, a Chicago-based consortium of six big newspaper companies. (Tribune Co., Knight Ridder Inc. and Gannett Co. together own about two-thirds of it).
The vast majority of Classified Ventures' revenue comes from business-to-consumer classified ads, Jauernig said. And they raise more revenue. For instance, consumers pay $25 to $55, depending on frills, to place an ad for a used car on Cars.com, Classified Ventures most visited site.
But dealers pay $1,200 per month to put their entire vehicle inventory on Cars.com for a month, the most basic package. More advanced dealer packages cost $2,000 to $3,000 and include multiple pictures for each car listed and "leads" from customers visiting Cars.com
A lead in this case is information about customers who have visited Cars.com and inquired about new vehicles. Dealers can use that information for further marketing.
Classified Ventures' other sites include Apartments.com and Homescape, which ranked fourth and sixth, respectively, in September for unique classified visitors, according to ComScore Media Metrix. Cars.com was third.
Classified Ventures, launched in 1997, doesn't disclose its revenue, but Jauernig said it has been profitable since 2001.
The company, which employs about 450 in Chicago, relies partly on its 170 affiliated newspapers to sell ads for its Web sites. It also deploys its own sales force to cities not covered through its newspaper partners.
The Classified Ventures model is based on the idea that businesses, particularly larger ones, are more willing to pay for ads that involve service.
For instance, putting a dealer's entire used-car inventory online, including pictures, and keeping it current is considerably more difficult than pasting up one ad for an individual's car on Craigslist, Jauernig said. So, Cars.com provides such a service to car dealers.
Help-wanted advertising is by nature more oriented towards businesses: Employers pay to recruit workers. So, while the free-ad model exists in help wanted--Craigslist had over 8,000 job listings in Chicago on Thursday--it's not as prevalent.
The two leaders in online career ads, Monster.com and Chicago-based CareerBuilder.com, both charge employers, as does another big player, Yahoo HotJobs.
CareerBuilder, which employs about 1,000 in Chicago, is a joint venture of Tribune Co., Knight Ridder and Gannett. It has its own sales force that calls on large employers nationwide, as well as on smaller businesses in cities where its partners don't own newspapers. CareerBuilder also relies on its member papers to sell ads to smaller to midsize businesses on their home turf.
The newspaper companies bought the site in 2000 as they watched Monster.com cut into their help-wanted business. Five years later, CareerBuilder has become the top job-search site by some measures. For the majority of this year it has outpaced Monster.com for unique visitors, according to ComScore Media Metrix.
CareerBuilder "has been highly successful," said Matthew Litfin, a stock analyst at William Blair & Co. in Chicago. "It has staved off what otherwise would've become a more significant decline [for newspapers]."
CareerBuilder trails Monster in revenues, with Litfin estimating $490 million this year for CareerBuilder and $630 million--in the U.S. only--for Monster.
CareerBuilder doesn't break out profit data, but Litfin said, "We understand their margins are quite healthy." If they are anywhere near Monster's 33 percent operating margins, they're quite high.
Like Classified Ventures, CareerBuilder is distributed through other Web sites not owned by papers. For instance, CareerBuilder operates the online job listings at Microsoft's MSN site, and pays Microsoft for traffic that comes its way.
`Friend or foe'
Recently, CareerBuilder found a new and, so far, free distribution channel: Google Base.
Job hunters using Google Base will find scores of listings from CareerBuilder. Classified Ventures plans to do the same, though its Jauernig said it's not clear whether Google Base will be "friend or foe" in the long run.
Analysts think Google Base eventually will be a competitor, offering up its own free ads like Craiglist. After all, Google can subsidize free classifieds through the huge revenue it culls from search advertising.
Still, whatever Google or other Internet competitors do, analysts say newspapers will remain in the fray as long as they offer services beyond simply placing an ad.
For instance, CareerBuilder has software that allows employers to sift and rank the dozens of resumes they may get from an ad.
Meanwhile, online classified sites, including those from newspapers, increasingly will have to show paying customers that their ads are working, that people are clicking on them.
"Pay for performance in one way or another" will dominate paid classifieds in the future, said Zollman. "The business models where newspapers just get paid for running an ad will be significantly lessened."
