Iterations: Craigslist’s Network Effects And The Great Platform Challenge

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Editor’s Note: Semil Shah is currently an EIR with Javelin Venture Partners and has been a columnist at TechCrunch since January 2011. He hosts a weekly TCTV show In the Studio and will now begin a weekly Sunday column, Iterations.” Follow him on Twitter @semil.

A few weeks ago, Craigslist penned a “Cease and Desist” letter aimed at Padmapper, the popular apartment listings site, to stop its use of Craigslist data for the third-party service. While Craigslist has behaved this way before, the startup community does not particularly like these types of letters. It was not too long ago that the City of San Francisco sent a “Cease and Desist” letter to a company called, at the time, Ubercab, a letter that again brought startups together in a mutual display of support for new business models in the face of regulations and conveniently-timed rules enforcement. In the case of Craigslist, the power, wealth, and sometimes confusing policies of the small private company exposes the philosophical rifts among many in startup community who believe the global community message board stifles the advancement of products and services like Padmapper and, in the process, doesn’t create the best possible consumer experience.

The main source of ire toward Craigslist stems from the desire of many in the startup community who want Craigslist to behave as a platform, where builders and investors can allocate time and resources to creating new products and services on top of it. These dynamics have been chronicled quite well recently by Liz Gannes of AllthingsD and The New York Times’ Nick Bilton, among others. Platforms provide the opportunity for richer, more complex interactions and transactions, exemplified by companies like Facebook, Twitter, and eBay, among others. Yet, Craigslist remains content to conduct business as usual, which is of course within their right as a private enterprise, an approach which has generated a global network of message boards in over 700 cities and clearing over $100m in annual revenues with a small staff. And, while most people observing the situation from the outside want Craigslist to act more as a platform, it might not be in Craigslist’s best interest to transform in this way.

Yes, Craigslist’s massive network effects and liquid marketplace afford it great power, but becoming a platform in the way the startup community wants is no trivial matter. Today, the company generates revenues by charging for a few actions, such as job and apartment listings. It also has its own terms of service guidelines, licenses its data for use by mobile applications (Craigslist doesn’t really have a good mobile presence), and seems to enforce its rules haphazardly but also defiantly. The exact limits of those rules aren’t clearly known, it turns out, and that lack of clarity, which Craigslist is under no obligation to make clearer, gives them the latitude to shift stances quickly when they don’t like the behavior of another property.

If Craigslist were to become a platform, many would argue it would be a boon for builders and investors, as well as consumers. But, in order to get to that platform-level, Craigslist would have to overhaul its site and systems to build a much deeper, tighter relationship with their users. Craigslist works so well today because its scale provides a highly liquid marketplace, organizing and routing goods and services offered, among other things. While they do ask for an email login, use captchas and email verification loops, and have a flagging system to highlight misbehavior, Craigslist activity can be entirely anonymous, devoid of community ratings for trust indexes, and structuring listings data for future use. Transforming into this type of modern-day platform would require a good deal of time, engineering, and product development, as well a long-term commitment.

It’s easy to see why many want Craigslist to take this platform approach. Underneath this marketplace lies a treasure trove of data and interactions that could be harnessed to build the next great products and services. While it may not be clear what’s in Craigslist’s best interests (they make a lot of money, so why rock the boat?), it’s easy to see how consumers would benefit. Of course, new marketplaces like Airbnb have picked valuable areas on Craigslist’s homepage to reinvent, building new properties with platform-like qualities built in from the beginning. The new generation of sites don’t have to overcome legacy systems and structures, but can be built this way from the start. There’s a rich Quora thread that picks apart companies that are attacking parts of Craigslist, with Josh Hannah of Matrix Partners arguing that Craigslist has been disrupted and others arguing the opposite.

There’s no doubt that while Craigslist is a wildly profitable business today, becoming a true platform would unlock even more economic value. While we may all want that outcome, the realities of transforming into this type of property present thorny challenges and a significant commitment during a time when Craigslist makes healthy revenues and provides so much free utility to people worldwide. Perhaps Craigslist doesn’t want to be in the business of APIs, more complex business models, and the exposure to new risks being a platform would bring with it.

The great irony of Craigslist’s corporate persona and the startup community’s ire toward it  is that Craigslist is already a platform, just not in the way that Silicon Valley envisions one. Craigslist has a global footprint and brand, operates at great scale, and benefits from its massive network effects, producing a product and experience that may not be perfect but is certainly good enough for many millions of people’s needs.

While situations like those facing Padmapper and 3taps does stoke the fires along this philosophical rift, and while new disruptive companies like Airbnb are possible to build, the real challenge presented to the startup community is to figure out a way to reimagine the next generation Craigslist — not through direct attacks on areas on its site, but perhaps through a more indirect approach. Perhaps mobile presents builders and investors with a new opportunity, one beyond uploading pictures for things to sell or rent out. Perhaps established social graphs could provide the basis of a new platform focused around identity, trust, and transactions. No matter what “Cease and Desist” letters come in the future, Craigslist’s massive network effects present the technology community with a great challenge to build the next generation of global message board, to take the dive and become the next big community platform and marketplace.

Photo Credit: Felipe Skroski / Creative Commons Flickr