Case study: Craigslist:

Craig Newmark founded Craigslist in 1995 after being laid off as a computer engineer. He used his severance package to create a mailing list of art and technology events in the San Francisco area, which eventually became craigslist.org (Mac 2017).

At the outset, Newmark's intention was not to make money but rather to give back. In 1998, he monetized Craigslist by charging $25 for job postings in San Francisco to cover website costs (Mac 2017). Fees have since grown to include paid-for postings from professional organizations like car dealers, real estate agencies, and ticket sales offices. Although fees can range between $7 and $75 per posting, the average day-to-day, non-professional user can list an item in the classifieds section for free.

What contributed to Craigslist's success was that in the early stages of the internet it was uncluttered and easy to use. People flocked to the website, and a vast network of buyers and sellers was soon connecting on Craigslist. Markets have a kind of network externality to them. Buyers want to go to markets with the most sellers, which allows them both to find what they want and to get a good price for it. Sellers similarly want to list in places with the most buyers (or to list in as many places as possible), because it allows them to obtain better prices.

Craigslist also has a lean cost structure. It only has 50 employees, doesn't have expensive offices, and has no outside investors, all of which helps keep the overhead low and the profit margin high (Mac 2017). Newmark has stubbornly refused to evolve over time and the website has remained largely unchanged over the span of its existence. Some argue that this simplicity led to Craigslist's longevity and staggering money-making ability. In 2016, it was estimated that the company took in more than $690 million in revenue, most of which is net profit, and Forbes conservatively estimates the company's value at $3 billion (Mac 2017).

Although Newmark's single-mindedness might have worked well for him until now, some competitors have come to the fore to challenge the online incumbent. The online apartment rental market in particular has seen the entry of several firms aiming to improve and streamline the search for apartments online - two of which are RentJungle and RentHop.

The online apartment rental market has been described as fragmented, opaque, and filled with inaccurate information. Craigslist was considered the leader in this space. Despite its low level of innovation and change over the span of its existence, Craigslist was the most highly trafficked classifieds site in the world (Coles, Gans and Yu 2012). Rent Jungle and RentHop hope to provide a customer-friendly alternative to Craigslist.

RentJungle boasts a web "spider" that finds rental information from 12,000 websites. It also provides professional search capabilities that can identify rental listings, distinguish properties for sale from properties for rent, isolate data on price, list number of beds and baths, identify interior and exterior photos, and map the listings, thereby identifying the location of the listing (Coles, Gans and Yu 2012). All these features add value to the customer's experience in their search for an apartment. User experience is also at the center of RentHop's approach. The site offers free listings, mapping tools, full feature search capabilities including sorting functionality according to price, location, and other features, and clear demarcations of listings provided by brokers. These two companies aim to create value for customers and position themselves uniquely within the online apartment rental market.

Question - Investigate the competitive position of the incumbent, Craigslist, in relation to the new entrants in the industry, RentJungle and RentHop:

1. What theory of success did the incumbent employ to gain a competitive advantage?
2. How much threat do the entrants pose to the incumbent? Use your knowledge of conducting an industry analysis in Unit 2 to inform your answer.
3. Do RentJungle and RentHop offer more consumer surplus? To whom and why? Should Craigslist adjust its positioning or price in response? Use the content in this unit to inform your answer. What is the justification?