In the beginning, Craigslist was a casual e-mail sent to friends. Could it end by turning newspaper classifieds to ashes?
By Adam Lashinsky

(FORTUNE Magazine) – ON AN UNCHARACTERISTICALLY sunny November day, in an unfashionable neighborhood of San Francisco, Craig Newmark ambles into his cramped office at Craigslist, the online classified-listings company. The office, in the former bedroom of a rickety old house, feels more like a computer-science lab than an executive suite, and Newmark is right at home. "Good to see you," he says cheerfully before setting down his bag and heading for the bathroom. "I'll be more comfortable," he explains, unnecessarily, "after I've visited the little programmer's room." Craigslist CEO Jim Buckmaster thanks Newmark sarcastically "for unburdening yourself of that." Newmark, in turn, teases his office mate for his "pre-Victorian" prudery.

The potty humor and geeky banter are lighthearted, but Craigslist is serious stuff, particularly for newspaper executives who are seeing a key source of their revenue disappear into cyberspace. If Craigslist were run by executives with even the slightest appetite for wealth, it might be a major financial player in online commerce. But Newmark, 53, founded the site as a hobby ten years ago and is determined to keep it simple. "We're just motivated by the same values we all learn in Sunday school or the equivalent," he says. "The Golden Rule and that it's more important to help people."

Buckmaster, a decade younger and, at six-seven, a foot taller, doesn't have a problem with that. His casual dress and scruffiness give him a bohemian aura. He is, in fact, a devotee of Noam Chomsky, the MIT linguist better known for his anticapitalist rhetoric. "We think of ourselves as a public service," says Buckmaster. Sure, the partners want Craigslist to be successful. But Buckmaster is convincing when he says, "We're not interested in selling our users short in order to try to become insanely wealthy."

Yet despite spurning the incentive of insane wealth, Newmark and Buckmaster have created a phenomenon. The numbers are mind-boggling. Ten million Craigslist users click on an estimated 6.5 million classified postings each month at 190 local sites in 35 countries, generating three billion page views. Craigslist is also mind-bogglingly small. It has just 18 employees and no sales or marketing departments. The site itself is bare bones. From Albany, N.Y., to Zurich, it looks exactly the same--a sea of fine print whose only graphic element is a calendar set to the current month. The listings are all text, divided into a handful of basic categories, such as "jobs" or "for sale." They are not searchable by ZIP code; there are no ads or even boldfacing.

The privately held company makes all its money--2005 revenues are in the neighborhood of $20 million--by charging employers in three cities a fee for listing jobs: $75 in San Francisco, $25 in New York and Los Angeles. Total annual expenses--salaries, rent, and about 100 server computers--cannot possibly run to more than $5 million. All the content comes from the site's devoted users, who provide the listings that are its lifeblood, for free. The company that is indifferent to money, therefore, gushes profits. Still, it is hardly a colossus.

Unless, that is, you are part of the dead-tree crowd. Newspapers earned 36% of their 2004 revenues and a large chunk of their profits from classified ads--and Craigslist is burning up that market. So far, nationwide classified revenues continue to grow. But in cities where Craigslist is well established, the trends are ominous. In San Francisco, for example, Classified Intelligence Report, an industry newsletter, found that the major newspapers lost more than $50 million in classified revenue in 2004 because of the Craigslist effect. With several major papers announcing job cuts, and the stock prices of all the major newspaper groups down at least 10% this year, this old-economy stalwart may be primed for a world of hurt. Buckmaster, whose conversation drips with disdain for the corporate mass media, is unapologetic. "The media conglomerates are still extremely profitable," he argues. "We don't like to see journalists' jobs impacted, but there'll be a need for serious journalism going forward, and we're confident those people will be able to make at least as good a living as they're making now."

Online disruptors like Monster.com and Yahoo's HotJobs divert money from papers into their own pockets; Craigslist sucks money out of the system entirely. "They have become nothing less than a force to be reckoned with," says Tim Fagan, president of Apartments.com, a site owned by six major newspaper companies.

It is a force that acquired its power slowly at first. Newmark got started in 1995 by sending a list via e-mail of arts events in San Francisco to a group of friends. A New Jersey native, Newmark worked in technical positions at IBM for 17 years before being restructured out of a job. He relocated to the Bay Area in 1993 and worked for Schwab for two years. Then he left to do software contract work and tend to his burgeoning list, which he converted into a website in 1996. By 1999, Craigslist was a company, and in 2000 it began branching out to other cities. In late 2004, Craigslist had sites in 65 cities; that figure has tripled during 2005.

Craigslist's quasi-socialist ways keep its costs so low that it's hard for others to compete. In fact, the company practically goes out of its way not to make money. Its criterion for adding new features is whether its users want them, not whether they're profitable. "What people like is what we don't do," explains Buckmaster, citing corporate banner ads, e-mail come-ons, and commercialization of any kind. For his part, Newmark still spends up to 12 hours a day dealing with user issues, particularly online scam attempts.

In a world where even self-described virtuous capitalists like eBay chairman Pierre Omidyar and Google founders Larry Page and Sergey Brin have become multibillionaires, this unwillingness to cash in seems baffling. "Craigslist is sitting on a potential gold mine of revenue, if only it would abandon its communist manifesto," says Eric Baker, co-founder of StubHub.com, an online ticket-sales site. Baker analyzed Craigslist's Internet traffic and transaction volume and conservatively estimates it could have had revenues of $550 million this year.

Craigslist does have plans to collect more money. Buckmaster says it is likely to begin charging for job listings in Boston, Seattle, San Diego, and Washington, D.C., in 2006. And after a year of online debate, it is set to charge New York real estate brokers a modest amount, no more than $10, to list their properties. (Imposing even a nominal listings fee tends to reduce clutter and instill discipline.)

What's next? Because eBay bought a 25% stake in Craigslist in August 2004, it is commonly assumed either that eBay will take it over or that Craigslist will use eBay's money as expansion capital. The former is unlikely; the latter is impossible. The transaction only occurred because Newmark had given a quarter-share to an employee, Phillip Knowlton. (Newmark still owns the lion's share of the company--he won't say just how much--while Buckmaster and other employees own the rest.) When Knowlton decided to sell, most of the bidders, including Yahoo, Google, and a number of venture-capital firms, wanted control. Only eBay was willing to settle for a noncontrolling stake. Today, Omidyar sits on the Craigslist board, Craigslist sends eBay its financial statements, and that's it. "Nobody runs Craigslist but Craig and Jim," says Josh Silverman, the eBay vice president who oversees the Craigslist relationship. As for the money eBay shelled out, that went to Knowlton, not Craigslist.

Even as Craigslist flexes its considerable muscles, the disruptor is facing the challenge of disruption. Newspapers are fighting back with specialized ad options and enhanced services. eBay has started Kijiji, a classified business for non-U.S. markets that can only be described as Craigslist-like. Netscape co-founder Marc Andreessen is behind a company called Ning, whose software includes an application called Anytown Marketplace that can build online classified sites. The biggest threat, as usual, is Google. It has introduced Google Base, where users can upload anything--e.g., "49ers tickets for sale"--into its searchable database. Piper Jaffray analyst Safa Rashtchy calls Google Base "Craigslist on steroids." Google's technological prowess--and money--mean it can add features in weeks that Craigslist has contemplated for years.

If only Newmark and Buckmaster cared. "We don't even really think in terms of competition," says Buckmaster. "Our site usage is growing at, like, 200% per year. If the activities of other companies cause that number to be reduced, I don't think we'll necessarily lose sleep. It's probably inevitable." Buckmaster says he's more focused on a long list of projects, including adding cities, introducing foreign-language support outside the U.S., connecting regional sites and improving search capabilities.

Even if Craigslist gets squashed, newspapers will still be in trouble. Because it is the premise behind Craigslist--free, instant ads--that is the fireball sucking the oxygen out of newspaper revenues. Whether Newmark and Buckmaster acknowledge it or not, their brilliant innovation is illustrating not the Golden Rule taught on Sunday but the one taught in Economics 101--that in capitalism, destruction goes hand in hand with creation.

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