Closeup of risk, the board game It’s no secret that newspaper classified ad revenues have fallen dramatically since craigslist became a major player in that market. David Boardman, executive editor for the Seattle Times wrote a column claiming that in 2000 classifieds made up as much as 50% of total ad revenue for the company. This year, that number has fallen to 20%. In the same period, craigslist revenue grew from practically nothing in 2000 to an estimated $80-100 million for 2008. I’m not going to try to prove causality, but bear with me while I try to explain what I think is obvious.

While newspapers were busy squeezing every last penny out of internet page views and paid classified advertising, Craig Newmark was unknowingly creating a classified empire. Craig’s system is far better for people because it is free (for the most part) and doesn’t assault the eyes with mind-numbing banner ads. The layout is clean and adheres strictly to KISS principles.

At this point in the conversation, newspaper buffs seem to take a defensive position. Usually they make some outrageous claim like “How can we compete with craigslist? We’re running a for-profit company here!” First of all, it’s true that craigslist started with a flavor of altruism and was likely losing money at first; but that’s not the case anymore. That argument might have worked in 1999, but its no longer relevant because craigslist does make money and lots of it! Plus, the popularity of craigslist continues to grow while the popularity of newspaper classifieds continues to fall. This is what that argument really says: “We were too shortsighted to see that our classified ad revenue figures were artificially inflated because our system was ultra-vulnerable to competition that didn’t yet exist. We put up far more risk than we could stomach and now its too late to take it back.” Fair enough, not everyone can be a visionary entrepreneur like Newmark.

I don’t see this as a fluke, but as a foreshadowing. Don’t think this can’t happen elsewhere in the industry. Seattle residents found craigslist to be better than the Times’ system. They were willing to go elsewhere for the same service. Does anyone see where this line of reasoning is going? Many newspapers still treat their online readers just like they used to treat their online classified readers and posters back when those readers still existed.

The same forces that pushed classified revenues away from newspapers are still at work today and those forces are able to take from newspapers in new and profound ways. This is the power of competition. The best players have the best chances of winning the game, and everything is at stake now. Imagine what would happen if a great writer and photographer started writing local news on her blog. Then this hypothetical blog is endowed with all the features that newspaper web sites have been wanting to implement for years. This blog will become a real threat to the very heart of the newspaper (the news).

Newspapers need to come to a more full realization of how much of their bread and butter is riding on the line and how risky their current business practices are. They need to step down their risk even if it means taking losses for the sake of building sustainable online presences.