Classified ads, or Classifieds, have been around for as long as newspapers. It is an advertising medium that everyone is familiar with and continues to persist even today. In the US, classifieds first moved online starting in the mid-1990s with the development of Craigslist and eBay. While Craigslist focused on a variety of different listing types, eBay initially grew as an auctions website. Since then, many vertical classifieds have popped up such as Zillow in real estate, LinkedIn in jobs, and AutoTrader in vehicles. While the history of classifieds in the US is fascinating, the evolution of classifieds internationally is even more interesting. I recently had a lively debate with my friend Dino Becirovic at Kleiner Perkins about the category in general which inspired this post, and Goldman Sachs also put out a comprehensive report on the topic which I will borrow heavily from.
The Global Classifieds Market Is Massive (and Lucrative)
First and foremost, the global online classifieds market is enormous with estimates as high as $47B globally by 2020 (does not include offline). There are two types of online classifieds businesses - horizontal and vertical. Horizontal platforms have no particular specialization and may include a variety of services such as jobs, real estate, autos, and so forth. Craigslist is a horizontal classifieds platform. Vertical platforms focus specifically on a single category. Zillow is an example of a vertical classifieds platform. Horizontal platforms also tend to prioritize traffic over immediate revenue generation, but there are many ways to monetize these different platforms as you can see in the image below.
Markets Dynamics Vary Dramatically Across Geographies
Per the below chart, the market dynamics in various countries differ quite a bit. Also worth noting is how important vehicles, real estate and jobs are relative to other categories. The countries in the top bucket have a greater preponderance of horizontal or "general classifieds", while the countries in the bottom bucket have weaker general classifieds. Some countries have both strong general classified platforms as well as strong vertical platforms, while others such as Norway are dominated by general classifieds and have very weak vertical platforms. For the countries with weaker general classifieds, there tend to be strong vertical platforms that fill the void.
Consolidation Is The Name Of The Game
Market size and profitability for companies are maximized when strong vertical players face little to no horizontal competition (UK, Australia) or when a horizontal player dominates across the board (Norway). Either way, consolidation yields monopolistic businesses that allow companies to enjoy substantial pricing power. Examples of how this can play out:
Poland - Naspers had been a dominant player since its purchase of Allegro Group in 2008, but then they launched OLX in 2011 and shut down Allegro, siphoning all traffic to one site. OLX took off as the solid market leader and they were able to increase pricing by 5x in several categories.
Russia - Avito was acquired by Naspers in early 2013 and revenue grew nearly five-fold and EBITDA margin surpassed 50% in the two years following.
And here are how other countries fare in terms of how established or fragmented they are:
Just A Few Companies Are Winning The Global War
Becoming a leader means enjoying 80% market share, 50%-60% EBITDA margins, and continued revenue growth even in mature markets. According to Goldman, leaders tend to retain their position for 5+ years, or even 10+ years, and there are high barriers to entry.
Three companies in particular, Schibsted (Europe), eBay (globally diversified) and Naspers (emerging markets, India), are best positioned. Each have 10+ properties in various countries globally. Obtaining leadership is difficult, but once established it is easy to retain.
What Is The Outlook For Startups In The US?
The US is interesting in that it has strong general classifieds (Craigslist) as well as vertical players (Zillow, LinkedIn Jobs, AutoTrader, Yelp). This is unusual compared to most other countries. My prediction for what will happen is that both horizontal and vertical players will continue to grow, consolidate, and become more profitable. The barriers to entry will get higher and the incumbent companies will benefit as the overall classifieds market continues to shift online.
Startups such as OfferUp, Wallapop, 5miles and many others have been making waves lately. They have a ton of traction in the app store and have a vision for becoming the next-gen mobile Craigslist (general classifieds platform). This is a fine vision with a lot of value creation potential. However, many key questions remain. Can any of them garner enough traffic to become a true horizontal platform? Can they displace the entrenched incumbents? Do we even need another general classifieds platform given our strong our vertical platforms are? Competing in classifieds is tough. After all, even eBay Classifieds in the US has been unable to compete with Craigslist for the most part (most of eBay's classifieds success has been internationally). Regardless, mobile still feels wide open. If a company is able to pull it off then it will surely be worth many billions of dollars.