Classified advertising was the unsung hero of print media in the second half of the 20th century. Newspapers and magazines everywhere paid homage to full-colour display advertisers, even though it was the packed pages of high-yielding classifieds for cars, homes, and jobs that were subsidising cover prices and turbocharging profits. Some publishers were reluctant to admit the profit-significance of classifieds (even to themselves), while others – like Fairfax Media in Australia – crowed publicly about their “rivers of gold”. Now it’s gone online – and taken with it most of the hard copy profit. The loss of classified ads is almost a metaphor for the decline of newspapers themselves, which seemed to under-estimate the scale of systemic change injected by digital media. But, for some, the pain might just be about to get much worse. The developing global battle for classifieds may not stop at online.
The early warning in the battle for classifieds came back in 1995 when software engineer Craig Newmark started his “list” of local events for friends, from his apartment in San Francisco. It went online in 1996 and, by 2003, “Craigslist” was all over America – and newspapers were screaming. In the Bay area alone, Craigslist was said to have cost newspapers more than $30m in 2005. The following year, the San Francisco Bay Guardian compared the nerdy Craigslist to the domineering Walmart and accused it of “threatening to eviscerate” local newspapers. In many markets, the digital switch of classified ads had scarcely begun. But digital natives knew exactly what was happening. In 2004, eBay bought a 25% stake.
Today, Craigslist is in more than 700 cities in 70 countries, serving over 50bn page views and 100million new classified ads per month in 13 languages. It is the 30th largest web site in the world, in the US top 10, and the leading classified service in the US and in many other markets. And it manages all this with a headquarters team of some 30 people in San Francisco. Which partly explains why it has profit margins of – 82%. In 2012, turnover was $126m (up 10% on 2011) with profits of $103m (source: AIMgroup.com). Craigslist, which only changed from a ‘not-for-profit’ to a commercial operation some four years after the start, still donates large amounts of cash to charitable causes and has a “.org” domain. It also has an edgy relationship with its 25% shareholder, marked by two-way law suits – and not helped by the parallel success of eBay’s wholly-owned classifieds group.
eBay has “marketplace” classifieds in 25 countries where it has more than 25m live listings and 65 m unique visitors per month. It has clear overall leadership in the UK, Australia and South Africa, courtesy of its 10m-visitors-monthly Gumtree, acquired from its UK founders in 2005. Gumtree is used by 20% of the UK population across 48 towns and cities.And eBay has a range of other fast-growing classified brands across Europe and in South America. Craigslist and eBay are two of the four companies realistically chasing global classified leadership. In front of them, however, are hard-driving newspaper-centric companies, originally from relatively small domestic markets and now determined to win the land-grab.
NASPERS is a 98-year-old Cape Town-based media group with a history of conservative newspapers and an impressive record of moving its business from traditional media in South Africa to ecommerce – on an international scale. Its major online businesses include South Africa, Portugal, Turkey, India, Switzerland, US, Middle East, China, India, Brazil, South-East Asia and and much of Central and Eastern Europe. Today, less than 50% of NASPERS’ revenues are derived from South Africa and almost 40% comes from digital. Advertising accounts for just 12% of revenues – equivalent to one-third of that derived from subscriptions. This is the newspaper group that its better-known international peers want (and need) to replicate. But the real battle has only just begun.
The South African group has just snapped up a 18.6% stake in Avito (Russia’s largest classified provider) which, with the consolidation of its own Russian sites, will soon become (according to the Financial Times) one of the world leaders – after Craigslist and China’s 58.com. Avito’s Swedish co-founder Jonas Nordlander forecasts a doubling this year of its $30m revenues in 2012. He is pushing for growth in new markets including Iran, Pakistan, Bangladesh, Egypt and Morocco. Nordlander, who sold a Swedish classified site to eBay in 2006, notes that only 60% of Russia’s 140m people so far have internet access – but it’s changing fast.
The Russian deal coincided with news that NASPERS’ fast-growing ‘home’ markets are about to get more competitive with the formation of One Africa Media, claimed to be the continent’s largest classified operation, by Kenya’s Cheki Africa Media and Private Property Holdings, of South Africa. The Cheki founder Carey Eaton, who learned his classified craft at Seek in Australia, asserts that some 500m people in sub-Saharan Africa have been connected to the web in the past five years. So that’s something else for NASPERS to tackle. But, for now, Avito is the real coup: the latest in a series of smart deals over the past eight years, many snatched from under the nose of the Oslo-based company which is arguably still the world classified leader.
Schibsted is the once tiny Norwegian newspaper group that has transformed its fortunes in a dizzy decade of free daily launches across Europe, conversion of its Scandinavian newspapers to subscriptions – and going global. Its classifieds in 29 countries account for some 25% of $3bn total revenues and 52% of profits.
The company recently issued this map (right) showing how, through acquisitions, joint ventures and gutsy start-ups, Schibsted now has more than 20 online franchises across the world. It all began in 2000 with the launch of Norway’s Finn.no and the 2003 acquisition of Sweden’s blocker.se.
These two sites have become Schibsted’s principal profit generators with margins of over 50%. And, in France, LeBonCoin.fr (“the right spot”) has 17m monthly uniques and is expected to make a profit of €70m – a margin of 70%. Which is somewhere near the proportion of the group’s value that is now accounted for by classified media. Schibsted CEO Rolv Erik Ryssdal says: “In 2012, we spent $85m on building better classified sites and taking lead positions. In 2013, we will spend even more. We are here to win!”
This indication that Schibsted is speeding up, but also becoming more selective about markets, underlines the point that classified ads are a diverse market. And, for every global player dominating a series of sectors, there will continue to be large national players in one or more classified verticals. And also other newspapers fighting to get back into the game.
Germany’s Axel Springer is the €3bn revenue increasingly-digital publisher of Europe’s largest daily newspaper Bild . It has spent some $1bn buying jobs sites like France’s Seloger, Norway’s Stepstone and the UK’s TotalJobs. Its digital revenue last year jumped by 50%. Through its joint venture with General Atlantic private equity, Springer is investing in classifieds in France, Germany, the UK, and the AsiaPacific. It also owns digitals across Eastern European with its Swiss partner Ringier. Springer’s German media leadership gives it the fire-power to pursue global classifieds but a part-merger with one of the other newspaper dynasties (the UK’s Daily Mail or Schibsted) still seems a realistic prospect.
The Daily Mail group finds itself head-to-head with Axel Springer in the UK, from where its Evenbase group of sites is fighting to become a global player in the $270bn online jobs market. With launches in the US and South America, it expects to be 50% non-UK within two years. Parent company DMGT’s celebrity-rich, fast-growing MailOnline may still be key to the group’s classified success internationally. But the strategy is characteristically careful: it is sticking to jobs and picking its territories.
Rupert Murdoch is surely set to pick up the pace. His soon-to-demerge News Corp owns 60% of the impressive REA Group, Australia’s leading property digital which has 13 sites internationally, including Italy, Luxembourg and Hong Kong. Expect his newspapers to intensify efforts to create stand-alone classifieds. The Sunday Times driving.co.uk is trying to attack the country’s long-term market leader in car classifieds, Auto Trader, which recently closed its hard copy edition. But News Corp’s high-quality site might just be too content-rich to sell cars effectively.
UK motoring services group RAC is also piling into the sector’s classifieds. But there will be plenty of other News Corp initiatives. The company is now crunching its strategy, and might just conclude that the US-based Monster Worldwide, with which it has a joint venture in Australia, is a suitable target. Monster was a pioneer job site in 1999 and still claims to have 300,000 corporate customers globally including most of the largest US companies. But it is spluttering and has been forced to rationalise, and divest in Brazil, Mexico, Turkey and China. Will Murdoch swoop?
Meanwhile, News Corp’s long-time Australian rival, Fairfax, has been reminded of its long-lost “rivers of gold” by a book chronicling how the once-dominant daily newspaper group passed up early opportunities to acquire the country’s three dominant digital operators in jobs (Seek), homes (REA) and cars (Carsales). The chairman of Fairfax Media recently apologised to shareholders… Then there is the UK-based Adzuna which specialises in aggregating online classified ads. Founded by former Gumtree employees in 2011, the site “aims to become the leading search engine for classified ads”. The start is 1.5m monthly visits in the UK and a new launch in Germany. Wait and see. For now, the focus is on traditional news organisations battling with digital natives to regain at least part of their classified “heritage”. That’s actually how Axel Springer’s CEO Mathias Doepfner describes his strategy.
Online classified growth rates everywhere are dizzy, helped by historically high hard copy advertising prices in developed economies and by rapid growth elsewhere. The boom may yet have added spice for the developed economies where battered newspapers face being punished all over again. Just as online retailers sites are launching hard copy magazines to frustrate publishers trying to push from the other direction into ecommerce, the killer blow to some paid-for dailies may come from online classified operators launching their own free newspapers. Like their magazine counterparts, paid-for newspapers might find it very difficult to respond to such challenge.
Take the UK, where the free tabloid Metro is now the country’s most profitable newspaper and, alongside other free dailies, shows huge acceptance by readers and advertisers. So free newspapers seem set to grow. Could Gumtree now launch a free tabloid? Its 120 UK employees generate some £100m of revenue, so the company knows all about productivity. On paper, the classifieds would appeal to readers in the way they once did in paid-for newspapers before the internet. And they could be linked by QR or AR bar-codes to the web site for more information and easy response.
The digital-print combination could be very powerful for classifieds. Digital is best for search but hard copy is good for ‘serendipity’ – spotting the thing you didn’t know you were looking for. It might also improve access to word-heavy ads for smartphone users.
So, a classified-led free newspaper could become a low-cost marketing platform for Gumtree and others, helping to grow traffic – with or without bite-sized (outsourced) coverage of news, sport, TV listings, and horoscopes. Such developments could, of course, become the ultimate humiliation for paid-for newspapers which once took for granted their classified profits and under-estimated the readership pulling power of those ads for cars, homes and jobs. It may be coming soon. A real (paid-for) newspaper killer? Or lifeline-partnerships for newspaper groups caught in the digital headlights? And Murdoch may have some special angles. Just watch the classifieds come back to print, well partly anyway.