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New York Times: It's All Craigslist's Fault

The New York Times just ran with a story about Craig Newmark — founder of Craigslist — making a $20 million endowment to the City University of New York. The Times leads with:

Craig Newmark, the Craigslist entrepreneur who arguably forced the newspaper industry to change its business model after his website put a dent in the lucrative classified ads business, is giving $20 million to the CUNY Graduate School of Journalism.

“In this time, when trustworthy news is under attack, somebody has to stand up,” Mr. Newmark said. “And the way you stand up these days is by putting your money where your mouth is, and that’s what I’ve done.”

As a result of the $20 million gift, which was announced on Monday, the school will change its name this summer to the Craig Newmark Graduate School of Journalism at the City University of New York. The donation, to be made through Craig Newmark Philanthropies, will fund an endowment for the school, which was founded in 2006.

Now, maybe it's just me, but I get the impression that the Times' writer (and probably the whole New York Times) is not comfortable with Mr. Newmark, and certainly not with having a journalism school named after him.

According to a 2012 study by Robert Seamans, an associate professor at New York University’s Stern School of Business, and Feng Zhu, an associate professor at Harvard Business School, Craigslist forced the newspaper industry to change its business model.

“Based on the research we did, there’s no question that Craigslist’s entry had a big effect on the newspaper industry,” Mr. Seamans said. ....

Mr. Seamans and Mr. Zhu found that newspapers lost about $5 billion in classifieds revenue to Craigslist from 2000 to 2007. ....

When asked if his desire to give millions of dollars to the journalism school had sprung from a sense of guilt, Mr. Newmark said no.

Emphasis mine, of course.

What's worse, I suspect, is that Newmark made the $20 million he's giving to CUNY with Craigslist.

Craigslist is a thoroughly unsophisticated site technically: it's very plain HTML and CSS, with just enough JavaScript to make the site work on anything from a phone to a tablet to a TV to a desktop. It's also unsophisticated journalistically: in fact, there's no journalism involved at all, because it has no content other than ads.

(Okay, go ahead, insert the joke about there being no journalism involved at the Times either. Just go ahead, I'll wait. ... Okay, got it out of your system now?)

What's more is Craigslist undercut the whole classified ad business by making most of their ads free. It's like the old joke: "We lose money on every sale! How do we do it? Volume!"

In the case of Craigslist, that's almost true: about the only ads Craigslist charges for are rental listings in New York City and jobs offered in a few major markets.

That, however, accounted for almost $700 million in revenue in 2016, according to AIM Group.

This turns out to be one of the perfect examples of Internet economics. Some years ago, working from their 10K reports, I calculated that a single copy of the New York Times cost them about $4 to produce at that time; they make up the difference between the cover price or subscription price and the production price with advertising.

I wrote about the mathematics of advertising just a few days ago talking about Facebook and Google, so I won't repeat it, but the gist is that when you do an advertising campaign, you have to optimize the price for running the ad against the likelihood of making a sale based on the ad, and the advertising medium needs to balance the cost of distributing the ad against the amount you can charge.

For the New York Times, that cost is pennies a page. For an Internet site, that cost is pennies per billion "pages".

I don't care how wonderful your content is, it's very difficult to compete when your competition can undercut your prices by hundreds of millions of times.