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How to win at classifieds

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First off, let’s be clear. We have to kill the phrase ‘online classifieds’. At best, it has the weary note of strained metaphors, like moving staircases and horseless carriages. At worst, it’s symptomatic of a dated way of thinking about the world. These days, winning in classifieds really means winning in markets. And that, dear readers, is a much tougher job.

aa19-dec-jan-2006-07-how-to-win-at-classifiedsClassifieds were a newspaper-shaped solution to a market-based problem. Whether it is houses or jobs, markets need a critical mass of buyers and sellers to work. For a while, the best way to aggregate those eyeballs was to use the primary media channel in the community, the local newspaper. Lineage ads weren’t pretty, but as the only game in town, they worked.

With the arrival of the internet, the print ad model was grafted onto the new channel. The online classified giants may have seemed to be leading a revolution, but most of the time they were just republishing old fashioned print ads online, tarted up with extra pictures, bigger distribution and better response tracking. When that happened, the real problem for the print guys was not price pressure but the fact that online publishing simply worked better.

eBay created an entirely new market for both collectibles, and eventually, all kinds of second-hand items. The reason that eBay’s auction model worked so well compared to traditional classified listings is that, in many cases, the intrinsic value of a second-hand item is unknown. Auctions not only provide a market for buyers and sellers, they improve the efficiency of those markets by communicating relevant price information. Not to mention the fact that everyone loves the fun of a bidding war.

The other key vertical transformed by the web was personals. The employment, real estate and car verticals now deserve a major shake up. If you were going to go after the incumbents in these spaces, you don’t need a bigger marketing budget or better technology. You just need to be able to create more efficient markets for the underlying matching problems that exist between buyers and sellers.

More efficient markets require three magic ingredients – liquidity, trust and completeness.

Liquidity refers to a critical mass of people offering and people looking. The best way to achieve liquidity is to make sure you have aggregated close to 100 percent of the available market of stuff for sale, and then create the best possible search experience for buyers. This has been the approach of meta job players like Simply Hired or Indeed, who have forsaken advertising revenue and focused instead on aggregating the entire listings market. As a seller of listings, you can also reverse this process and focus on distributing ads as widely as possible. That’s the game plan adopted by high profile start-up Edgeio, which is building a distributed network for classified advertisements.

The second critical component is trust. How can you purchase or transact with someone you have never met? eBay got around this problem by creating an exchange that tracked people’s entire transaction history, so you could not only get a sense of someone’s past actions but feel confident that the person on the other side of the deal would behave responsibly rather than jeopardise their future trust credits. It’s proved a reliably enough system to sell lots of second-hand cars on eBay. Investment real estate won’t be far behind.

That brings us to the final magic ingredient � completeness. Well functioning markets allow you to come very close or entirely complete a market transaction. The bizarre situation where an employer who posts a job ad on an employment classifieds site and then has to deal with thousands of irrelevant responses is a symptom of a broken system. A good market contains mechanisms to allow you to close the loop on a transaction, and ideally to only pay on success. Charging a fortune to list, and then wiping your hands of the result is an unsustainable business practice.

Of course, one great way of rocking the boat if you want to make your competitor’s life hell is to change the rules of the game. Why not make listings entirely free and make money using a media strategy? This has been Yahoo’s approach with their jobs site for the last year or so.

So what happens to newspapers? Classifieds advertisements that continue to exist in print must do so for a reason. And that reason is branding. But that is a both a different market and story altogether.

Mike Walsh is a commercial strategist in the media and entertainment sector. You can read his daily weblog at mike-walsh.com

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