He cites as evidence industry numbers showing that, while newspaper classified revenue has dipped in the past two (recession) years, there hasn't been a comparable increase in online advertising revenue. Since the money doesn't show up online, he reasons that the newspaper downturn may be mostly from the economic cycle and not a long-term erosion of revenue. After all, it doesn't appear to have gone anywhere else, right?
Wrong. This logic makes the mistake of comparing two incomparable advertising economies -- the scarce space and expensive distribution costs of print, and the abundant space and almost-free distribution costs of online.:
Classified volume is indeed moving online, for good. The reason the revenue numbers don't add up has to do with the "demonetization" of markets as they move online. It is best explained by Chris Anderson in his new book "Free: The Future of a Radical Price." I quote from the relevant section:
In 2006, the site (Craigslist) earned an estimated $40 million from the few things it charges for. ..That's about 12 percent of the $326 million by which classified ad revenue (at newspapers) declined that year."Craigslist, Monster.com and the like are indeed taking the classified market online. They're not charging or collecting as much revenue, but they also don't need to. The online economy is different. The space to post ads and the path of distribution is nearly free. There will never be as much money flowing into the online classifieds providers, but that's no reason to think the money is coming back to print.
Craigslist makes very little money, just a tiny fraction of what it erased from newspaper coffers. Where does the wealth go?
To follow the money, you have to shift from a basic view of a market as a matching of two parties -- buyers and sellers -- to a broader sense of an ecosystem with many parties, only some of whom exchange cash directly. Given the size of Craigslist today (50 million users every month), it's easy to see how more money can change hands there than did in any newspaper classifieds section, leading to better supply/demand matching and economic outcomes for the participants, even though less money remains in the marketplace itself. The value in the classifieds market was simply transferred from the few to the many.