Classified Ads Fee or Free?

The classified ad market has witnessed steady price erosion as a result of competitive pressure from online solutions. The question is whether this will continue until classified ads are universally free, as many Internet classified ad solutions are today, or will fees remain a part of the classified ad landscape forever?

If you want a short answer, it is that Classified Ads will be free. But the actual future may be much more nuanced than that. A user might post a free classified ad and then opt to upgrade, for a fee, to add enhancements, like video, onsite promotion, cross-site promotion, ID verification, and the like. Along these lines you may see the creation of classes of ads, with a basic coach class being free, while the business class and first class charge fees for add-on services.

Future usage might also dictate that fees are required to avoid the tragedy of the commons, where the free common area is abused so regularly that it becomes useless for everyone else. Imagine a single worldwide free classified ads section. Each MLM businessperson would post their “amazing business opportunity” a hundred times a day in an effort to snag customers. It’s not unlike email, we would need to install filters. One such filter is to charge a nominal fee.

Craigslist, the grandfather of free classified ads, is using fees as a filter to avoid bad actors in the New York apartment rental market. Because rental agents were abusing the rental section of Craigslist in New York, the company plans to start charging. An alternate approach, albeit one that generates less revenue, would be to establish rules of conduct and then charge an ID verification fee. If the individual violates the rules of conduct they are warned and ultimately banished from the site. Under this scenario, posting ads remains free, but there is a one-time membership fee.

Another alternative scenario involves consumers settling on a small number of market leading classified ad solutions, an oligopoly, where these businesses find themselves in the position of being able to charge small fees for posting ads, without undermining their respective businesses. This is a very real possibility and the actions of Craigslist in charging for job posts in more locations and charging for rental posts in New York City indicate that this is an obvious possibility.

So, generally speaking, the basic classified ad, AKA the coach class, will become free over time. It is simply too hard to put that genie back in the bottle. But we may see business class and first class posting packages, with the requisite bells and whistles, that involve fees. And, of course, these same bells and whistles could be sold a la carte as well.

In the near-term, the various competitors will race to one-up each other in delivering more functionality for free in order to build critical mass of users. But in the long-term the market will stabilize and we will see free basic ads with upgrades fees, category-specific fees and membership fees being part of the mix.