Bernhard Seefeld's Blog

The Classified Market through the Market Lens

Andreas Göldi has a brilliant analysis on the classifieds market as follow-up his earlier and my post (thanks for the kind words!).

He nicely structures the discussion: He observes that we are talking about a market, and as such a system that works better when liquidity increases and transaction costs decreases.

Many of the suggestions in my last post can be catalogued under the transaction costs aspect, which are mainly outside the actual cost to publish a classified, just as Andreas notes. Thinking about it, lowering could grow the classifieds market manifold; or maybe this already happened, just look what is sold on ebay that nobody would put in the classifieds section of a newspaper.

Then Andreas splits liquidity in two factors: Presence and positioning. Presence, i.e. the cost of just being in the market, is quickly driven to zero by the aggregators and things like Google Base (Forget about usability gripes, the important point of Google Base is really to lower the entry barrier to put stuff on the web, something that will drive Google's bottom line - along with allmost other's bottom lines - in a much more significant way than anything to do with competing with craigslist. [Update: Or so I thought... Apparently Google is going the wrong way here]). Full agreement here.

But on the positioning, I'm not so sure, at least in this case. His point is that one could essentially sell ranking, exchanging money for a better position in a market. But for many important categories I don't have a problem specifying my query precise enough, that I can browse through all matching ads, thus ranking is not important. It would be easy to look at all classifieds for flats in Zurich in a given size and price range, and in fact many people do that and currently go to all the sites and read all the papers to not miss any.

(Yes, ranges are actually not that useful tools, but users usually give extra room to include ads just outside their range to double check. In fact we tried relevance ranking for real estate for a couple of years in immo.search.ch - you can just enter a target price and size and the engine will rank ads by proximity to this values, giving cheaper/bigger a slight preference - and it works quite well but in the end never got the traction with the users, thus in summary I think the idea was rejected by the market. And in fact the next version of immo.search.ch will swap these features out for something else...)

Back to positioning: Of course, one could sell the appearance of non-matching (maybe by a short margin) ads. Of course strictly separated from actual search results, please. But then again, a good site would be able to generate good suggestions here anyway and besides, in the classifieds case this looks like a rather small opportunity.

Thus, positioning so far makes sense where

• the number of results is huge (web search engine, where the top 10 are critically more important than all the others) - i.e. almost equivalent to where relevance ranking is important
• search quality is generally bad and almost more a means to stumble around and get ideas (e.g. ebay, where you can pay to increase attention to your products)
• transaction costs for the seeker are high (thus artificially pushing the barrier for "too many results"-rule much lower), e.g. on ebay "which of the zillions ipod offers should I bid in?" or when the next step would be applying for a job. This only applies where I can't distinguish offers otherwise, either because they are nearly identical (ebay) or because of lack of further information (jobs).

"Too many results" is subjective and while some wouldn't mind skimming real estate ads half an hour per day, for others this is too much. But since the cost of a suboptimal decision outweigh time saving by just taking the first offer, these persons rather create an own market for assisting them (Andreas mentions this, too). And tools and methods for increasing skimming speed and accuracy will be what differentiates future aggregator sites.

Thus, I think positioning isn't where the profits will move in the case of classifieds. If, then only for the jobs market, which exhibits its own very complicated dynamics and very high transaction costs; my gut feeling is that this part will take different directions than all other categories in a big way anyway. Sounds about right, since that is very the aggregators will be and there (unlike for general search like Google) entry costs will be low and thus profits will move somewhere else in the value chain. Which doesn't mean that the operational profit for these outlets won't be handsome, but they most probably won't take the billions that are left on the table by slow moving newspapers (sorry guys).

Will the money be in lowering transaction costs? And if transaction costs go down and the market grows, who will profit? The sellers, the buyers (or the new class of seller-and-buyer), the new middlemen?

Posted by seefeld at December 9, 2005 19:39