EBay buys 25 percent interest in Craigslist to preserve the mission

When Craig Newmark told us a few weeks back that he had turned down offers for Craigslist, we obviously didnít ask the right questions --- Would he continue to turn them down? And were there any ongoing discussions?

The answer came this morning.

Look out for a major expansion of Craigslist in the months and years ahead. Craigslist and EBay announced at 8 a.m. in a news release that ìThe Worldís Online Marketplaceî bought a 25 percent interest in the worldís up-and-coming online marketplace ñ Craigslist. Terms were not disclosed, but the announcement said EBay (Nasdaq: EBAY) had purchased ìa pre-existing minority interest.î The company said it did not expect its minority interest to change its financial outlook for Q3 or for the full year 2004. Although no mention was made, itís likely that any contract like this that EBay signed would have a right of first refusal on buying a majority interest and ultimate outright ownership of the entire company. We also would expect that EBay might provide technology support. With usage approaching a reported 1 billion page-views a month, Craigslist has been able to manage its technology because it is run by techies --- but for industrial-strength growth, it may need a sturdier infrastructure.

Newmark, who founded the list as an e-mail among friends, said he was looking forward to working with EBay CEO Meg Whitman. ìMeg has helped us preserve the Craigslist mission, and I really appreciate it,î his statement said.

Itís an extraordinary connection.

EBay, which has built a global brand in less than nine years --- its ninth anniversary is coming up next month --- has become a retail and merchandise resale powerhouse, with thousands of categories. Craigslistís strength has been its employment category --- the only category in which it charges anything --- and its real estate categories, especially rentals in markets like San Francisco. Real estate is almost a zero for EBay, which has heavily focused on merchandise and autos.

Both sites have extraordinarily loyal users and have built true ìcommunitiesî of people whose lives revolve around them. Craigís has a major personals and social networking component, which EBay does not (except among its loyalist members). Craigs also extremely strong forums on a wide range of topics, and young demographics.

ìCraigslist is an excellent example of how the Internet brings people together,î Whitmanís statement said. ìWhether itís to trade goods, help neighbors or speak out on important issues, Craigslist has become the online gathering place for local communities. I look forward to working with the Craigslist team as its vision moves into the future.î

Whitman may have hinted at the deal a few months back when she talked about EBayís pullback from local sites, which were reduced in prominence a few years ago, but noted that EBay could turn on a local strategy again at any time. Us? We figured that meant they would focus on their merchandise and more ordinary business in a more locally targeted manner.

We speculated in April that EBay would be a potential purchaser of Monster.com when Monster Worldwide chairman Andy McKelvey gets ready to (or is convinced to sell). We still wouldnít write that off. Imagine EBay Ö Craigslist Ö and Monster.com together. A powerhouse already --- and a force to be reckoned with even more if that scenario comes to pass.

Weíll have lots more information about the Craig-Meg engagement in the next edition of Classified Intelligence Report, after we get through Charley this afternoon!

Peter M. Zollman