Knowledge Bridge

//Ross Settles /February 28 / 2013

Online classifieds: Choosing a successful strategy

We have all heard stories about the death of print classifieds, a once significant revenue stream for newspapers. According to the Newspaper Association of America, US classified advertising revenues shrank from $20 billion in 2000 to around $5 billion a decade later.  Similar stories exist around the world and, in his companion article to this piece, Peter Ong highlights the challenges faced by newspapers in Australia and Southeast Asia.  So, in many markets the sky is definitely falling – if it hasn’t already collapsed.

The key challenge facing media in the developing world, especially print media, is to decide how to respond to this digital transition. There are two key questions, the answers to which will help create a successful response.

• Are classifieds or their close relation directories important to your business today?
• What unique strengths can your organization use to compete online?

The answers to these two questions should guide media companies in markets where the transition from print to digital classifieds is underway.

Media companies around the world have used the power of their printing capabilities and their audience reach to build print classifieds into a key revenue stream for their news business.   In some media houses, classified revenue contributes a substantial portion of topline revenues but, more importantly, bottom line profits. These profits have been essential in supporting the public service mission of journalism. For instance, when an import/export firm in Hong Kong pays the South China Morning Post to place a recruitment ad for an accountant, they are in part subsidising the cost of the paper’s newsroom.  When this type of cross-subsidy is substantial, a news media house must think carefully about how to respond to the inevitable pressure that online classified competitors bring.  How these classified-oriented media houses respond will be in part a function of how they answer the second question about their competitive strengths.

Media houses that do not have a traditional classified business may think that they don’t have a problem because they have no classifieds revenue to lose. But they still need to develop income from their online activities, and building a digital media business is not easy. Most successful digital media strategies include revenue from multiple sources, some from advertising, some from paid content, some from syndication, perhaps some from online classifieds. Zenith Optimedia, a global advertising research firm forecasts the global online classified market to grow to over $14 billion by 2015.  So, problem? No.  Opportunity? Perhaps.  How your media house responds to the online classified opportunity will also reflect the answers to the second question.

Honestly evaluate your competitive strengths

When answering question two, two phrases stand out – “unique strengths” and “compete”.   The classified business is a simple business.  People have things to sell to other people who want to buy them or, in the case of a company who needs to hire staff, companies have jobs to offer to people who want new jobs.  It is an exchange.

There are two types of classifieds markets that have been shown to work well: high volume markets where a lot of people have a lot of things to exchange, and niche markets selling items that are otherwise hard to find. Classifieds sections for jobs, cars, apartments or used PCs tend to be high volume markets, with a large audience of buyers attracting a large audience of sellers, which in turn attracts more people looking to buy. Such markets, once established, become self-perpetuating.

To evaluate your opportunity, you need to candidly evaluate your company’s strengths in an online classified competition:

• Existing Business – Does your company operate a classifieds marketplace offline?  Have you built a successful exchange for goods and services offline that you can build upon to compete online?
• Audience – Can you provide more potential buyers to the online classified site than the online competition?  Do you have the media reach that allows your company to build an audience of potential buyers at a lower cost than another competitor?
• Sales – Can you provide more potential sellers to the online classified site?  Does your company have a unique ability to sell advertisers into the online classified site?
• Technology – Does your company have unique understanding of how online classified buyers and sellers use technology that will allow your company to build the best “product”?  Perhaps most of the online classified competitors in your market are focused on building websites, when most buyers and sellers rely on their mobile phones?
• Reputation/Brand – Does your company have a strong reputation or a unique brand in the market?  Will buyers and sellers be more likely to trust your company with their exchange than they might a new online only company?
• Unique Knowledge – Is there something unique about your market that gives you unique understanding about how buyers buy and sellers sell their products? The internet has not only forced a transition from traditional media to digital media; it has also created new specialty markets for buyers and sellers that never existed before. Fivrr.com, a specialty site where people exchange small jobs online for five US dollars, has become one of the most successful new classified sites in the last few years.  According to Alexa, Fivrr today is one of the top 500 sites in the world and among the top two hundred sites in countries as diverse as Sri Lanka (#47) and Australia (#62).

Survey the competitive landscape

How to deploy these strengths will be a function of the competitive environment.   In many markets, online classifieds competitors rely on technology as their main strength.  They build a single online site that can be easily expanded to any region or category of goods, for example,  Avito in Russia and Quikr in India.  Other competitors will focus on a particular category, like recruitment, real estate, or automobiles and build a national online site for that category, such as  PropertyGuru in Malaysia and Rabota.ua in Ukraine.  Usually both approaches will exist in a market at the same time.

Another question to consider is whether your market’s size or location provides some insulation from national online classified competitors.  Most classifieds markets are about building the largest exchange of buyers and sellers, and online classifieds are no different. This means that national competitors often focus on metropolitan regions with large populations and easy access to the internet.

This leaves opportunities to create niche local or specialized classified marketplaces.  These opportunities are often found in smaller markets with high internet penetration or, in a non-geographic strategy, very focused interest groups may also develop an online classified site.   One example of a successful specialty classified site is the BandMix.com which, with its partner site ReelMix.com, focuses on the special needs of musical bands or film crews recruiting for talent.

When you are assessing the market, you must be clear that there is an opportunity there to be exploited. If the market is already too competitive or your organization’s strengths do not match the requirements of the market, then this may not be the best opportunity for your company.

Choosing a strategy

After evaluating the online classified competitors and determining whether your organization has unique strengths needed to succeed in the market, you will need to develop a strategy.  There are four types of strategy, each of which build on an understanding of your company’s unique strengths and the competitive environment.

• Traffic Sponsorship.  In this strategy, the media company creates a partnership with a leading online classified site to provide traffic, to build the number of buyers and sellers on their exchange.  This strategy is the least risky.  Media companies pursuing this strategy often face multiple, well-established online classified competitors.  In this case, the partnership offers the online classified competitor access to the traffic of the company’s news site. The online classified site almost always pays some base fee for the traffic and then perhaps a bonus if the traffic levels reach pre-set goals. MalaysiaKini’s relationship with the PropertyGuru is a good example of this type of strategy.
• Sales and Marketing Partnership with Online Classified Sites.  In this strategy, the company’s partnership expands to include not just traffic.  This partnership builds on the media house’s sales and marketing capabilities to promote the online classified partner and to sell advertisers into the online classified site.  Similar to Traffic Sponsorships, media companies choosing this strategy face strong online classified competition.  But, in addition to online traffic, they also bring strong sales and marketing skills.  The New York Times chose this approach when it partnered with Monster, the global online recruitment classified company.
• Build Your Own Online Classified Site.  In this strategy, the company elects to choose its own technology to create an independent online classified site.  The technology chosen can either be built or bought from a specialty online classified software company, like FlyNax or MarketGrabber.  But the company’s ability to choose or build and then maintain its own classified software creates a significant new level of risk.  This approach assumes that online competition is still limited or that the company has unique strengths in technology, sales and marketing or some unique market understanding will result in a successful online classified launch.  AltaPress in Barnaul, Altai, Russia pursues this strategy with their online site KP22.ru, an online classified companion site to their successful print classified newspaper Kupi Prodai.
• Build a Network for Your Online Classified Site.  In this strategy, several traditional media companies or a media holding company which owns several traditional media creates their own online classified site.  This is the most risky strategy involving both the risk in the choice and maintenance of a technology platform as well as the risk created by linking multiple different media companies, each with different strengths and goals for the online classified site.  The choice of this strategy often reflects a rapidly changing market where media companies have a significant stake in the traditional print classified industry.  They have strong traditional classified brands, well-trained sales and marketing teams and a good foundation in technology. By pooling these strengths, they believe that they can create the necessary scale to successfully compete with larger national online classified companies.

Each strategy includes a number of different ways to capture potential online classified opportunities, but every media company will need to customize and adapt the strategy to their unique strengths and market situation.  As new strengths are built and the competition reacts to shifts in the market, you should review and evolve your ongoing classified strategy to stay ahead of the game.

Classifieds is perhaps the oldest form of advertising.  Although technology has changed the dynamics of the equation, the equation remains the same.  Almost every community has their version of a classified “site”, whether it is on their mobile device, on their PC, in print or on a real bulletin board in a local café.  The goal is to bring people together to create value for all, a mission not too dissimilar from the goals of any media company.

Article by Ross Settles