Craigslist Crackdown - How Will this Affect its Business?

As the online classified ad site of Craigslist continues to accumulate bad publicity, the centralized online community faces increasing pressure to clean up its act. The attorney general of South Carolina, Henry McMaster, has even threatened to open a criminal investigation into the company's executives if changes aren't made. These changes include removing a section devoted to erotic services that allows providers of sexual services to post ads.

Craigslist argues that any website featuring third-party content can't be held responsible for posts that violate state laws (via the Communications Decency Act of 1996). However, this issue of legality will not protect Craigslist's brand image. In order to promote the website as a clean, professional, and safe community to conduct business, Craigslist may need to review its postings with greater scrutiny.

Such a shift in policy would have dramatic effects on Craigslist's business model. With a total of 28 employees, Craigslist has very low overhead costs. Policing for inappropriate posts would require a huge increase in staff and overhead costs. Currently, Craigslist's main source of revenue comes from fees for posting job ads in select cities. If these revenues do not cover potential increases in overhead costs, new fees must be initiated. By initiating new fees, the executives of Craigslist will have retracted from their underlying ideal of providing such an extensive online community completely for free. This is a dilemma they dearly hope to avoid.

But it would appear that Craigslist already faces this dilemma. Do they keep their costs low and by doing so risk damaging their reputation or do they incurr the increase in overhead to maintain positive publicity? Should they consider alternatives to improving their brand image? Such a brand is important, given that Craigslist is not alone in providing online classified adds. Competitors such as Ebay (who also happens to own 20% of Craiglist), Walmart Classifieds, and OLX would surely benefit from a weakened Craigslist brand.