Craigslist grapples with competitor on board

Craigslist, the pioneering online classified Web site, is facing a large new competitor, one that has accumulated insider knowledge of Craigslist's business.

On Friday, eBay's online classified service, Kijiji, made its U.S. debut. For the past two years, Kijiji has operated overseas but is now available in about 220 U.S. cities, said eBay spokesman Hani Durzy.

The auctioneer is up against an Internet icon in the privately held Craigslist. The 21-employee company operates on a shoestring budget, is well-entrenched in every major U.S. city and founder Craig Newmark is beloved by users for his reluctance to commercialize the site.

But eBay enjoys an unusual advantage. For three years, executives at eBay have been allowed to peer deep into Craigslist's operations. Since 2004, the year eBay bought a 25 percent stake in the San Francisco-based Craigslist from a former employee, the auction site has held a seat on the company's board of directors.

Newmark, Craigslist CEO Jim Buckmaster and eBay founder Pierre Omidyar once made up the three-person board. Another eBay representative has replaced Omidyar, according to Durzy.

"We've learned a lot from Craigslist," Durzy said. "We think this market has room for several classified services."

eBay's dual role with regard to Craigslist has already raised some eyebrows.

"There is definitely a conflict of interest," said Greg Sterling, principal of consultancy at Sterling Market Intelligence.

Buckmaster said in an e-mail to CNET News.com that because of Craigslist's public service mission and disinterest in things like "market share and revenue maximization," the company doesn't really care who hops into the classified business.

"I'm not a legal expert," Buckmaster wrote, "but I think it's safe to assume (eBay) will continue to conduct themselves appropriately with respect to their responsibilities to Craigslist."

Sterling said he doubted that eBay's knowledge of Craigslist's inner workings would be of much help. He predicted that eBay would need plenty of time before it could threaten Craigslist's position as the sector's leader.

"Craigslist has a trusted brand in the classified segment," Sterling said. "And Kijiji, well, they have that name. It's not very intuitive. It's very awkward and they have to create a brand around it. Maybe they can piggyback on the eBay brand, but it's not a guaranteed success just because eBay owns it."

Durzy said that eBay brings plenty of its own expertise in matching buyers and sellers over the Web and has the kind of deep pockets that can help it patiently build a business.

"We think there is an opportunity to create a better user experience," Durzy said. "The process of buying on a classified site can be made easier."

Kijiji will begin as a free service, but that could change, Durzy said. The company could one day generate revenue from display advertising or by offering premium services.

Asked about what eBay may have planned for its Craigslist stake, Durzy replied: "We have a minority ownership in the company and that's not going away. We're happy with that investment, both financially and strategically."

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