Competing Against Free

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It’s pretty widely understood that the huge success of Craigslist has hurt big city daily papers badly by robbing them of precious classified advertising revenue. In part, that’s because Craigslist is really useful. But part of the picture, as Barron YoungSmith observes, is that Craigslist doesn’t try to maximize profits which makes it extremely difficult for a “normal” business to compete with:

Now, along comes Craigslist, which sees cutting these sorts of intermediaries out of the equation as a form of public service. It considers that mission so important that it is willing to forego huge potential profits and compete against classified pages everywhere while charging virtually nothing for what it offers. In that kind of environment, it’s pretty ludicrous to think that newspapers could survive.

I think this ultimately may wind up being an even bigger problem for efforts at commercial media on the content side than it is on the revenue side. After all, profit-maximization is not a natural form of human behavior. I think it’s best understood as a very idiosyncratic kind of pursuit. It happens to be one that’s economically rewarded because with money to invest tend to want to invest it with would-be profit-maximizers. Thus, in fields of endeavor where the ability to raise large sums of capital on reasonable terms is a huge advantage, a profit-maximization impulse winds up being a huge advantage.

But in the world of websites, it’s not clear that the ability to raise large sums of capital really is a huge advantage. The startup costs of a decent website are pretty small in the scheme of things. And there are lots of people and institutions—academics looking to bring their research to a wider public, think tanks and advocacy organizations looking to influence the public debate, corporations like Google looking to express their views on policy debates, students trying to get an edge in the job market, authors hoping to promote a book—with perfectly good incentives to run websites that don’t aspire to maximize profits.

Under the circumstances, I think it may prove very difficult for commerce-oriented enterprises to succeed over the long term. Someplace like a dry cleaner is able to make money because it doesn’t need to worry about being undercut by competitors who aren’t trying to earn a profit. If for some reason Bill Gates decided to pour $5 billion into a foundation dedicated to offering not-for-profit dry cleaning services to Washington, DC then the existing dry cleaners would be in huge trouble. They don’t have that problem because nobody wants to run non-profit dry cleaners. But lots of people want to write about political issues for reasons that have nothing to do with profit-maximization. And my sense is that organizations are increasingly doing this. CAP/AF was a think tank early adopter in terms of building robust in-house new media capacity, but to the best of my knowledge just about every think tank and advocacy shop in town would like to get in on the action. And ultimately, a proliferation of content that’s not supposed to make money is going to make it even harder than it already is for those trying to make profits to do so.