Silicon Valley Culture Clash As EBay Sues Craigslist

IN 1995, self-described über-nerd Craig Newmark started e-mailing a list of jobs, flats, gigs and parties to his friends in San Francisco.

Now, 13 years later, Craigslist, the classified-advertising website he started, reaches 30m people a month in 450 cities around the world. The site offers a smorgasbord of — mostly — free ads for anything from apartments and lost cats to concert tickets and casual sex.

Nobody gets that big without picking up enemies, and Craigslist has angered the media establishment for picking off its classified-advertising business, and the bible belt for supposedly encouraging moral turpitude. But last week its biggest enemy to date emerged from the shadows — and this one is an insider.

The giant internet auction house eBay, which bought 28.4% of Craigslist in 2004 from one of Newmark’s former employees, filed a lawsuit against the website in a Delaware court.

The exact nature of eBay’s beef remains under wraps, having been filed under seal to protect confidentiality agreements. However, eBay has said that, in January, Newmark and his chief executive Jim Buckmaster adopted measures that “unfairly diluted eBay’s economic interest in Craigslist by more than 10%. By taking these unilateral actions, eBay believes that Newmark and Buckmaster breached their fiduciary duties in violation of Delaware corporate law”.

Craigslist is the odd man out in Silicon Valley because Newmark has never shown any real interest in money — unlike most of his contemporaries.

Analysts estimate that Craigslist is worth $5 billion (£2.5 billion) and, although the site remains largely free, it makes a healthy profit by charging fees for job ads and some housing ads.

It has been enough to provide Newmark with the capital for a lovely house in San Francisco from which he can indulge his passion for ornithology. Not for him the mega-mansion or the private island; he has repeatedly said he is not interested in following the stock-market route to riches and has repulsed all offers to sell out.

Buckmaster is, if anything, more protective of Craigslist’s independence than Newmark. Forget the private jet that most of his dotcom rivals own (or covet); Buckmaster has never even owned a car. The pair believe the internet has a higher calling — bringing people together — and don’t think making huge sums of money would improve their lives.

“I don’t really want a Rolls-Royce or a huge, fancy house,” said Buckmaster in an interview with The Sunday Times. “Money is important until you have enough of it to be comfortable. Beyond that, I think it’s a mixed bag.”

Unfortunately for the Craigslist duo, not all their colleagues have felt the same way. In 2004, Phillip Knowlton, one of Craigslist’s early employees, sold his stake in the company to eBay for a reported $15m.

Buckmaster said the two firms were in alignment and eBay would not look to make Craigslist maximise its profits or change its habits. Pierre Omidyar, eBay’s founder, even sat on Craigslist’s board for a while.

As Buckmaster predicted, the unwanted investment did nothing initially to change the nature of Craigslist. But somewhere down the line eBay decided that it was not getting what it wanted.

Omidyar founded eBay in 1995, the same year Newmark was setting up Craigslist. The site was born out of Omidyar’s interest in online markets and his girlfriend’s desire to trade the Pez sweet dispensers she was collecting.

But unlike Newmark, once the site took off Omidyar took the more familiar route for a successful Silicon Valley start-up — he went public. Today his fortune is estimated at $7.7 billion.

Since then eBay has moved a long way. It now owns Skype, the internet telecoms company, and PayPal, the online-payment system.

The company has 276m registered users, is valued at $41 billion and last year had sales of $7.6 billion. But the number of new customers joining eBay is slowing and recent efforts to rejig the site are causing ructions.

Some sellers are threatening to boycott eBay from May 1 in protest at changes in the way buyers and sellers rate their transactions.

Against this background Amazon has been building up its rival business and eBay has continued its hunt for new sources of growth. One of those is Kijiji and its British sister site Gumtree which, like Craigslist, offer largely free local classified-ad listings.

Neither site has anywhere near the reach of Craigslist. In New York last week Kijiji had 20,536 listings under “housing”. Craigslist had more than twice that number in two-bedroom listings alone.

Silicon Valley cynics argue that the demise of Craigslist could give eBay’s new sites just the boost they need. There is speculation that eBay’s chief executive John Donahoe may have asked Craigslist to open its facility so that a search for a television, for example, would list offerings from eBay too. The Craigslist duo are unlikely to have responded well to any suggestion that compromises what they see as the purity of their site.

In accusing Craigslist of diluting eBay’s economic interest in the business, Mike Jacobson, eBay’s senior vice-president, said: “Since negotiating our investment with Craigslist’s board in 2004, we have acted openly and in good faith as a minority shareholder, so we were surprised by these recent unilateral actions. We are asking the Delaware court to rescind these recent actions to protect eBay’s stockholders and preserve our investment.”

As the fight heads to court, it is shaping up to be a culture clash of historic proportions.

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