As I have been preparing for my talk in Edinburgh in August, I have been collecting examples of disruption.  One that I am particularly fond of because so much has happened in the last 15 years are classified ads.  Here is a brief history.

Classified ads in the offline world were enormously profitable.  They accounted for a significant portion of newspaper revenues and also supported some large standalone classified businesses, most notably a company called Trader that was a roll-up of paid and free classified papers.

The Internet disruption of classifieds started in 1995.  That year two new efforts were started.  One was a company called AdOne, which very few people remember.  The other was Craigslist.  AdOne was a service business that helped newspapers move their classified sections online.  That ignored two important realities: first, newspapers really had very little interest in disrupting their own highly profitable offline classifieds and second, on the web there is really no reason for classifieds to be bundled with other content.  The bundling in the offline world was solely a result of the cost of printing and distributing paper.

Craigslist on the other hand went on to become a top 10 internet property and a hugely profitable business, with revenues in the hundreds of millions and costs in the tens of millions.  Craigslist over time must have sucked billions of dollars out of the size of the classifieds market by not having listing fees in most categories (and even in real estate and jobs the listing fees only exist in major geographic markets).

Craigslist wasn’t the only large new business that was built in classifieds.  Looking into just job classifieds, there were also HotJobs (started in 1996 under a different name) and Monster (started in 1999).  HotJobs was eventually acquired by Yahoo and later spun off and merged into Monster which had become a publicly traded company. As of this writing, Monster’s market cap is still $1.4 billion.

But the disruption hasn’t stopped there.  Back in 2009 I wrote that Craigslist is vulnerable to further disruption.  A lot of companies have been started either explicitly or incidentally along those lines. Andrew Parker has put together a terrific chart showing which company is attacking which category on Craigslist.  It will take many years for those companies to rival the importance of Craigslist but eventually they will.

Why? Because Craigslist still is fundamentally the same model as classified ads in the offline world.  You give an ad to Craigslist and they run it on their site.  In some categories and some cities you pay for Craigslist running the ad.  That was also the model for HotJobs and Monster.  You pay them and they run your job classified ad.

The problem with this model is that on the Internet the cost of publishing tends towards zero.  Take job classifieds: any company that already has a web site can simply add a jobs section to that site.  So why pay someone to publish your ad on the Internet? Instead, the only thing you really want to pay for is for you ad to be found by the right people.  That explains, why job boards on sites with highly specific audiences can charge comparatively high fees.  This is not really a listing fee, but rather a “shelf access” fee for a shelf that receives attention.

Another way to get paid for job classifieds is in a search model.  This is the opportunity pursued by SimplyHired and Indeed (we are investors in Indeed).  Assuming that ad publishing is free, these companies focus on indexing all the job classifieds out there and providing keyword search instead.  With keyword search, companies can sponsor their listings and are now paying to be found as opposed to be published.

The same disruption based not around a publishing fee but an “attention routing” fee is likely to be important for other classifieds ad types as well.  And the disruption is unlikely to stop there.  For instance, we are still at the beginning of figuring out how the social layer will interact with classifieds.  Still, there is already a lot here that can and should be studied to understand how disruption will play itself out in other industries.