Online classifieds in China

Got back last night from a great trip to Xi’an. I’ll post more details about the trip after I get the photos uploaded. In the meantime, here are some thoughts on the online classifieds business here in China.

I would describe our business here as “Craigslist with Chinese Characteristics”*. The general idea is that we provide a website where people can post things that they want to buy or things that they can offer to sell in various categories. Much like newspaper classifieds, the big categories in online classifieds (both in China and the US) are apartment rentals, job listings, and secondhand goods. People can contact the poster by phone or email if they are interested in their ad, and transactions get negotiated and take place offline and usually in person.

The market here in China is different from the US for a few reasons though.

First, the idea of newspaper classifieds is fairly new in China. People were not allowed to exchange private property until ~20 years ago here. As such, newspaper classifieds are <20 years old. While in the US, Craigslist’s challenge is just to migrate the offline classifieds business to an online forum, in China Kijiji must often educate users about the classifieds model generally and then convince them to use it online. As a result, in the US, the offline classifieds business has declined 5-15% since 2000. In China, offline classifieds are up by 100-300% (with a lot of variability by region).

Second, online classifieds is a typical network effects business. This is the concept where a service becomes exponentially more valuable as the number of users increase. So, in our case, the more people use our site, the more useful it is to each of them, because it is more likely that someone will be able to provide the good or service that they are looking for.

Third, in the US, Craigslist acts basically like a non-profit. Craig has explicitly stated that he has no intention of running his business to maximize revenues, and their decisions reflect that. Most estimates put their revenue at only around $40MM. They do not have advertising and they only charge for job listings in select cities. In China, we and our competitors are trying to make a profit. While the market is still too new to charge for job listings, people can selectively pay for premium features (like having extra photos in their posting, for example). The site also sells banner ads and uses Google Adwords.

Finally, China is far more culturally heterogeneous than the US. Many people describe China as Europe, except if there was one central government that ruled over it for most of the past 2000 years. Each province here has its own language, culture, economic situation, and other characteristics – much like the different countries in Europe. This makes expansion into new cities much harder than the US. In the US, the difference between denver.craigslist.com and atlanta.craigslist.com is almost zero. Here, lanzhou.kijiji.cn and shanghai.kijiji.cn must be extremely different.

So all this makes the online classifieds market here in China much more challenging but at the same time much more exciting than in the US.

*The Chinese political philosophy is described by the government as “Socialism with Chinese Characteristics”. It could also be described as single-party capitalism.