Robert Cringely:  Daily newspapers are dying, we’re told, killed by a generational shift to the Internet. In a big-picture kind of way this is true, but if we drill down, the details are startling. Look at Google News, a compilation of popular news websites, most of which think of themselves as anything but parts of the Internet. Most Google News entries are from newspapers, magazines, and television stations, while far fewer are Internet-only products like this one. And since Google News links directly back to each of those sites, feeding them readers, if we want to blame any organization for the decline of newspapers, this time it can’t be Google, nor any other Internet news site I can think of.  If not Google, then who? Craigslist.

Which is a better real estate investment, luxury apartment buildings or self-storage locations filled with unused exercise bikes and old copies of National Geographic? I can make a strong argument that self-storage is better — far better. Those storage places charge about the same rent per square foot as very nice apartments in the same city, yet they typically aren’t located in very nice parts of the city. Storage units are smaller so there can be more of them, reducing the financial impact of tenant flux, if there were any, but there generally isn’t because we all hang onto our junk and need someplace to store it. There are no residents to complain, no toilets to fix late at night, no heat or air conditioning, almost no utilities at all.
If the renter fails to pay his rent, YOU HAVE ALL HIS STUFF and he has no tenant rights. And after you’ve owned the place for 20 years, making a good living for every one of those years, someone comes along to buy it for many times more than you paid because by that time maybe it IS in a very nice part of the city and they want to build an office building or — just maybe — luxury apartments.

Self-storage is a fabulous real estate investment, but people don’t get that because it isn’t sexy. And in exactly the same way, most people don’t understand that the most profitable section of their local newspaper — the section that probably makes the difference between success and failure for the paper as a whole — is the classified ad section. Lost pets, apartments for rent, help wanted, and cars, lots of cars, are the financial backbone of American newspaper journalism. Or were.

I have worked at newspapers, and every department except for display and classified advertising is a cost center, not a profit center. Even the circulation department, which takes in money from subscriptions, NEVER takes in enough for the paper to break even, thus remaining a cost center. Of the two ad-related profit centers, classified ads aren’t as sexy, but they are generally more profitable because there are no sales commissions involved and service and customer hand-holding is minimal, meaning little overhead. It is precisely the newspaper equivalent of those self-storage places — modest but extremely lucrative.

Craigslist, as we all know, is classified advertising for the Internet. Started and still led by Craig Newmark, Craigslist is as close to non-profit as you can get for an Internet business that can also claim to be commercially successful, with busy operations in 450 cities and many countries. Only Craigslist doesn’t actually exist in those 450 cities, just in a few computers in San Francisco. The business is low overhead and can survive quite well, thanks, by charging only for broker apartment listings in New York City and employment ads in only seven cities. All other ads are free.

The link between this column and Craigslist is tenuous but real: Jim Buckmaster, the current president and CEO of Craigslist, coded some of this site in the late 1990s, most specifically the late and unlamented (by me) reader forum.

Jim and Craig are proud of their operation and see little reason to change the way it works, which is what vexes not just newspaper classified ad departments, but ANY company that accepts money for advertising. Ebay, for example, doesn’t like Craigslist any more than does the San Jose Mercury News, and eBay actually owns 25 percent of Craigslist through a private stock purchase that eBay hoped would give them important insight into how Craigslist succeeds.

That success couldn’t be simpler: FREE has a mystique that is hard to fight. That makes Craigslist Linux to eBay’s Windows.

The only real lesson to learn from Craigslist is, itself, anathema to eBay. What makes Craigslist special is that it is, for the most part, free. And the only way to compete with Craigslist is by making any competitive service free, too, which eBay is rightly unwilling to do.

The sad truth for eBay is that no matter how much it studies Craigslist, short of going free, itself, eBay will never compete with Craigslist for local users. There is no way to compete with free in a comparison of automated services. No way.

So Craigslist wins and eBay loses. But that’s not all. Yahoo loses, too, as does every other site with paid advertising. This week’s deal between Yahoo’s HotJobs division and more than 150 daily newspapers is intended to look like competition for Craigslist, but it isn’t. There is no fair way to compete with free.

Craigslist will always win when it comes to local classified advertising, simply because Craig and Jim’s operation is big enough and popular enough and cheap enough that nobody else will ever be able to catch up. Local classified advertising on the Internet is Craigslist’s opportunity to lose, not any other company’s opportunity to win, because it can’t be done.

This fatalistic view of mine leads to arguments, but I maintain it is valid and applies to more than just Craigslist. It also applies to YouTube, for example, and is the major reason why Google is buying YouTube — because Google can’t afford not to.

One view of Google buying YouTube says what Google bought is 40 million eyeballs, which assembled somewhere is harder to replicate than a bunch of streaming servers spitting out content. So YouTube reached a critical mass of eyeballs and was bought as an ad-serving platform, the story goes. It was cheaper for Google to buy YouTube than it would have been to throw a bunch of engineers in a room and simply copy YouTube, which would look to have been the other possible maneuver.

Only this isn’t entirely the case. Google bought eyeballs, yes, but in YouTube they also bought a superior platform with social networking aspects that Google was probably not in a position to just copy. This is odd to explain, but YouTube’s growth vector was such that Eric Schmidt had to have figured out on an empirical basis that Google could NEVER catch up. If you copy a feature but don’t spend money on marketing (that’s the Google habit) and the outfit you are copying is far enough ahead, you NEVER catch up because they will have eaten the audience before you get to it.

The video-sharing game was already over and Google knew it. So it wasn’t just eyeballs they were buying, it was a seat at the table.

By the same token, no present competitor will ever beat Craigslist. It can’t be done without cheating.

What this means for Yahoo and those daily newspapers struggling to survive and compete with Craigslist is that competing won’t work. This is a war that can’t be won, no matter how much money Google or Yahoo or Microsoft or eBay has. And those daily newspapers with their reporting staffs and international bureaus? In the long run and absent a successful new business model, they are doomed, because it comes down to location, location, location, and for that Craigslist can’t be beat.

More here.