It’s almost trite, at least in the Bay Area, to talk about how Craigslist is reshaping the classfied ads business. The 10-year-old Web company, which offers mostly free classfied ads, has a large and loyal Bay Area following.

But a new report by the Classified Intelligence consulting firm drives home the profound effect the San Francisco-based Web site has had on its home turf.

Called “Competing with Craig,” the collection of articles is aimed mostly at newspaper executives. Its centerpiece is a write-up by Bob Cauthorn, the former vice president of digital media at the San Francisco Chronicle who has never been afraid to speak his mind.

Cauthorn, who ran before leaving this year, illustrates how tiny Craigslist has stolen a massive chunk of the classified market from established media companies such as the Chronicle, the Oakland Tribune and Knight Ridder, parent company of the Mercury News, the Contra Costa Times and this blog.

Cauthorn estimates that with job listings alone, Craigslist has taken $50 million to $60 million away from print newspapers.

“It’s true that Bay Area newspapers still generate many times the revenue of Craigslist,” he writes, “and, in that narrow respect, newspapers lead. But this is fragile leadership because Bay Area newspapers have largely lost their ability to control pricing in the face of their mostly free online competitor. And, as Craigslist’s listing volume/user traffic demonstrates, the marketplace has moved decidedly from newspapers to Craigslist.”

Craigslist, which has only about 14 employees, is successful because it’s easy-to-use, cheap and has generated strong emotional ties with its users, Cauthorn says. He added that it doesn’t hurt that many people believe — incorrectly — that Craigslist is a non-profit organization.

“In the final analysis, what makes Craigslist work is the sheer goodwill of the site and the people who run it,” he says.

Cauthorn, who apparently left the Chron after disagreements over its Web site’s future, offers a withering critique of newspaper executives, who he accuses of being asleep at the wheel while Craigslist stole their advertisers.

“The problem for newspapers isn’t Craigslist. The problem for newspapers is the newspapers themselves. Specifically, that class of slow-blink-rate executive who refuses to see today through the lens of today….They recite from business self-help manuals and reduce the hard work of innovation and creativity to comic book parables. Meanwhile, they lose market share, circulation and audience. Ultimately these people will cost an industry its future.”

Having said that, Cauthorn says Craigslist is not invulnerable to competition. He says newspapers, or any online classified ads site, can still compete with Craigslist by offering free online ads, creating simple, self-service methods for users to post ads and focusing on customer service.

“Free listings permit a marketplace to grow. As the marketplace grows, more participants — both buyers and sellers — are encouraged to take part. Eventually, participation is required. Whether you’re a newspaper or yellow page publisher, a dot-commer or a dead-tree provider, that’s exactly what you want.”

Craigslist does have an Achilles heel, the need to police its listings against scam listings and other inappropriate ads. As Craigslist grows to more citiies and countries, that policing will require more support staff.

“It’s not a fatal flaw, and Craigslist will certainly work it out. But this problem, and Craigslist’s weakness in dealing with institutional customers, provide enough of a gap for other smart publishers to flood the space while Craigslist sorts itself out.”

UPDATE: Findory CEO Greg Linden offers his thoughts on Cauthorn’s comments.

UPDATE2: Former SF Examiner editor Tim Porter offers his thoughts on the report here.

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