Free Classifieds: The Hail Mary Business Model That Works

By: Mark Fitzgerald Free newspaper classified ads are back in the news with word from Boston that the alternative Weekly Dig has launched its local answer to Craigslist, a free classified ads bulletin board using New Times Media's Backpage.com network.

With boston.backpage.com, the Weekly Dig is still charging users $15 to publish the ad in the print edition, with founder Jeff Lawrence expecting to use the newspaper to drive readers to Backpage, and Backpage to steer online user to the paper, according to a Boston Herald article Thursday by Greg Gatlin.

Some mainstream dailies have gone a step further, and are giving away their print classifieds.

In late August, for instance, the San Diego Union-Tribune began offering to private parties three free lines for seven days in its classified pages and on its Web site to sell a car or other item worth $5,000 or less. Earlier in the year, the Miami Herald made all its online-only ads free, and offered free classifieds for items valued under $500.

All of this activity, of course, is aimed at protecting the classified ad franchise that has become the increasingly critical -- and dangerously vulnerable -- economic engine of newspapers. Mainstream or alternative, newspapers have watched Craig Newmark grow Craigslist.org from a hippy-dippy message board in San Francisco to a phenomenon that is sucking away potential ad dollars in markets all across the nation. (Correction: An earlier version overstated the revenues of Craigslist. The company does not disclose financial results, but executives indicated in 2004 that its annual revenues were about $10 million.)

The good news for print is that giving away classified ads can grow revenue -- an assurance you can take to the bank because the strategy has been working long before there was a Craigslist.

In the United States, free classifieds can be traced back to 1978, when a desperate Walter E. Hussman Jr., was willing to try anything to turn around the floundering Arkansas Democrat his family had bought four years earlier.

The Little Rock evening paper was being hammered every which way by the morning Arkansas Gazette. At the time of the sale, the Gazette had three-fourths of the market's total newspaper revenue, and a circulation of 118,702. The Democrat sold an average of just 62,405 copies daily. When Hussman suggested the two papers form a joint operating agreement, the Gazette's Patterson family said no, thank you -- and undoubtedly planned for the future as the only daily in town.

When I was interviewed Hussman last month for the story about the competition in Northwest Arkansas ("Battle for Bentonville," E&P, November 2005), the talk turned to the origin of the Democrat's classified ad giveaway.

"Free classifieds first occurred to us when we were about to go out of business, and we were desperate to build circulation," Hussman said.

Like a lot of newspaper industry ideas, this one was a stolen one, Hussman cheerfully admits. He had heard about the Winnipeg Tribune in Canada, which had begun to narrow the circulation chasm between it and the market leader. Like the Democrat, they had a lot of market share they could take away from their competitor if they were successful. (Despite its ground-breaking idea, the Tribune folded in 1980.)

"When we first started (Free Want Ads), most publishers thought we were crazy -- including our cross-town competition," he said. "But we increased our classified revenues within just a few months."

And they continued to grow -- jumping from $800,000 in 1978 to more than $5 million five years later.

Circulation also jumped to about 90,000. The giveaway ads were not the only reason, but Hussman says they were an important one.

The free ad strategy turned out to be crazy like a fox. "We only gave away to individuals," Hussman pointed out, "and individual classified revenue accounts for less than 15% [of total classified revenue]. We get 85% from commercial [accounts], and we got so much readership that more commercial accounts wanted to run with us -- and that's why our revenues went up."

When the Pattersons sold the Gazette to Gannett Co., they immediately matched the Democrat's Free Want Ads program.

"We thought, how can we do a better job of giving away ads?" Hussman said. "Obviously, you can't compete on price."

The Democrat redoubled its service efforts. Daily insertion deadlines were extended to 8 p.m., and the office opened on Saturdays. "We had general managers record how long it would take before they could get a human being on the line," Hussman said. "We got ours to under five seconds. With them, sometimes you'd wait three or four minutes."

In 1991, when Gannett sold its assets to Hussman's Wehco Media, everyone assumed the newly renamed Arkansas Democrat-Gazette would immediately shut down the free classifieds program.

"I said, no, we're keeping them," Hussman said. But there was a twist. The ads are on a reservation system with a finite number of free ads open in any category. People who want to get an ad in right away will often pay rather than wait until the next free ad opens. "It's still a very effective program," Hussman said.

Unlike the more recent entrants into free classifieds, the Democrat-Gazette still puts no limits on the value of the merchandise that can be offered in a giveaway ad. "We want the ads, we don't want to restrict them," Hussman said. "If somebody's going to sell an $18,000 car, we want it in the classifieds."

Free ads are staying at the Democrat-Gazette, Hussman said: "Every time we get a new classified manager, the first thing they want to do is get rid of free classifieds. I tell them, oh, no, you're not."