(Headline has been corrected to show that Schibsted is No. 3, not No. 2.)
Like newspapers almost everywhere, Norwegian dailies VG and Aftenposten have watched their once-lucrative classified advertising sections shrivel as readers defect to websites where they can browse and post ads for free. That doesn't bother the papers' publisher, Oslo-based media group Schibsted. It also owns the website that lured away most of the classified ad business—and that site is more profitable than print ads ever were. "We weren't afraid to cannibalize ourselves," says Chief Executive Officer Rolv Erik Ryssdal about the group's decision in 1999 to spin off an online business called FINN.no that competes directly with its papers.
Schibsted, founded in 1839, has taken that successful strategy on the road. Its online classified business has expanded worldwide, with sites in 22 countries listing everything from real estate in Malaysia to cars in Italy to job openings in Argentina. On Sept. 22 the group bought control of France's No. 1 classified site, leboncoin.fr, from a former venture partner, in a deal that values the site at $540 million. Schibsted is now the global No. 3 in online classifieds, behind eBay (EBAY) and Craigslist. Revenues from its classified ad sites hit $245 million during the first six months of this year, with profit margins at some of its best performing sites as high as 60 percent.
"Schibsted is probably the smartest media company in the world right now," says Peter Zollman, founding principal of AIM Group, a Florida-based media consultancy. "They have been willing to jettison print, where appropriate, and they are willing to invest, where most media companies now are hunkered down."
U.S. newspapers' ad revenues plunged to $24.8 billion last year from $48.6 billion in 2000, according to the Newspaper Association of America. Classified ads have taken the worst hit of any ad category, declining 68 percent since Craigslist began rolling out its business nationwide in 2000.
American newspapers have long complained they can't compete against Internet-based Craigslist, whose founder, Craig Newmark, has said he doesn't care about making profits. Yet Schibsted's business model isn't that different from Craigslist's. Both companies charge nothing for most listings. While Craigslist charges for ads in some premium categories such as apartments in Manhattan, Schibsted asks users to pay a surcharge to give their listings more-prominent placement. Schibsted's classified sites also carry display ads from businesses, something Craigslist doesn't do. (The Norwegian company also owns job-search and automotive sales sites that charge businesses for listings.) Because operating costs are minimal, "the yield is just enormous," says Frédéric Filloux, a Paris-based media consultant who worked for Schibsted from 2007 to 2009.
Craigslist doesn't disclose financials, but AIM Group estimates its annual revenues at $120 million. If accurate, that's less than one-fourth the revenues of Schibsted's online sites worldwide (including its non-classified online businesses). While online ad sites generate only a small part of Schibsted's $2 billion annual sales, their average 24 percent operating margins helped the company eke out $67 million in profits last year, offsetting weaker performance from its print holdings, which include the 20 Minutes free dailies in France, Spain, and Switzerland.
It may be too late for other publishers to follow Schibsted's example. Going up against established competitors is tough—as Schibsted discovered in 2003, when it set up a classified ad site in Sweden but couldn't make headway against a local classified ad site called Blocket.se. Within months, Schibsted closed its site and bought Blocket for $27.3 million. "The acquisition price was considered to be high, but very soon the annual profits surpassed that," says Ryssdal, who at the time was running the company's Swedish operations.
Online auction giant eBay has followed a similar strategy in Europe. In 2004 and 2005, it acquired the top classified ad sites in Germany and Britain and now is the market leader in both countries. But eBay has stumbled in the U.S., where it didn't launch a classified business until 2008 and has failed to gain ground against Craigslist.
Both Schibsted and eBay say their businesses have plenty of room to grow, especially outside the U.S. "We've only scratched the surface," says Jacob Aqraou, general manager of the global eBay Classifieds Group. He says traffic on eBay's German site is "exploding" as the company rolls out mobile applications. And Schibsted is pushing for growth in emerging markets such as the Philippines, where it recently set up a classified site.
The bottom line: While many publishers bemoan the loss of print ads, Norway's Schibsted has developed a more profitable global business in online classifieds.