Craisglist v. eBay: What’s at Stake?

The Craigslist vs. eBay trial going on over the alleged dilution of eBay’s ownership interest in the site is happening this week. There’s a provocative BusinessWeek article that spins out various scenarios and potential outcomes:

• Craigslist wins, nothing changes
• eBay wins and 1) forces Craigslist to charge money for listings across categories making eBay’s Kijiji, eBay itself and other classifieds purveyors more competitive with CL and/or 2) paving the way for an eventual acquisition by eBay

Here’s the most provocative nugget of the piece:

From the time eBay purchased a 28.4% stake in 2004, the larger company has considered fuller ownership, court documents indicate. The idea was “to take out the free player,” says Jeffrey Lindsay, an analyst at Sanford C. Bernstein.

Here’s what I wrote in July, 2007 when eBay’s Kijiji entered the US market:

Having a board seat on a company you’re directly competing with would seem to be a direct violation of eBay’s fiduciary obligations to Craigslist. In one sense the ultimate expression of Kijiji’s success would be to take Craigslist’s business — which by the way I don’t think it will be able to do. Google Base didn’t kill Craigslist or eBay, Kijiji won’t kill Craigslist.

My belief is that eBay bought a stake in Craigslist so it could “go to school” on the site. From the beginning I think eBay’s motives were to secure an acquisition or to glean enough “learnings” so that it could more effectively compete with CL. eBay, a “Web 1.0 company,” is under pressure to find new sources of growth, which are not coming from its core business; PayPal is one of those potential areas as an aside.

I was never a securities lawyer and so I don’t know the nuances of the law here. It may be that CL acted improperly and in violation of eBay’s rights as a director and part owner of CL in diluting the auction site’s interest. However there are some major “unclean hands” on eBay’s part. I suspect we’ll see some sort of settlement before the trial concludes. But maybe not . . . in which case there could be appeals, etc.

But unlike the BusinessWeek piece suggests I don’t think we’re going to see some major change in the competitive landscape or pricing of online classifieds regardless of the outcome.

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