Facebook unveils Marketplace to challenge Craigslist, apps

10 Oct 2016

This article was first published in CIR17.19 on October 10, 2016, a client-only report. To receive the bi-weekly Classified Intelligence Report (CIR), go here.

Social media giant Facebook finally rolled out its classifieds offering. The announcement last week that it was launching a local marketplaces app in the U.S., U.K., Australia and New Zealand (IPhone and Android for now, desktop to come), did not come as a surprise, although the company has kept us guessing regarding the format and timing.

Facebook rolled out an early iteration of Marketplace as far back as 2007.

We’ve written for more than two years now about how existing Facebook Groups allow users to post items to buy and sell — a quasi if not particularly robust “marketplace” feature — and, while Facebook has been reticent to comment formally, it’s been clear that full-blown marketplace functionality as a standalone product was incoming.

Indeed, Facebook rolled out an early iteration of Marketplace as far back as 2007, but it didn’t gain traction in a tech environment that had only just seen the launch of the IPhone. In 2015, Facebook began testing a feature called “Local Market,” and that functionality evolved into Marketplace last week.

The timing makes sense. Worldwide — and particularly in the U.S. — the classified apps space is red hot.

OfferUp, the leading U.S. general classified app, just closed a new round of $119 million U.S., bringing the total raised for the Seattle-based company to $210 million. South Africa-based Internet and media powerhouse Naspers invested $100 million U.S. in LetGo last year (the company has raised more than $200 million in total) to compete with OfferUp in the U.S..

Facebook enters the fray as a wildcard

Facebook Marketplace’s functionality is nearly identical to the other U.S. apps and most of the leading apps elsewhere in the world (Shpock in Europe, Carousell in Singapore, Mercari in Japan).

You can easily take a picture of an item you want to sell, add some text and post it for free. Items appear on a location-aware Instagram-style scrolling home screen, which encourages browsing and impulse buying.

Facebook isn’t baking in an online payment piece (yet) or premium placement upsell options as some of the other apps have done, but it doesn’t have to — its business model is less about straight up monetization and more in line with increasing engagement, keeping Facebook users coming back for more visits and staying on the site longer.

That of course benefits Facebook as a whole by, allowing it to collect even more user data to target ads. (It’s a monetization strategy, to be sure, but a very different one than classified sites, such as OLX, Kijiji or Craigslist.)

However it plays out, Facebook comes to the party with a massive leg up — 450 million of them, actually. That’s the number of people who, according to Facebook, visit one of the site’s buying and selling groups each month. By contrast, OfferUp and LetGo receive just 12 million visitors a month each.

Not all of the nearly half a billion users (out of Facebook’s grand total of 1.7 billion) will use the new Marketplace app, of course, but given the starting point, it’s not hard to imagine the frantic conversations taking place at OfferUp and LetGo right about now.

Publicly, OfferUp’s CEO Nick Huzar put a positive spin on the news. Speaking at the GeekWire Summit last week, he argued that Facebook’s size and scope of products mitigate the threat. OfferUp will continue to “hone in and do what we do well, and be the best at doing that,” Huzar said.

OfferUp board member Jeff Jordan at VC firm Andreessen Horowitz agreed. “This is not their core business. They have played around in ecommerce before without a lot of success.” Still, he added, “you pay attention to what Facebook is doing. How can you not?”

Another advantage for Facebook: Messenger, the company’s chat tool, which will be the main person-to-person communication means in Marketplace. Facebook users are already comfortable with Messenger and — rightly or wrongly — they trust its privacy protection.

Which is why we were a bit surprised about what Facebook is displacing to make room for Marketplace on its shortcuts bar: yes, Messenger. Perhaps this is because Facebook has already spun out Messenger as its own standalone app, or it feels Marketplace deserves an extra boost as it’s getting started, but it certainly indicates the value Facebook places on its latest offering. (A Messenger link still exists, but it’s now less prominent, to the left of the search bar.)

The biggest feature missing from Facebook Marketplace: the ability to rate and review buyers and sellers. Public profiles are nice, but direct user feedback can make all the difference in establishing confidence when making a purchase.

Items for offer on Facebook Groups — and now Facebook Marketplace — range in size from clothing to autos. Nigel Dalton, chief information officer at REA Group in Australia, pointed out at the Property Portal Watch conference in Madrid last September that in Australia real estate is the second most sought-after category on Facebook.

We’ve focused so far on the impact Facebook Marketplace will have on classified apps, but it’s Craigslist and EBay that may stand the most to lose. OfferUp, LetGo and the like are popular but still new entities without the cache of the big desktop names. Facebook, on the other hand, is in the same league.

Indeed, EBay shares responded quickly after Facebook’s announcement, dropping more than 4 percent at one point on Oct. 3.

There are still many open questions that impact our ability to foresee just how profoundly the competitive landscape will be impacted. Will Facebook Marketplace be curated or will it be a free for all? Will it be up to local volunteers to administer and manage the marketplaces, as been the case with Facebook Groups up to now? How will Facebook deal with fraud and scams?

Facebook explicitly bans a number of listing types, such as pets, guns and adult services, for example. But on Marketplace’s first day out, Business Insider reported seeing listings for “snakes, baby hedgehogs, fish, a farm hand, and scantily clad people posing suggestively.”

A Facebook spokesperson told Business Insider that the company relies on its employees to proactively look for offensive posts in Marketplace along with users reporting posts they think should be removed. Facebook director of product management Mary Ku later added that a “technical issue” caused these listings to get past the company’s normal review process and that it was being addressed.

While some forbidden items will invariably slip through, Facebook does a good job of policing offending posts. And other classified apps — including OfferUp — already use Facebook authentication to counter the creepiness endemic to many Craigslist interactions.

What was mainly a two-horse race in the U.S. between OfferUp and LetGo has just added a sleek and highly regarded thoroughbred.

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Brian Blum

Brian Blum covers the U.S., Canada and Israel for Classified Intelligence Report, and contributes to our special reports and research projects. Originally from San Francisco and now based in Jerusalem, he has been with the AIM Group since 2004. He is the president of Blum Interactive Media, specializing in writing and multimedia content development for online, print, video and audio. His clients include newspapers, universities and non-profits. He is currently working on a book about the billion-dollar bankruptcy of a once high-flying Israeli startup.