Commentary: A big opportunity up for grabs

By Denise Garcia, Gartner Analyst

Internet classifieds are one of the few promising areas in a bleak advertising landscape. The reason: Content providers and advertisers are beginning to recognize that they've been missing a huge growth and revenue opportunity.

Many of the major Internet players allowed themselves to be discouraged by the failures of sites like CitySearch to deliver on the early, and perhaps exaggerated, promise of online classifieds. The main problem was simply achieving critical mass: establishing a large enough user base in a given area to make online advertising worthwhile. Some markets--New York City, San Francisco and Austin, Texas, for example--could offer large enough numbers of Internet users to make online classified a viable proposition, but most cities simply lacked sufficient Web-savvy populations.

As Internet usage continues to grow significantly, however, many industry decision-makers are taking another hard look at online classifieds. Gartner predicts that this segment will likely represent 16 percent of the total $7.9 billion online advertising market for 2001. And a $1.26 billion market opportunity is large enough to make almost anyone reconsider a supposedly "failed" advertising medium.

When the Internet content providers largely abandoned online classifieds, the principal beneficiaries were the forces that have always dominated the market: local newspapers. Ironically, the newspapers themselves missed out on the greatest opportunity. The newspapers could have seized the chance to build low-cost online communities that paralleled the readership communities their publications had already established. Instead, fear of diluting their most important revenue streams caused them to go slow in bringing their classified sections online.

Newspapers can use their Web sites to leverage their existing classified revenues by offering discounts to advertisers willing to supplement their print ads with online versions. In specialized areas, such as online personals and auto ads, they can even charge the users who want to read classifieds. Yet to date, only a few newspapers--for example, the San Francisco Chronicle, through its SFGate Web site--have taken Internet classifieds seriously.

	See news story: Classifieds get second look from Net

If the newspapers do not soon recognize this opportunity, other competitors are certain to move in. One major content provider, Yahoo, owner of the largest number of unique users on the Internet, has already begun aggressively targeting this market, and many others are sure to follow.

There is no question that the online classified advertising market will continue to grow as Internet usage reaches the saturation point and advertisers become more sophisticated about targeting their desired demographics. The only significant question remaining is which content providers will move fast enough to take advantage of this market opportunity.

(For related commentary on Internet advertising, see Gartner.com.)

Entire contents, Copyright © 2001 Gartner, Inc. All rights reserved. The information contained herein represents Gartner's initial commentary and analysis and has been obtained from sources believed to be reliable. Positions taken are subject to change as more information becomes available and further analysis is undertaken. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of the information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof.