EBay's Craigslist Gambit: Will it Backfire?

EBay (EBAY) has gone public with the details of its lawsuit against Craigslist and its two shareholders Craig Newmark and James Buckmaster. While suit details alleged self-dealing by Newmark and Buckmaster and a rift over eBay’s Kijiji unit, which competes with Craigslist, it’s worth pondering the motives – and perceptions – here.

Obviously, eBay thinks it has a strong case and that’s why it went public with the complaint. The short version: eBay bought 28.4 percent of Craigslist in 2004 and there was a right of first refusal on share purchases that would be lifted if eBay became a competitor. In 2005, eBay launched Kijiji.com overseas and brought the site to the U.S. in 2007. Craigslist balked and said that eBay was engaging in competitive activity, ending the right of first refusal provision in June 2007. That July eBay removed Josh Silverman from Craigslist’s board because he worked on Kijiji.

In July, eBay tried to appoint Thomas Jeon, a company lawyer, to Craigslist, but “Newmark and Buckmaster engaged in a series of clandestine transactions (a poison pill and other moves to make eBay a minority stakeholder) designed to ensure that eBay would not be able to elect a director, and to either impose new transfer restrictions on eBay or dilute its interests.”

On July 23, 2007 eBay’s then CEO Meg Whitman told Buckmaster that the company put a firewall between Kijiji and its Craigslist investment and said eBay “would welcome the opportunity to acquire the remainder of the company we do not already own whenever you and [Newmark] feel it would be appropriate.” Whitman reiterated that it was happy with its Craigslist investment and had no intention to sell.

Does eBay have a case in the court system? You bet. How about the court of public opinion? The answer here is not so clear. No matter how solid eBay’s complaint it is, the spat is going to be portrayed as a David vs. Goliath story. Big bad eBay will be pushing around Newmark and Buckmaster.

Frankly, it doesn’t matter whether Newmark and Buckmaster cooked up a scheme to dilute eBay’s holdings in the perception game. Why? Craigslist is a community service controlled by two guys that obviously care about controlling their company, but aren’t nutty about making money. Personally, I don’t get it since I’m a capitalist pig, but there is a certain appeal to Craigslist’s approach. Craigslist is a movement, an Internet icon. eBay represents corporate America.

Realistically, how can eBay compete with that Craigslist perception?

Comments

[User 186473]

Thank Gog eBay is doing this! eBay is a true monopoly (was I guess) and has converted many loyals into haters (myself included) by its total money-mindedness.
Now this move of eBay against Craigslist will turn most of the US against it :)

[John Pseudonym]

I think it's time for the Democratic Party to investigate eBay. Their practices are getting out of Control.

[whoiskiddingwho]

So: It is fine for eBay to make use of the fact that it is a big company and not consult the people who have invested money, sweat, and time to make their own business a success on eBay when ebay wants to do so and make changes. Yet, if another company does exactly the same thing when ebay is on the receiving end it cries wolf. Karma, a wonderful thing! Long live CL AND the principles they stand for. I am sure, in the court of public opinion ebay is already a "has been" due to their constant smoke screens when all they are concerned about is shareholder opinion winning stats to hoodwink the analysts and their own bottom line. All they have managed to do with this law suit is to reinforce the low public opinion.

[jaysea]

good for EBay! i hope they take them down. kijiji is way better than Craigslist anyways, maybe it has something to do with the fact that there was real money put into kijiji. Craigslist has never liked Ebay, never will. do i believe that craigslist willfully diluted Ebay's stake... Heck Yeah. do i believe that craigslist is trying to elbow Ebay to sell... most certainly.