First, the good news: eBay (NASDAQ:EBAY) has finally decided to go into a business that makes strategic sense (instead of buying random phone companies and social-web-surfing companies). Kijiji's classified ads are highly complementary to the company's core business, and they allow the eBay to use its core expertise of helping people buy and sell stuff. Kijiji US also provides the company with a hedge in case Craigslist and other free listing sites begin to cannibalize its paid eBay listings.
Despite significant online classified efforts, moreover, the classified opportunity remains massive: The dying newspaper industry still rakes in tens of billions of dollars a year for printed classifieds--a less efficient, less informative, less convenient, more wasteful, and more expensive way to buy or sell products. In another few decades, when the current (and last) generation of hard-copy newspaper readers dies out, printed classifieds will seem as archaic as whale oil. The newspaper companies may be able to retain some classifieds business as it moves online, but given the success of Craigslist, Monster, et al (and the seriously weak newspaper efforts thus far), this percentage will likely be small.
Alas, there is also bad news about eBay/Kijiji. First, Craigslist is about as dominant in general classifieds as eBay is in auctions, and both businesses are subject to the same network effects. (If the potential buyers for your product or service are searching Craigslist, you'll put your ad on... Craigslist.) Craigslist is also free, which is a hard price to compete with. So Kijiji has some seriously tough competition.
Second, Craigslist is run by socialists who appear to have no interest in turning it into a real business. This means Craigslist is likely to be free or near-free in perpetuity. And this, in turn, means that if eBay ever tries to make Kijiji US a real business, the few buyers and sellers who ARE using Kijiji will probably laugh all the way to Craigslist.
Third, as ancient Internet observers will remember, "free" isn't always the best business model for an online listings business. (eBay proved this in 1997-1998 when analysts were convinced that a free auctions service from Yahoo would put the company out of business). The major flaw of Craigslist, one that opens the door for competition, is that it is overloaded with crap. If eBay/Kijiji were emphasizing listing quality, seller reputations, or some element missing from Craigslist, the competitive story might make some sense, but right now Kijiji's problem is that it has NO crap (or any other listings). And it's hard to see how "Just like Craigslist--except no listings!" is going to carry the day.