eBay’s unusual legal dispute with executives from Craigslist stems from eBay’s decision to bring its Kijiji alternative to the United States.
eBay disclosed the details of the spat in a filing in a Delaware court, where it filed the case, known as “eBay Domestic Holdings v. Craig Newmark, et al” last month. Newmark is the founder and namesake of the classified listings site that is now about one-quarter owned by eBay stemming from an investment made in 2004.
eBay posted a public version of the court filing — with some details, such as specific stock ownership stakes redacted — to its investor relations Web site on Wednesday.
The original suit claims that Craigslist management took actions that diluted the value of eBay’s stake. eBay has made it known that it was willing to purchase all of Craigslist, but Newmark has resisted those overtures.
eBay shares were up 1.2 percent in midday trading Thursday to US$31.67.
The original agreement to invest in Craigslist, eBay said in the filing, included a provision that would cause the online auctioneer to lose certain rights if it engaged in competitive activity.
In the summer of 2007, eBay launched Kijiji — which had previously operated overseas in mainly non-English-speaking markets since 2005 — in the U.S. for the first time.
Craigslist CEO Jim Buckmaster notified eBay that the company felt the move was a competitive threat, and asked then-CEO Meg Whitman to consider selling back eBay’s stake or find a third-party investor to take it over. Whitman responded by saying eBay did not want to part with its stake and would in fact be willing to buy the rest of the company.
Shortly afterward, eBay said in the filing, Newmark and Buckmaster “engaged in clandestine transactions” and held secret meetings that diluted the value of eBay’s stake in the company, and had the effect of preventing it from nominating a new board member. Though specific are not given, eBay said the moves resulted in its stake being worth less than 25 percent of the entire company.
In an unsigned post to the official Craigslist blog, the listing site says it will file a formal response to eBay in the next few weeks and took a shot at its investor.
“Sadly, we have an uncomfortably conflicted shareholder in our midst, one that is obsessed with dominating online classifieds for the purpose of maximizing its own profits,” the post reads. “It’s a conflict of interest worth keeping in mind if you decide to give this filing a read.”
The suit shines a light on how hotly contested the battle for online classifieds supremacy is becoming. As the readership of newspapers continues to drop precipitously, more people are turning to the Web for person-to-person transactions.
“It’s a massive market and one eBay might feel it can do better than Craigslist,” Forrester Research analyst Josh Bernoff told the E-Commerce Times. While Craigslist has gained millions of users on its city-specific sites across the country, the longtime policy of allowing free listings may have led to a sense of clutter that some sellers and buyers want to avoid.
“There will be plenty of room for various players,” including newspaper-owned sites and others, he added.
eBay’s decision to post its filing and Craigslist’s shot across the bow suggests the matter may get messier before it gets cleared up.
Whether that impacts eBay’s image — Craigslist has long been a favorite brand of hardcore Internet users for its low-price, community-friendly business model and philosophies — is harder to judge. For one thing, the CEO at the center of the dispute is no longer at helm of eBay, with Whitman having stepped down.
Still, classifieds are likely part of the long-range strategy to revive growth at eBay, a fact signaled by its decision to bring Kijiji into the U.S.
“eBay has faced challenges in growing its core auctions listings recently and, given the growth of classifieds, that’s a logical place to look going forward,” Global Crown Capital analyst Martin Pyykkonen told the E-Commerce Times. eBay’s suite of related person-to-person services and tools — such as Skype and PayPal — also fit well in the classifieds space.