The New York Times recently ran a great story / interview with Craigslist founder Craig Newmark in which he addresses some of the issues arising from eBay’s lawsuit against the company. eBay bought a 28% stake in the online classifieds site back in August 2004, a purchase that seemed to line-up much better with the online auctioneers core strategy compared to the ill-timed purchase of Skype. But eBay wasn’t content to stop with Craigslist and bought Marktplaats.nl later that year, launched Kijiji in March 2005, and rounded it all off with the purchase of Gumtree a few months later.

And while these latter three acquisitions all focused on the European market, in July of 2007 eBay decided to extend Kijiji into the US and Canadian markets, thus representing a direct challenge to Craigslist. The move was a bit strange given the dominance of Craigslist in the US and has led to a rather acrimonious relationship between the two companies. As a result Craigslist is trying to buy back its shares from eBay, and in a recent lawsuit filed against it, is accused of trying to minimize eBay’s influence on the company. Newmark’s response: “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.”

And therein lies the perceived disconnect between the MO held by the folks at Craigslist and the profit-seeking orientation of eBay. As the article notes, “Craigslist prides itself on its grass-roots instincts and user-based content — including harnessing its users to identify and block bad actors on the site. Even broad strategic decisions, such as which areas to expand into, are described as reflecting user requests made at online forums at the site.”

But crowdsourcing classifieds hasn’t meant giving up profits. Instead the family of craigslist city-sites have recorded upwards of $100million in annual revenue, thanks largely to 2 million new job listings per month, and now span over 567 cities in 50 countries worldwide. 120 new cities were added in April 2008 alone. And to put it in perspective, while Craigslist has prospered with a small team of just 25 employees, the print classified business has suffered significantly, with classified advertising declining 16 per cent in 2007, bringing revenue back to 1996 levels (without adjusting for inflation…)!

So where does that leave the eBay and Craigslist? Call me naive but I can’t figure out why eBay would risk this potential offered by this relationship – for example, why not mirror CL classifieds on eBay as ‘buy now’ items, a new sales channel for users that could add value to both sites. Or similarly, why not try and build a partnership that would bring eBay’s national level sales down to a more micro-city level…. either way, you’d think that a compromise could be found to bring value to both. Evidently Kijiji complicates the picture, perhaps even to the point of no return. Can this relationship be saved???