If they love newspapers as much as Meyer, Craigslist users should feel guilty. The Project for Excellence in Journalism reported that in 2004 the San Francisco Chronicle in Newmark’s hometown lost an estimated $50 million in classified ad revenue to the site. More significantly, Craigslist’s effect on newspapers highlights one of the main challenges an industry encounters when a disruptive technology upsets its market: Not only is the core business broadsided by the fact that its product becomes available at a lower cost, but the task of identifying the emerging competition becomes strategically daunting. Newspapers with deep pockets have partially weathered bad competitors like Craigslist by analyzing the demographics of their customer base through registration data and surveys. At the New York Times, for instance, Chief Advertising Officer and Senior Vice President Denise Warren says the NYTimes.com audience—with an average age of 48—is “educated and affluent,” and knowing that helps her reach advertisers.

“In any business, you’re going to have the providers who are free or low cost, and you’re going to have providers that are high value,” says Warren. Since the Times can’t compete on price with competitors like Craigslist, it is attempting to sell advertisers on the uniqueness of its specific audience.

Old Business Models Fight for New Life
How effective this has been for the Times, widely seen as the industry’s leader, remains to be seen. On Sept. 21, 2005, the Times reported on its own business page that it would cut its workforce by 500 employees, using buyouts and severance packages. It attributed the decision to soft growth in advertising revenue and dips in circulation. While NYTimes.com has garnered the largest Web audience of any newspaper, its staggering traffic still doesn’t drop much to the bottom line. In fact, around 8 percent of the company’s revenue comes from online operations, says Warren.

That’s one of the major problems in dealing with disruptive technology. When a company is propelled abruptly into a new business with new competitors, the old business (which is in decline) remains for a significant time the primary bread­winner. In fact, according to a recent report by Merrill Lynch, it could take newspapers 30 years before online revenue will represent at least 50 percent of their top line.

Closing the gap between the revenue generated by the old model and that produced by the new is one of the greatest challenges for businesses adapting to disruptive technologies, and it’s been an especially tough nut to crack for newspapers, says Gannett’s Carroll.