by Brad Stone, NYTimes, April 25, 2010
Craigslist, one of the most popular Web sites in the United States, is on track to increase its revenue 22 percent this year, largely from its controversial sex advertisements. That financial success is reviving scrutiny from law-enforcement officials who say the ads are still being used for illegal ends.
The ads, many of which blatantly advertise prostitution, are expected to bring $36 million this year, according to a new projection of Craigslist’s income. That is three times the revenue in last year’s projection.
Law-enforcement officials have been fighting a mostly losing battle to get Craigslist to rein in the sex ads. At the same time, officials of organizations that oppose human trafficking say the site remains the biggest online hub for selling women against their will.
Last week, in the latest example, the Federal Bureau of Investigation arrested 14 members of the Gambino crime family on charges of, among other things, selling the sexual services of girls ages 15 to 19 on Craigslist.
The company that provided the revenue projection, the Advanced Interactive Media Group, has been preparing such analyses since 2003. Followers of Craigslist consider AIM’s work to be the most comprehensive estimates of the fiercely private company’s finances. The estimate was calculated based on the number of sex ads counted on Craigslist over the month of February and the fees for posting such ads — $10 initially and $5 for repeat postings.
James Buckmaster, Craigslist’s chief executive, said in an e-mail message that the site would not confirm the figures because it is private and does not discuss its finances. Of the sex ads, he wrote, “Of the thousands of U.S. venues that carry adult service ads, including venues operated by some of the largest and best known companies in the U.S., Craigslist has done the best and most responsible job of combating child exploitation and human trafficking.”
Mr. Buckmaster was referring to alternative newspapers, phone directories and sex Web sites that carry ads for prostitution, although authorities say that Craigslist is the largest place for such ads.
Craigslist, based in San Francisco, had seemed to put the conflict over its sex ads to rest. Attorneys general in 40 states, including New Jersey, Illinois and Connecticut, investigated the company for facilitating criminal activity, after a wave of publicity about prostitution and violent crimes linked to the site.
Although Craigslist has continually argued that it is legally protected by the Communications Decency Act against liability for what its users post — an analysis that judges and legal experts generally agree with — it promised last May to begin manually monitoring these posts for illegal activity.
But it also decided to stop committing to donate the profits from sex ads to charity, saying it would make no further comment on how that money would be used.
In a private letter sent to Craigslist’s lawyer on Thursday, Richard Blumenthal, attorney general of Connecticut, complained about the continued presence of prostitution ads on the site and asked what additional steps Craigslist was taking to keep such solicitations off the site.
He also asked the company to reveal precisely how much money those ads generate, and criticized the company’s announcement last May that it would no longer commit to donate those profits to charity.
“I believe Craigslist acted irresponsibly when it unilaterally decided to keep the profits from these posts,” Mr. Blumenthal wrote in the letter, a copy of which was obtained by The New York Times.
In the e-mail message, Mr. Buckmaster said, “Misuse of Craigslist for criminal purposes is utterly unacceptable, and Craigslist will continue to work with its partners in law enforcement and at nongovernmental organizations until it is eliminated.”
He declined to say whether the company was continuing to donate revenue from sex ads to charity, but he said the company was continuing to develop its charitable initiatives.
The company has two charitable organizations; one, the nine-year-old Craigslist Foundation, which received $648,000 in contributions in 2008, according to public documents, does not make any donations. It “connects people and organizations to the resources they need to strengthen communities,” according to its Web site.
There is also a newer organization, the Craigslist Charitable Trust, which was capitalized in 2008 with $2.7 million by Mr. Buckmaster and Craig Newmark, the company’s founder, according to public documents. But little else is known about it, and Mr. Buckmaster declined to comment further on the organization or say whether say whether that was the money from the sex ads.
Meanwhile, staff members for Illinois’s attorney general, Lisa Madigan, have counted more than 200,000 sex ads since late 2008 posted to Craigslist in Chicago alone — which they estimate have generated $1.7 million for the company. Officials in Illinois and Connecticut, as well as South Carolina, are leading the effort to get the site to improve its monitoring of sex ads.
Cara Smith, Ms. Madigan’s deputy chief of staff, said Craigslist’s manual review of the ads had had a minimal impact. “Certainly the manual monitoring has tempered the photos posted along with the ads, but I think there’s no question that the site continues to facilitate prostitution,” she said.
The AIM Group, which sells research on the advertising market to newspapers and Web sites, conducts its annual Craigslist study by tabulating all the posts to Craigslist in 39 major United States cities over a 30-day period, and then extrapolating to reach a final revenue figure.
This year, the study showed Craigslist on track to bring in $122 million in 2010, a 22 percent increase over its projected revenue last year. Though the site is largely free, it does charge people to post job listings in 19 major United States cities, and real estate listings in New York City, in addition to sex listings in all 438 markets in the United States. Revenue in those other categories remained largely unchanged since last year, according to AIM.
The increase in revenue from sex ads to $36.3 million for the year, according to AIM, was largely caused by Craigslist’s decision last May to double the rate for these ads in all of its American markets to $10.
The windfall from sex ads has touched a raw nerve with groups that oppose human trafficking, who are typically heated in their discussion of the company.
“Craigslist has not given any indication that they are outraged and disturbed that their site is the primary way children are bought in the country,” said Rachel Lloyd, executive director of Girls Educational and Mentoring Services, which provides assistance to sexually exploited and trafficked women. “All they have done is made cosmetic changes.”
Craigslist’s reliance on the Communications Decency Act has also angered law-enforcement officials, who complain that the law could not have been drafted with this particular example in mind. But the company has repeatedly won rulings in cases brought against it, including one in 2008 over discriminatory housing ads. A federal appeals court said Craigslist was an online service provider, not a publisher, and so was protected by federal law.
Questions about where that revenue is going are sure to arise from this latest financial analysis of Craigslist. In an accompanying report, the AIM Group estimated Craigslist’s expenses at under $50 million, though it acknowledged that this particular calculation involved “educated guesses.” The analysis took into account estimates of salaries, server and bandwidth costs, and the lawyer fees associated with Craigslist’s continuing legal battle with a minority shareholder, eBay.
Even if the numbers are slightly off, that leaves a lot of room for big profits. Mr. Buckmaster and Mr. Newmark own a majority of the company’s shares and by all accounts do not live flashy lifestyles.