How the Government Turned Craigslist Into the Web's Biggest Pimp (Updated)
Update 5/4/2010: Connecticut attorney general Richard Blumenthal has opened a new investigation into Craigslist sex ads.
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Back in November of 2008 Craigslist made a deal with 40 U.S. attorneys general to clean up their business in classified sex ads, many of which were used to facilitate prostitution. But as a new report reveals, these regulations actually transformed the illicit ads into Craigslist's fastest growing source of revenue.
The report comes from the AIM Group, which has been tracking the finances of this very private company since 2003. As AIM's executive editor Peter Zollman notes, Craigslist's agreement with the AGs stipulated that they would charge for "erotic services", the idea being that a credit card trail would deter criminals. The company also agreed to donate all revenue from this sector of their business to charity.
But just six months later, in May 2009, Craigslist changed the game. The company eliminated its erotic services category and replaced it with "adult services". According to Zollman, "By changing the category from "erotic services" to "adult services" Craigslist very neatly sidestepped the agreement it had signed -- making the attorneys general look like chumps in the process -- and eliminating the requirement that they donate revenue to charity."
The company had clearly seen the light, because when Craigslist pulled this switcheroo, it also doubled the price. Posting an erotic ad had cost $5, but an "adult service" ad would cost $10. "In my opinion, that was a move to make money," says Jim Townsend, AIM's editorial director. "Erotics proved that people, even criminals, were willing to use a credit card."
This little maneuver has paid off big. According to AIM's report, Craigslist generated $36 million in revenue from "adult services" in 2009. That is triple the amount from the year before, and accounts for more than one third of their total revenue.
The AIM report has provoked a reaction from some of the AGs involved in the 2008 agreement. Richard Blumenthal, AG for the state of Connecticut, wrote in a letter that he was "deeply troubled" by the fact that Craigslist was earning a significant portion of its revenue from what he described as "posts that are clearly for illegal prostitution" and the fact that the company had reneged on its charitable agreement.
When it comes to the charitable giving, Blumenthal has a point. But Craigslist didn't charge for this kind of advertising before the attorney generals raised a stink. In a certain sense, Blumenthal and his colleagues have no one to blame for Craigslist's booming business in online prostitution but themselves.