Winning The Battle For Classifieds

Like telephones you can't carry with you and letters delivered by the post office, classified ads printed in the local newspaper are starting to look awfully 20th century. Online ads like those on craigslist are taking over — and, as CBS News correspondent John Blackstone reports, that's a big problem for newspapers — large and small.

At the Brain Wash Café and Laundromat in San Francisco, you can pick up a latte and surf the Web while you wait for your clothes. When owner Jeffrey Zalles needed a new cashier, he searched in two ways: an ad in the local paper, the San Francisco Chronicle, and one online in craigslist.

"We got about four responses from the Chronicle — and we got 400 responses from craigslist," Zalles says. "We were overwhelmed with applicants."

From a rundown Victorian home in San Francisco, craigslist has devastated the hugely profitable business of newspaper classifieds.

What craigslist CEO Jim Buckmaster discovered was that classifieds work much better online than on paper. Searching them is easier, there's no three-line limit — and, best of all, most craigslist ads are free.

"We never set out to make money," Buckmaster says. "There are some Zen aspects to it.

There's both Zen and money. Charging only for help wanted ads, craigslist makes millions — enough success that giants Google and Microsoft want in on the game.

"If you look at craigslist, they have very large strongholds in certain cities in the U.S.," says Microsoft's Gary Wiseman. "We look at this as a global game."

Wiseman is a manager of Microsoft's Expo Live site, which boasts sophisticated new tools for classifieds — like maps for real estate ads.

"You can also zoom all the way into a particular listing and then switch to an aerial view," Wiseman says.

Microsoft and Google are betting that free classifieds will bring millions of people to their Web sites who then can be targeted for paid advertising.

Classified ad consultant Peter Zollman says to stay in business, newspapers that have lost hundreds of millions to craigslist must go online.

"Publishers are, and should be, scared witless," Zollman says. "Classifieds globally is a $100 billion a year business. A hundred billon dollars a year, and every nickel of it is in play."

Who wins will be determined by who gets results. For now, craigslist is in the lead.

"Look, it's ugly, it doesn't have great search tools," says Zollman. "But it works."

Just ask Zalles at the Brainwash Cafe. He now advertises only on craigslist.