Craigslist and eBay tie-up tainted by lawsuit

The free classified advertising website Craigslist makes much of its disdain for corporate culture - but its unorthodox management has brought it into conflict with one of its biggest shareholders, eBay.

Attracting 9bn page views per month, Craigslist has chipped away at newspapers' advertising revenue since its creation in 1995 and is popular among people searching for anything from apartments and jobs, to pets and furniture or even fleeting sexual encounters. With a staff of just 25, it is estimated to be valued at $5bn (£2.5bn).

Hoping to cash in on the site's success, the on-line auction firm eBay snapped up a 28.4% stake from a former Craigslist employee in 2004. But eBay filed a lawsuit this week accusing Craigslist of unfairly diluting its investment by more than 10% through actions which violate corporate law.

"Since negotiating our investment with Craigslist's board in 2004, we have acted openly and in good faith as a minority shareholder, so we were surprised by these recent unilateral actions," said eBay's general counsel, Mike Jacobson.

The precise actions which allegedly devalued eBay's stake are unclear because the lawsuit, filed in Delaware, has been sealed to protect commercial secrets. But experts say the dispute is consistent with a pattern of frosty relations.

Craigslist only charges a fee for a small proportion of its ads placed by professional estate agents and by employers. Its founder, Craig Newmark, insists he is not motivated by maximising profits - he recently said it was "kind of laughable" to suggest that the site had a business plan or a road map.

Jim Townsend, an advertising expert at consultancy Classified Intelligence, said: "They don't look at themselves as being in business - they see themselves as being in a virtual democracy. They don't follow the same rules as everybody else."

Classified Intelligence estimates that Craigslist's revenue will reach $81m this year - but it could be much higher if the site accepted lucrative banner advertising. Craigslist still has an "org" domain, rather than a "com", to reflect its non-commercial culture.

In spite of its investment in Craigslist, eBay has begun competing directly in free classified advertising by launching a rival website, Kijiji.

Responding to eBay's lawsuit, Craigslist's chief executive, Jim Buckmaster, put a statement entitled "tainted love" on its corporate blog suggesting the complaint "hints at ulterior motives" - such as a hostile attempt to take control of Craigslist or the sale of shares to an unfriendly party.

"We are surprised and disappointed by eBay's unfounded allegations, which came to us out of the blue, without any attempt to engage in a dialogue with us," wrote Buckmaster.