Wednesday, May 21, 2008

eBay vs. Craiglist

Ebay Slaps Lawsuit On Craigslist!

Article Summary

On April 22, 2008, a lawsuit was filed by eBay against Craigslist, with the Delaware Court of Chancery, in the State of Delaware, which is a forum that resolves disputes between companies registered in Delaware. EBay had acquired 28.4% interest in Craigslist in 2004, making it a minority shareholder in Craigslist.

According to eBay, the reason behind them filing the lawsuit is that two directors of Craigslist, Craig Newmark and their chief executive, Jim Buckmaster, have unfairly entered into transactions that have diluted eBay’s economic interest in the company by more than 10 percent. EBay alleged that both the directors have breached their fiduciary duties.

Mike Jacobson, eBay’s senior vice president and general counsel, revealed through a written statement that, “The recent actions by the Craigslist directors have disadvantaged eBay and its investment in Craigslist.” He said, “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. We are asking the Delaware court to rescind these recent actions in order to protect eBay’s stockholders and preserve our investment.”

Craigslist responded to this lawsuit fiercely in a blog by saying that the eBay lawsuit is “unethical and unfounded.” “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,” the blog post said. “Coming from a shareholder that views Craigslist as a prime competitor, filing suit without so much as mentioning these assertions beforehand seems unethical, and hints at ulterior motives.”

The blog post goes on to say that Craigslist has always meted out a fair treatment to eBay, the minority shareholder, and will continue to do so in the future as well. They also said, “EBay has absolutely no reason to feel threatened here — unless, of course, they’re contemplating a hostile takeover of Craigslist, or the sale of eBay’s stake in Craigslist to an unfriendly party.”

With both, eBay and Craigslist flinging accusations at each other, only time will tell who is at the receiving end, whether it is eBay that has been given a raw deal or if it is Craigslist that is being taken for a ride by a minority shareholder.

Brief Overview

The article does not adequately define the precise reason why eBay is filing a lawsuit against Craigslist, but it does say that Craigslist “unfairly entered into transactions that have diluted eBay’s economic interest in the company by more than 10 percent”. It is a vague reason, but obviously Craigslist has made some decisions to shift that shareholders best interest. Craigslist disputes back by saying that eBay had never even mentioned any kind of complaint or “without any attempt to engage in a dialogue with us … which hints at ulterior motives”.

Class Relevance

Ebay and Craigslist are full of both marketers and consumers. These are both online companys that do one thing, bring seller and buyer together. Ebay offers their services at a global market, while Craigslist offers local deals and services. In addition, Craiglist offers listings for job postings, advertisements, and personals, free of charge (which may explain its generic appearance). People with an online business who want to market their products and/or businesses to consumers may choose to route either website to keep their costs low. Marketers could have the ambition to market their products globally through eBay, or locally through Craiglist. A Craigslist consumer will have a decision to pick up a bed or car locally, or an eBayer who wants a rare book or album that can easily be shipped cross-country or overseas. In addition to eBay and Craigslist, Yahoo! also have posting of auctions and jobs. These are a few companies that are utilized fully by the public, both marketers and consumers.

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