According to Classified Intelligence editor Peter Zollman, newspapers are doing little to hold on to, or grow their classified franchises, losing recruitment, automotive, real estate, and other ad revenue to online competitors.

Where are they losing the battle? "Private party buyers and sellers, landlords and tenants, auto dealers, home buyers, romance seekers, and the rest of the consumer spectrum," says Zollman. "With few exceptions, most papers are an improbable place for the private party who just wants 25 bucks for her old kitchen table, or the family hoping to raise a couple hundred dollars in a garage sale when it costs that much to advertise in the paper."

A just-released survey "Merchandise Pricing and Packaging Survey," performed by Belden Associates and Classified Intelligence shows that pricing and options for print and online merchandise classifieds is making it difficult for newspapers to compete. Surveying 71 U.S. newspapers of all sizes, Zollman says that the pricing and packaging for private-party merchandise ads "seems to be driven by what it costs to put a few lines of ink on a page or a half-tone in print."

He says, "What we've yet to see is any U.S. newspaper that is willing to lead with its online pricing, allowing print to be the upsell. Yet, it's clear that this is what they must do -- to regain market share, audience, and relevance."

Nor do newspapers create the kinds of interactive marketplaces that eBay and Craigslist have.

"Craigslist has stamped out marketplaces in nearly 100 cities worldwide with an easy memorable URL: cityname.craigslist.org.," warns Zollman. "eBay doesn't do this -- yet -- but imagine the effect if it began parsing its massive database by locality, i.e., yourcity.ebay.com. If you're a newspaper classifieds director, it should send chills up your spine."

Explains the survey, merchandise ads are subordinate to employment, real estate, and automotive advertising, where they "find the biggest accounts, most repeat business, and best revenue." Print costs are too much for small advertisers, which is where low-cost, high-traffic online sites get their feet in the door, but what's at stake is that sites like eBay are also leaching away eyeballs from core employment, real estate, and automotive ads.

In 2004, says the report, eBay "saw sales of $34.2 billion in merchandise worldwide -- including more than $11 billion in autos and auto-related merchandise -- with more than 56 million active users and more than 240,000 active storefronts. Craigslist, in which eBay bought a 25 percent stake in 2004, has expanded to nearly 100 cities around the globe. In its model, Craigslist builds local marketplaces with free classified ads. When a marketplace reaches critical mass, Craigslist begins charging for certain categories. It charges for recruitment advertising in San Francisco, Los Angeles, and New York and is considering charging rental brokers for rental listings in New York."

In addition to new competitors online, newspapers have to contend with existing behemoths such as Google, MSN, Yahoo!, and AOL which, says the report, "are all expanding their ability to capture local advertising revenue with local, targeted contextual searches."

One of the main differences between print costs and online costs is the increased ability to use photos to sell an item online. Yet, like the real estate industry, newspapers have failed to meet the demand of consumers to see what they're buying in a significant way. "More than one third of large newspapers allow customers to place a photograph in their print section for merchandise ads," notes the report, "while a similar number have the capacity to post pictures online. Yet only 22 percent of large newspapers allow ads to be ordered online, and 20 percent present all ad options online. Forty-six percent of mid-size newspapers allow for photos in the print edition, but only 26 percent could post photos to the Web."

Most papers discouraged the use of photos as being too expensive, unless it's a house for sale. One paper reported that a photo costs $380 for three days. Another accepted pictures only for pet ads, while another charges $52 per picture but doesn't accept digital photographs. Others charge $15 per photo for print and online, and another paper charges only $7 for four pictures online, to run the duration of the ad.

Curiously, it is the smallest papers with the most consumer-friendly photo options. Nearly three-fourths offer the option of photos online with prices ranging from $5 to $15, or $50 for six days.

Other aspects of online ads were explored by the survey, including the exploration of how papers charge for items with the most expensive items like boats and other merchandise costing the most, and small items sometimes being free. Newspapers also failed to enable self-placed ads very well, with most ads being placed through sales representatives rather than online.

The report warns that pricing for such ads are likely to collapse. Concludes the report, newspapers "have to reinvent classified advertising because prices for print merchandise classifieds will fall to almost nothing during the next few years."