Here’s some great coverage our client OLX got in BusinessWeek right before the holidays.

A Web of Classified Ad Rivals Challenges Craigslist

Globally, upstarts led by OLX move to edge Craigslist out of fast-growing local classified advertising markets and to crack its dominance in the U.S.

By Douglas MacMillan

Fabrice Grinda is bullish on Brazil and betting big on Internet classified ads in South America’s largest country. This year, Grinda’s New York-based company OLX opened an office in São Paulo, hired locals to translate the OLX site into Portuguese, asked top real estate brokers and auto dealers to offer low-priced listings, and recruited an executive from eBay (EBAY) in Latin America.

That approach has worked well for OLX in Mexico, Spain, Portugal, Russia, and a handful of other countries. And in September, OLX became the leading classifieds site in Brazil, surpassing local rival QueBerato in visitors, according to researcher comScore (SCOR). Craigslist, which has come to dominate the U.S. and other markets by charging no fees for most ads, is a distant No. 42 in Brazil, according to comScore. “I would like to think we have a chance to become the Craigslist of the rest of the world,” Grinda says.

Craigslist is a worthy target. Founded in 1995, the popular site for free online listings has almost singlehandedly replaced the classifieds business of print newspapers and now dominates the U.S. online market. Yet critics say Craigslist has done little to innovate, ignoring opportunities to expand through search, social networking, and wireless communication. It’s also been slow to penetrate some developing overseas markets. Internationally. Craigslist is “asleep at the wheel,” says Grinda.

New players are raring to overhaul online classifieds. “Classifieds have gone through two chapters,” says Craig Donato, co-founder and CEO of classifieds startup Oodle. First came newspapers, then Craigslist, he says. “We are focused on the third chapter.” Craigslist declined to make an executive available to comment for this story.

Most of the innovation in classifieds has happened in specific areas such as job postings on Monster (MWW) and real estate listings on Trulia. “Those sites all have a lot of traffic and they co-exist with Craigslist,” says Greg Sterling, founding principal of researcher Sterling Market Intelligence. Jobs are one of the few areas where Craigslist charges a fee for postings. It also charges for New York real estate listings.

No. 2 OLX tries harder with locals

Newcomers find it tough to challenge Craigslist’s array of listings, which range from used Apple (AAPL) iPods, to beachfront properties in Miami, to solicitations for “casual encounters,” often a euphemism for consensual sex.

Still, upstarts are making headway. In 2009, its fourth year, OLX became the world’s second-most-visited online classifieds property, leapfrogging eBay’s Kijiji sites and approaching Craigslist. Co-founder and CEO Grinda says the site encompasses 90 countries and 40 languages, compared with Craigslist’s 70 countries and 6 languages. Unlike the more established site, OLX works hands-on with locals in all its major markets to translate its services and to relate to merchants in the community, Grinda says. Hands-off Craigslist relies mainly on local sellers to post listings. It does next-to-no marketing.

OLX makes money by promoting ads to the top of listings, charging $2 to $10 a week. The company saw its first profit in June and expects more than $10 million in sales this year. “OLX is the leading classifieds site in a bunch of markets that are small today but have the opportunity to be the same size as Craigslist,” says Jeremy Levin, partner in Bessemer Partner Ventures, which contributed to OLX’s $29 million in funding. “When you add them all up you get something that’s substantially larger than the U.S. market and a business that generates—if it is successful—hundreds of millions of dollars in revenue.” This year, Craigslist is expected to bring in $100 million in sales, according to the AIM Group. The closely held company doesn’t report financial figures.

Craigslist’s dated technology also gives rivals a lever, even in the U.S. Oodle, which started in San Mateo, Calif., in 2005, is pursuing what it considers a missed opportunity in connecting classifieds to social relationships on sites such as Facebook. Classifieds are “not about inviting some anonymous person over to my house to test-drive my car,” says Oodle co-founder Donato. “We’re trying to create a different experience, based on trust and reputation.”

Craigslist ads search poorly

Oodle’s approach is best demonstrated on Facebook Marketplace, a classifieds site on the social network. There, Oodle lets users buy and sell items in an environment where people and merchants use real names; users can quickly share good deals with Facebook friends. The company earns revenue by taking bids for prominently placed ads, similar to OLX, and through a subscription service that helps real estate brokers and other professionals find customers. Besides Facebook, Oodle has partnered with Wal-Mart (WMT), AOL, and News Corp.’s (NWS) MySpace. Oodle has raised more than $20 million in funding, including some from Greylock Partners.

Another complaint about Craigslist is that it lacks sophisticated search. Shoppers can’t search within a limited geographic area—say, a tri-state area. Its listings typically don’t get picked up by search engines such as Google (GOOG). San Francisco-based Vast is trying to help online classifieds become more searchable by working with publishers to help users quickly retrieve listings tailored to them. For example, Vast powers the search for cars on the Web site of Kelley Blue Book.

Such online niche sectors as travel, autos, and real estate are already worth at least $1 billion apiece, says Vast CEO Kevin Laws. His company collects most of its money from fees paid by advertisers each time the search engine refers a customer. Some real estate brokers end up sharing a significant percentage—sometimes more than $1,000—upon completion of a sale.

Craigslist’s new competitors may not soon edge out the classifieds king, says Kelsey Group analyst Peter Krasilovsky. Craigslist has the critical mass of millions of users that many upstarts struggle to achieve, he says. In the U.S., the service had 44.1 million unique users in October 2009, up 20% from a year earlier, according to comScore. “There’s no evidence that Craigslist has been cannibalized,” says Krasilovsky, who nevertheless contends there’s room for new players to grow. “There’s more participation in classifieds than there’s ever been before.”