The marketplace for online classified platform ads is rapidly gaining ground. In some markets, players and platform models have emerged as dominant, but market-shaping opportunities exist for players across the board.

For decades, classified ads were the domain of newspapers, which offered advertisers cheap, small-type notices sorted under specific categories. The ads gave shoppers an easy way to browse various local offers, usually from private sellers. The jump from print to digital was inevitable and has proven itself to be quite lucrative for digital players. In emerging markets, online advertising has enjoyed double-digit annual revenue growth rates, while in more mature markets, annual revenue growth rates are not far behind at almost 10 percent.

The stakes in online classified advertising are high. Market leaders often capture profit margins of 40 to 50 percent and clearly dominate their markets. Understanding how the industry is developing and the differences among national markets can be crucial to success.

The evolution of online classified ad models.

McKinsey research into this industry detailed two primary online classified ad business models that have evolved. The first one, the horizontal model, offers ads across a wide range of categories, from bicycles to hair styling. Among the best known horizontal sites is craigslist in the United States.

To successfully disrupt these markets, leaders will need to act in three very specific ways:

Leading horizontal players need to take a closer look at the relevance of their site listings. Understanding if, for example, one website lists more relevant goods or services than another or has a foothold in a specific market, might require a manual listings count or the use of crawlers.

Monetization decision. Successful disruption of a horizontals-dominated market will also require careful consideration of the monetization trade-off. Revenue is ultimately important, but forfeiting monetization potential in certain market segments or verticals by making listings free of charge may attract more listers and thus create a more attractive offering for searchers.

Innovative product play. Horizontal players typically draw a large audience, but they often lack specialized product offerings. Players seeking differentiation in these markets can leverage their broad audience to either develop their own innovative offerings or partner with innovative offerings.