Imagine being an executive at The New York Times Company (NYSE: NYT) waking up to read in one of your own papers that another company will offer free online classifieds. This time its is Facebook, with 22 million registered users, making the offer.
While the move may trouble News Corp's (NYSE: NWS) MySpace and online classified operations like Monster (NASDAQ: MNST), the real victims of any success by the Facebook venture will be the newspaper companies. They are already watching their classified ads move to online real estate, job, and car sites. The newspapers own some of these, but can't give the advertising away. It would undercut their entire business model of migrating readers and paid advertising to internet sites.
It is also difficult to see how the new product works for Facebook. While it may bring in new users and keep current users glued to their screens while they look for jobs, free is free. If there is a knock against social network sites it is that they cannot make money on their huge traffic bases.
Facebook may do some damage to the newspaper industry, but it is also giving itself a paper cut.
Douglas A. McIntyre is a partner at 24/7 Wall St.
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