When eBay, Inc. (NASDAQ: EBAY) recently began focusing on being more of a retail storefront than an online auction site, many saw it as the nail in the coffin of what was once an internet darling. Higher fees, angry sellers and a multitude of changes at eBay in recent years have many writing the company off as progress peaked in 2004 and has been falling ever since. Even former CEO Meg Whitman did not waste a chance on going over her self-imposed 10-year stint as the company's leader, having now left the company as of last year.

To add insult to injury, free classified listings are popping up all over the web to take over for what made eBay so powerful: connecting buyers and sellers for a transaction outside of the normal retail landscape. This grassroots commerce is what made eBay what it is. Its customers -- buyers and sellers -- did not want a normal retail transaction; they wanted a flea market and that is what eBay became. Except, that "flea" became an 800-pound gorilla.

Free classified providers like Oodle are winning business all over the web for niche audiences like those at MySpace.com and Walmart.com, two of Oodle's larger customers. Even localized free classified websites like Oklahoma City's OK4Free.com are getting in on the action. These are free websites to list items on -- unlike eBay. And they could be eating eBay's lunch soon if not already. To some who think eBay is turning into an also-ran in the online classified business, the welcome (albeit, smaller) competition is a good thing. Now, if someone could build a directory of all these free classified sites, customer defection from eBay could be quite a bit more rapid.

Last week, I talked with Craig Donato, the CEO of Oodle. I've followed his company from its early days and he's certainly made significant progress. In fact, he was able to raise $11 million from top VCs like JAFCO, Greylock Partners and Redpoint Ventures.

I asked him if it was getting easier to raise venture capital?

While Craig agrees there is a lot of money VCs are still willing to give away, there has also been a change in their selection process. Specifically, if the company does not show proof points -- like revenue traction -- after getting an initial funding, it's a good bet VCs will not invest any more. "We may see more companies that just die," said Craig.

As for Oodle, it has a very cool model. It aggregates more than 20 million classified listings from more than 75,000 sources and provides some useful tools to help its users. For example, let's say you want to buy a 2004 Honda Accord. Oodle will actually provide you with inventory and pricing trends. "We also take into account regional differences," said Craig. "These can be very important for pricing."

Craig also thinks the business model for classifieds is due for disruption. According to him: "I think classifieds will be free to post. So how do you make money? It's basically using the Google Inc. (NASDAQ: GOOG) approach. You will pay to get premium placement on the search listings. Basically, payment is based on performance."

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.

Krishna Bharat is the principal scientist at Google.  He also invented Google News. He got the idea for Google News after September 11th – since he thought it would be a good idea to aggregate news around particular topics.

He recently gave a presentation at the International Press Institute Congress in Edinburgh. His message: newspapers need to do more than just reprint articles on the Web. That is, they need to leverage the Web's inherent advantages.

Suggestions:
• Link to other stories (actually, CNET does a good job at this).
• Allow for personalization (such as filtering to your preferences – as well as learn about your preferences).
• Open up archives.
• Link to rich resources, such as Wikipedia.
• Allow reader participation (eg, blogs)

So, is Google News a threat to newspapers?  Maybe.