No One Puts eBay in a Corner

Just because Craigslist is free doesn't mean it can give itself away.

eBay (Nasdaq: EBAY  ) is filing a lawsuit against Craigslist, alleging that the popular online classifieds site is diluting the 28.4% stake that eBay acquired four years ago.

More to the point, eBay is citing actions by Craigslist founder Craig Newmark and CEO Jim Buckmaster earlier this year that dilute eBay's stake by more than 10%.

Details are sketchy at the moment, mostly because eBay's legal complaint is filed under a seal to protect confidentiality restrictions. That certainly can't stop us from cooking up our own conspiracy theories, because this whole eBay-Craigslist pairing was about as eclectic-looking as the Julia Roberts-Lyle Lovett pairing.

eBay's minority stake in Craigslist came about as dumb luck, when a former Craigslist executive wanted to cash out of the privately held company. It's always been hard to peg a value on the site, especially since it refuses to take display ads or charge for listings (beyond meager fees for corporate job listings in certain markets and brokered apartments in New York City).

One can't blame eBay for snapping up the stake back then. Craigslist posed the biggest threat to eBay's model. Rival auction sites like Yahoo! (Nasdaq: YHOO  ) and Amazon.com (Nasdaq: AMZN  ) , and eventually Overstock.com (Nasdaq: OSTK  ) and innovative jewelry auctioneer Bidz (Nasdaq: BIDZ  ) , never really slowed eBay down. The real threat was the wide-open challenge of an intuitive free classifieds site like Craigslist.

eBay was paying to sleep with the enemy when it bought its stake, but it felt necessary. Since Craigslist has changed little since its launch, it's safe to say that either eBay hasn't voiced strategic suggestions for the site or that eBay's advice has gone unheeded.

Last year, eBay launched Kijiji, its own free online classifieds website. It's a more colorful Craigslist, though naturally nowhere near as popular. It's gaining an audience with every passing month, and according to Alexa.com, it now ranks 4,104 among all websites.

So why would eBay raise a stink over Craigslist dilution when it owns the keys to a shiny and promising online classifieds site? Is it trying to force Craigslist to buy back its stake or turning the tables and acquiring all of Craigslist? Is it just the public culmination of a relationship that has been awkward for the length of a presidential term? Are Craigslist's dilutive moves a prelude to taking the company public?

The last point is unlikely, but anything it possible at this point. As strange as the initial deal was, the possible breakup could be even stranger.

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