Gary Wolf is doing an excellent series of posts on Craigslist for the Wired Epicenter blog.  One thing not covered in this post about Craigslist's competition is the chicken and egg problem with classified websites.  No one is going to spend time and/or money to place an ad on a website that get's very little traffic.  No buyer are going to check a classified website with very few ads. 

I've tried kijiji.com once (dumbest name ever?).  There was one listing under "boats" in my area (we're surrounded by water here) and I've never gone back to Kijiji since.  Whereas, I look at all the boats on Craigslist daily and it never disappoints (yes, I'm a little boat crazy).

To change this chicken and egg problem a conventional approach would be to advertise.  However, the economics of free services (assuming any real competition to Craigslist would be free) means there is no revenue to pay for advertising.  This creates another catch 22, if you have no revenue you can't buy massive amounts of traffic and you can't earn revenue without traffic.  Of course, you can buy traffic with venture funding, but that's more of a gamble than anything.  Gary hint's that Oodle.com is a 20 million dollar gamble that failed.  I would have to agree, even with their integration with Facebook.

If anything, there are online classifieds that focus on a singular type of product.  AutoTrader.com and iBoats.com are two sites that I'll check if I'm looking for a car or boat.  AutoTrader.com has done a great job parleying their print classifieds online.  iBoats.com is a great boating community site with classifieds bolted on.  These are legitimate ways to get a classifieds site the ground in my view.