Wired on Friday: Craig's List is about as San Francisco an institution as you can imagine. A web-only classifieds service, the bare-bones website carries a sizeable chunk of the oddities and eccentricities that makes this city buzz. It would be hard to find a member of San Francisco's online world who had a bad word to say about it.

Job openings for everything from nude modelling to the new rash of boomlet internet companies are posted on its jobs and gigs list.

San Franciscans list their sofas, books, and even their topsoil in its for sale section. Even the city's sex life is often mediated through its personals, most famously through its missing connections pages for those who have been temporarily smitten by strangers on the cable car.

Craig Newmark, the site's founder, remains personable, accessible by e-mail and devotes a large chunk of the site's profits to a non-profit foundation. He also supports the progressive groups that San Francisco epitomises to the rest of right-leaning America.

So why did one of the city's other institutions, the San Francisco Bay Guardian, take out a chunk of its front page to assault Craig's List and Craig himself?

The city's other free local newspaper, SF Weekly, has also been on a crusade against Craig's List for some time now, running stories critical of the site for gutting a venerable and vital institution.

The institution in question turns out to be local newspapers. Both papers' contention is that Craig's List takes the market that keeps decent newspaper journalism afloat: classifieds.

This is perhaps a more potentially damaging accusation in the United States than in Europe. Television news occupies a lower rung on the journalism ladder than in other English-speaking countries; local newspapers hold a correspondingly higher status.

Even without the national-in-all-but-name papers like the New York Times and the Washington Post, local journalism is often professional and investigative, reporting on local politics with the fervour usually attached to national politics elsewhere. Free papers such as the SF Weekly and Bay Guardian are distant, and aristocratic relations of the throwaway free papers found in most other countries.

And all these bastions of journalism rely on a near monopoly of local advertising, especially classified advertising, and Craig's List has gutted that revenue.

A 2004 report by the San Francisco Chronicle estimated that the city's newspapers have lost over $50 million (€41.79 million) a year in job advertisements alone. Neighbouring newspaper, the San Jose Mercury News, has posted loses of $12 million.

And Craig's List is expanding: the San Francisco site has expanded into most of the major US conurbations. There's a Dublin Craig's List too, launched last year.

The San Francisco Bay Guardian has a dire warning for those new markets: "He's like a Wal-Mart . . . the money all goes out of town. And he puts nothing back into the community. He doesn't, for example, hire reporters or serve as a community watchdog".

There's an element of truth here. There's no newspaper attached to the advertisements on Craig's List. That said, the reason why the website has so decimated income for American newspapers is that the site doesn't charge for the majority of those advertisements.

Newmark funds his 14 employees by charging for professional job and property advertisements in San Francisco, Los Angeles and New York. The remainder of the adverts are free.

Rather than sucking money out of a community, as Wal-Mart is accused of in the United States, Craig's List leaves the money in the community's wallet.

There are also no fixed limitations on what is posted. Readers can mark posts as offensive, and some posters are banned.

The list was a hit in San Francisco because so much of that city's activity is largely unprintable in a family newspaper. Craig's List demonstrate the dangers and benefits of the classic internet act of "disintermediation" - the removal of middle-men from the supply chain.

There's no reason why you have to pay a journalist to read the classifieds any more. There's no real reason why you have to pay; or indeed, go to Craig's particular website. At best all you need is a place on the internet where you know others will look for your advert.

And what does that mean for newspapers? In countries outside the United States, where the major newspapers generally sprawl over a wide enough region that they pick up more than simply classifieds, the newspapers will in time adjust to the change in market conditions. And good journalism has survived more pernicious threats than a jobs site or two.

But for America's unique infrastructure, it may be a rough few years yet for the newspaper business. And writing elegant complaints about their competitor's business isn't going to save them.

Danny O'Brien is activism co-ordinator at the Electronic Frontier Foundation