It got beaten by FB Marketplace because Facebook has almost three billion captive users, and a marketplace bundled in the service they use many times a month takes less effort to visit than a completely separate site.
From this, and many other cases - like e.g. everyone hating the IM/videoconference system they use and yet using them anyway, I conclude two rules of thumb:
- UI that's good for users has very little to do with what UI/UX specialists peddle today;
- Network effects trump UIs - a sticky service with bad UI will beat a competitor that offers much better UI, but doesn't hold the user captive.
Had they not fiercely destroyed all the various "Search all Craiglist" mechanisms, they might have had a chance at fighting FB Marketplace.