Nextdoor Sports a Valuation Over $1B — But How Will It Make Money? | Street Fight

Nextdoor Sports a Valuation Over $1B — But How Will It Make Money?

Nextdoor Sports a Valuation Over $1B — But How Will It Make Money?

nextdoor-app

This is the year of the unicorn. There are around 80 startups currently valued at $1 billion or more, according to estimates — and it’s to the point where you’re nobody until you’ve hit 10 figures.

By that measure then, Nextdoor is somebody. After announcing a $110 million round of funding earlier this month, the locally focused social network zoomed to a $1.1 billion valuation, even though it has yet to announce a monetization strategy.

Launched in 2010, Nextdoor is sort of a Facebook for your neighborhood. That is, you can set up your own social network among people who live within a radius of up to 3,000 households, though the sweet spot seems to be 750. Once your network is established, users can share information with neighbors warning of a suspicious pedestrian or fielding offers for an unwanted couch.

The outstanding question for the company is how it will make money. Nextdoor does not sell ads right now and may never do so. At some point, that may change. Counting on handymen and local contractors to hawk their services on Nextdoor is probably unrealistic. However, since many people on the network are homeowners, it would make sense for The Home Depot or an insurer like Geico to execute a national buy.

While advertising remains on the back burner, CEO Nirav Tolia recently floated the idea of using Nextdoor as a vehicle to book a local contractor or tutor perhaps. From a user’s point of view, this is an attractive idea. Instead of taking Yelp’s word for it, you can ask people you know and trust for recommendations for local contractors and restaurant recommendations.

For Nextdoor, a transactional model might explain some of the investors’ faith, and may provide a clear path to revenue growth than trying to untangle the knot that is local advertising. In this scenario, users would go on the network and there might be a prompt to “find a plumber” or something along those lines. Then Nextdoor would take a cut. And, If the 53,000 “microcommunities” already on Nextdoor are already teeming with vibrant discussion, this might be a great monetization option.

But these transactional networks, which have become popular in the wake of Uber’s success, require a degree of ubiquity that may pose a problem for the company. In the interest of maintaining integrity, Nextdoor purposely makes it difficult to set up your own community by requiring you to get nine other people in your neighborhood to sign up. When I tried to launch a Nextdoor network in my town, I stalled at around five people. I was hoping friends of friends would sign up, but that didn’t happen. Part of the reason is that in many cases it’s not better than the alternative for an already network-saturated consumer. Why would anyone want to join yet another social network, especially if their neighbors (the ones they talk to at least) are already on Facebook? Also, chances are if you’ve lived in your community for any length of time, you already know at least one neighbor whom you can ask for recommendations about contractors, etc., and that person can ask other neighbors.

I believe that in order to succeed financially Nextdoor will need to make the on-boarding process a bit easier while creating more real incentives for engagement. If the company wants to tackle that remaining 75% of the market and move beyond its Silicon Valley stronghold, why not give community organizers a nominal fee (a $25 gift card at Starbucks – or maybe a local business — would be enough incentive for many) or let you set up a network with, say, four people instead of nine?

todd-wasserman-headshot-smlTodd Wasserman is a freelance writer based in New York. Previously, he was the business editor for Mashable and the editor-in-chief of Brandweek.

8 thoughts on “Nextdoor Sports a Valuation Over $1B — But How Will It Make Money?

  1. Todd the fact that Nextdoor is already in 53,000 neighborhoods is a stronghold outside of Silicon Valley. Your point about switching cost for a neighborhood that is already digitally connected is a good point, but many are connected using list serves, and group tools that are either antiquated or not specifically developed for neighbors. Could you imagine using Yahoo Groups instead of LinkedIn.

    As to your suggestion for spiffs, they offer Starbucks gift cards already to not just leads, but any and all neighbors who invite others through their tools.

    Also with regard to the configuration of neighborhoods, where I live the neighborhoods are predefined generally it seems by Maponics, my sense is the need to configure a neighborhood really is only for people who live suburban/rural areas. Now the gamification that you reference in piloting a new neighborhood is a critical design for them to insure they have the right “leads”. Their leads are important and can essentially make or break a neighborhood, think of leads the way Yelp had their elite reviewers program, they initially create the value prop and solve the chicken an egg problem. It is what differentiatesd Yelp from Citysearch and Yahoo Local to win the local reviewer space, and become the multi-billion dollar company they are today. The other key factor for Yelp was using real identity and social recognition, something Nextdoor is doing well, which yes slows down their adoption, but increases the value.

    The 9 neighbors in 21 days is a challenge is by design, and using their direct mail feature most leads should be able to get there in a week or two, and if that lead is the least bit connected they will get there. They need neighbors to do their marketing for them or the CPA becomes prohibitive. The already connected neighbors are critical, and these people are the realtors, small biz owners, community organizers, little league coaches, PTA members in communities, as they have the emails and connections to kickstart their neighborhoods.

    Their valuation is based on their potential and I think they have a ton of potential and will continue to grow, both domestically and internationally. Remember when FB and Twitter had no revenue models. In addition I think in order to keep their operating costs in line they could benefit from opening up their networks APIs and allow all types of companies to build value on top of their networks. I can think of 3 or 4 companies that essential became billion dollar valuation companies by creating value on top of Facebook, and I see the same opportunities with NextDoor.

    There are multiple revenue models for Nextdoor to pursue, which is why they are receiving a healthy valuation, but don’t forget they also have raised $210mm dollars, that also drives valuation.

  2. They already have bribed people to sign up others – they’ve been doing it for a long time; more than two years ago, someone was at a community event in one of the neighborhoods that we cover, offering a Starbucks card bribe, and more recently one of our fellow neighborhood publishers in another part of the West got intel on the same sort of desperation tactic – “sign up somebody and you and they will get [incentive].” We managed to grow to 100,000 readers without bribing anybody. And just because they say they have 53,000 neighborhoods doesn’t mean they’re actually being used – we believe wholeheartedly in the importance of sharing neighborhood information on the OPEN web, not in unsearchable, disconnected silos like this, and so we have heavily researched how (whether) people in our area actually *use* ND. We’ve been glad to see that it’s fallen into the background for many, as secret silos do communities a tremendous disservice – situations like lost pets and crime cross neighborhood borders routinely. However, kudos to them for the Trojan horse strategy they came up with – “just give us your personal address, really, we won’t sell it to anyone.” Now they have physical addresses matched to individual IPs, and that has to be priceless.

  3. Tracy Record — Are you saying that you don’t trust nextdoor founder Nirav Tolia? Is he the guy who allegedly:

    — Falsely claimed a non-existent degree from Stanford and job at McKinsey on his resume?
    — Stabbed his co-founders in the back in his first dot.com startup and took all the money?
    — Stole the idea for nextdoor from a pitch made to the VC firm where he was working?
    — Was the driver in a hit-and-run last year?

    http://gawker.com/245891/the-rehabilitation-of-nirav-tolia
    http://valleywag.gawker.com/the-twisted-history-behind-the-ceo-charged-with-a-felon-1576708150

    But character doesn’t matter to his backers; they know he’s whip smart and ruthless enough to get the job done — harvesting identities and data on millions and millions of people.

    Many nextdoor neighborhoods are started by realtors… not a strong selling point. The only one my neighbors like less than realtors is the cable company. What’s next for nextdoor… partnership with comcast?

    But resistance is futile. nextdoor is the borg… walmart… starbucks. One more force to drain money out of local communities and into the pockets of a few silicon valley billionaires.

    1. You are right! I’ve got friends who live in Oxnard, California, near the ocean and the ‘leads’ who enforce ‘Nextdoor’ are thugs. I usually rent two weeks at Hollywood Beach or Oxnard Shores and the elephants in the room, on the board, have taken over telling owners ‘now’ they can’t rent their homes anymore. Lawyers in the lead on the board. We know they are honest. My friends owned their home for a long time and rentals have always been part of the community so I rent a home for those weeks from their neighbor. Now the neighbor is scared to rent out their home and they could lose it for they need the income to make their payments. They need to sue their board and the association and nextdoor since they are all involved. Their monitors are the ones who tell the owners what to do and nextdoor allows them to rule. I’m renting at Rincon where people are more normal and just visit my friends in Oxnard,

  4. We have a convenient store and a starbucks in our neighborhood which probably has 3k+ apartments. The convenient store owner and the starbucks baristas cannot be part of the neighborhood. They spend more time in my neighborhood where I live than me. I spend 5 days a week in some other part of the bay area where i work but I cannot be part of the neighborhood communication there. We developed an app called PinsnPosts (http://itunes.apple.com/app/id1012923510) and some of us are using it in our neighborhood to stay connected without the need to follow or be friends with anyone. I am also using it stay connected to a neighborhood in bangalore.

  5. Besides serving as a community bulletin board, Nextdoor seems not to fully appreciate the meaning and value of neighborhoods to those who live within them. The presentations I’ve so far seen feature naive demographics as stand-ins for the (missing) insightful ethnographies and political analyses typically employed by community developers and organizers to define “neighborliness.” Moreover, the artificial segmentation of the urban domain into sectors that are correlated with server availability and the willingness of someone to found a Nextdoor territory hardly represents a realistic approach to defining or serving communities. But more power to Nextdoor, it certainly has parlayed VC ignorance in this domain into its own tremendous valuation and cash reserves. So endowed, it can support its large roster of executives and employees for at least five years. The societal meta-problem is, Nextdoor’s filling space that could be better occupied by a truly neighborhood-focused, proactive community-media network and service provider. Especially if users were permitted to devise and/or import apps.

  6. I have been on Nextdoor for over three years, and have been a Lead since January. I have found Nextdoor very useful and so apparently have many of my neighbors. The size of the neighborhood and the surrounding ones continues to grow. Nextdoor is different than facebook and that is why some people use it but wouldn’t touch facebook or twitter with a ten foot pole. Nextdoor has posting policies and posts that violate them get flagged and removed. Facebook sometimes seems like the wild west in comparison, where people can say anything and do, and it is not always nice or even pleasant.

    People use Nextdoor for lost pets, items to give away or sell, announcements about events and garage sales, and all of the typical expected uses. In our town, it is also used to discuss politics and policy issues. We have a city council that is out-of-control. Left to their own devices, they would pave over everything they can get their hands on. We are known for our open spaces and quality schools and good government and high tax base. But a lot of this is because of past city governments.

    Last year, an outside developer came into town, wooed and courted the city council and select citizens, the “people that matter” and tried to build a regional mall on the shore of an unspoiled environmentally sensitive lagoon. The developer tried to bypass California environmental regulations and city regulations by using the initiative process to put his project on the ballot, His signature gathers were paid upwards of $12 per signature, much higher than the typical $1 to $3 per signature, so they were very aggressive and lied when collecting signatures. And the city council was so bowled over by the billionaire developer that they didn’t even put the initiative on the ballot, but just approved the project flat out. This was despite the fact the the city council meeting was attended by hundreds of citizens, half of whom were protesting the project.

    Concerned citizens had to collect signatures of their won to overturn the city council decision and put the measure on the ballot. A lot of communicating about all of this to fellow citizens was done via Nextdoor. The developer was sending out glossy mailers with the city council members’ faces gracing them urging people not to sign the petition, not to let there be a vote. Many citizens were educated about what was going on through postings on Nextdoor.

    Once the signature process was successful, there were many discussions on Nextdoor about the project and its pros and cons. The developer had oodles of money and ultimately spent over $12 million dollars trying to convince voters to vote for his project. The opposition had around $115,000. When one is in a grass roots position, social media can become an important tool. Many citizens learned more about zoning and city regulations and environmental law they than they had ever thought they would want to know. The everyday regular people who don’t use facebook and twitter got their information on Nextdoor.

    The result of all this is that the election had a higher turnout than any in the county ever had, and the mall was voted down, 52% to 48%. I don’t think this could have happened without Nextdoor. There were people like myself who were avid social media users who stopped going on facebook as the election neared because the posts were getting so nasty and insulting and disgusting. Not everyone on Nextdoor was super polite either, but there are posting policies and the worst offenders’ posts were removed.

    Nextdoor has a lot of potential. Granted, Nextdoor may not be suitable for some areas, but it was great for us. We have a population of around 110,000 people and are a suburb of San Diego. It is the best-educated city in the area according to statistics, and that may have had something to do with the thorough usage the service gets here. The west coast in general might be more ripe for technology related ventures, too.

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8 thoughts on “Nextdoor Sports a Valuation Over $1B — But How Will It Make Money?

  1. Todd the fact that Nextdoor is already in 53,000 neighborhoods is a stronghold outside of Silicon Valley. Your point about switching cost for a neighborhood that is already digitally connected is a good point, but many are connected using list serves, and group tools that are either antiquated or not specifically developed for neighbors. Could you imagine using Yahoo Groups instead of LinkedIn.

    As to your suggestion for spiffs, they offer Starbucks gift cards already to not just leads, but any and all neighbors who invite others through their tools.

    Also with regard to the configuration of neighborhoods, where I live the neighborhoods are predefined generally it seems by Maponics, my sense is the need to configure a neighborhood really is only for people who live suburban/rural areas. Now the gamification that you reference in piloting a new neighborhood is a critical design for them to insure they have the right “leads”. Their leads are important and can essentially make or break a neighborhood, think of leads the way Yelp had their elite reviewers program, they initially create the value prop and solve the chicken an egg problem. It is what differentiatesd Yelp from Citysearch and Yahoo Local to win the local reviewer space, and become the multi-billion dollar company they are today. The other key factor for Yelp was using real identity and social recognition, something Nextdoor is doing well, which yes slows down their adoption, but increases the value.

    The 9 neighbors in 21 days is a challenge is by design, and using their direct mail feature most leads should be able to get there in a week or two, and if that lead is the least bit connected they will get there. They need neighbors to do their marketing for them or the CPA becomes prohibitive. The already connected neighbors are critical, and these people are the realtors, small biz owners, community organizers, little league coaches, PTA members in communities, as they have the emails and connections to kickstart their neighborhoods.

    Their valuation is based on their potential and I think they have a ton of potential and will continue to grow, both domestically and internationally. Remember when FB and Twitter had no revenue models. In addition I think in order to keep their operating costs in line they could benefit from opening up their networks APIs and allow all types of companies to build value on top of their networks. I can think of 3 or 4 companies that essential became billion dollar valuation companies by creating value on top of Facebook, and I see the same opportunities with NextDoor.

    There are multiple revenue models for Nextdoor to pursue, which is why they are receiving a healthy valuation, but don’t forget they also have raised $210mm dollars, that also drives valuation.

  2. They already have bribed people to sign up others – they’ve been doing it for a long time; more than two years ago, someone was at a community event in one of the neighborhoods that we cover, offering a Starbucks card bribe, and more recently one of our fellow neighborhood publishers in another part of the West got intel on the same sort of desperation tactic – “sign up somebody and you and they will get [incentive].” We managed to grow to 100,000 readers without bribing anybody. And just because they say they have 53,000 neighborhoods doesn’t mean they’re actually being used – we believe wholeheartedly in the importance of sharing neighborhood information on the OPEN web, not in unsearchable, disconnected silos like this, and so we have heavily researched how (whether) people in our area actually *use* ND. We’ve been glad to see that it’s fallen into the background for many, as secret silos do communities a tremendous disservice – situations like lost pets and crime cross neighborhood borders routinely. However, kudos to them for the Trojan horse strategy they came up with – “just give us your personal address, really, we won’t sell it to anyone.” Now they have physical addresses matched to individual IPs, and that has to be priceless.

  3. Tracy Record — Are you saying that you don’t trust nextdoor founder Nirav Tolia? Is he the guy who allegedly:

    — Falsely claimed a non-existent degree from Stanford and job at McKinsey on his resume?
    — Stabbed his co-founders in the back in his first dot.com startup and took all the money?
    — Stole the idea for nextdoor from a pitch made to the VC firm where he was working?
    — Was the driver in a hit-and-run last year?

    http://gawker.com/245891/the-rehabilitation-of-nirav-tolia
    http://valleywag.gawker.com/the-twisted-history-behind-the-ceo-charged-with-a-felon-1576708150

    But character doesn’t matter to his backers; they know he’s whip smart and ruthless enough to get the job done — harvesting identities and data on millions and millions of people.

    Many nextdoor neighborhoods are started by realtors… not a strong selling point. The only one my neighbors like less than realtors is the cable company. What’s next for nextdoor… partnership with comcast?

    But resistance is futile. nextdoor is the borg… walmart… starbucks. One more force to drain money out of local communities and into the pockets of a few silicon valley billionaires.

    1. You are right! I’ve got friends who live in Oxnard, California, near the ocean and the ‘leads’ who enforce ‘Nextdoor’ are thugs. I usually rent two weeks at Hollywood Beach or Oxnard Shores and the elephants in the room, on the board, have taken over telling owners ‘now’ they can’t rent their homes anymore. Lawyers in the lead on the board. We know they are honest. My friends owned their home for a long time and rentals have always been part of the community so I rent a home for those weeks from their neighbor. Now the neighbor is scared to rent out their home and they could lose it for they need the income to make their payments. They need to sue their board and the association and nextdoor since they are all involved. Their monitors are the ones who tell the owners what to do and nextdoor allows them to rule. I’m renting at Rincon where people are more normal and just visit my friends in Oxnard,

  4. We have a convenient store and a starbucks in our neighborhood which probably has 3k+ apartments. The convenient store owner and the starbucks baristas cannot be part of the neighborhood. They spend more time in my neighborhood where I live than me. I spend 5 days a week in some other part of the bay area where i work but I cannot be part of the neighborhood communication there. We developed an app called PinsnPosts (http://itunes.apple.com/app/id1012923510) and some of us are using it in our neighborhood to stay connected without the need to follow or be friends with anyone. I am also using it stay connected to a neighborhood in bangalore.

  5. Besides serving as a community bulletin board, Nextdoor seems not to fully appreciate the meaning and value of neighborhoods to those who live within them. The presentations I’ve so far seen feature naive demographics as stand-ins for the (missing) insightful ethnographies and political analyses typically employed by community developers and organizers to define “neighborliness.” Moreover, the artificial segmentation of the urban domain into sectors that are correlated with server availability and the willingness of someone to found a Nextdoor territory hardly represents a realistic approach to defining or serving communities. But more power to Nextdoor, it certainly has parlayed VC ignorance in this domain into its own tremendous valuation and cash reserves. So endowed, it can support its large roster of executives and employees for at least five years. The societal meta-problem is, Nextdoor’s filling space that could be better occupied by a truly neighborhood-focused, proactive community-media network and service provider. Especially if users were permitted to devise and/or import apps.

  6. I have been on Nextdoor for over three years, and have been a Lead since January. I have found Nextdoor very useful and so apparently have many of my neighbors. The size of the neighborhood and the surrounding ones continues to grow. Nextdoor is different than facebook and that is why some people use it but wouldn’t touch facebook or twitter with a ten foot pole. Nextdoor has posting policies and posts that violate them get flagged and removed. Facebook sometimes seems like the wild west in comparison, where people can say anything and do, and it is not always nice or even pleasant.

    People use Nextdoor for lost pets, items to give away or sell, announcements about events and garage sales, and all of the typical expected uses. In our town, it is also used to discuss politics and policy issues. We have a city council that is out-of-control. Left to their own devices, they would pave over everything they can get their hands on. We are known for our open spaces and quality schools and good government and high tax base. But a lot of this is because of past city governments.

    Last year, an outside developer came into town, wooed and courted the city council and select citizens, the “people that matter” and tried to build a regional mall on the shore of an unspoiled environmentally sensitive lagoon. The developer tried to bypass California environmental regulations and city regulations by using the initiative process to put his project on the ballot, His signature gathers were paid upwards of $12 per signature, much higher than the typical $1 to $3 per signature, so they were very aggressive and lied when collecting signatures. And the city council was so bowled over by the billionaire developer that they didn’t even put the initiative on the ballot, but just approved the project flat out. This was despite the fact the the city council meeting was attended by hundreds of citizens, half of whom were protesting the project.

    Concerned citizens had to collect signatures of their won to overturn the city council decision and put the measure on the ballot. A lot of communicating about all of this to fellow citizens was done via Nextdoor. The developer was sending out glossy mailers with the city council members’ faces gracing them urging people not to sign the petition, not to let there be a vote. Many citizens were educated about what was going on through postings on Nextdoor.

    Once the signature process was successful, there were many discussions on Nextdoor about the project and its pros and cons. The developer had oodles of money and ultimately spent over $12 million dollars trying to convince voters to vote for his project. The opposition had around $115,000. When one is in a grass roots position, social media can become an important tool. Many citizens learned more about zoning and city regulations and environmental law they than they had ever thought they would want to know. The everyday regular people who don’t use facebook and twitter got their information on Nextdoor.

    The result of all this is that the election had a higher turnout than any in the county ever had, and the mall was voted down, 52% to 48%. I don’t think this could have happened without Nextdoor. There were people like myself who were avid social media users who stopped going on facebook as the election neared because the posts were getting so nasty and insulting and disgusting. Not everyone on Nextdoor was super polite either, but there are posting policies and the worst offenders’ posts were removed.

    Nextdoor has a lot of potential. Granted, Nextdoor may not be suitable for some areas, but it was great for us. We have a population of around 110,000 people and are a suburb of San Diego. It is the best-educated city in the area according to statistics, and that may have had something to do with the thorough usage the service gets here. The west coast in general might be more ripe for technology related ventures, too.

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