The Secret to Nextdoor’s Billion-Dollar Valuation: Friction

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Nextdoor wasn’t the first company to build a local social network — but it was the first to make one work. Five years after launch, the San Francisco-based startup is live in over 53,000 communities across the U.S. and the company has raised over $210 million.

These days, the mind behind the product belongs to Dan Clancy, the company’s VP of engineering and product who joined the firm last winter. Clancy spent a decade at Google building the technology that powered everything from the search giant’s effort to digitize books to the personalization and recommendation algorithms that many believe are the key to its future success. Before Google, he helped NASA send its Rover to Mars.

We recently caught up with Clancy, who will join us as a speaker at Street Fight Summit West in San Francisco June 2nd, to talk about why a difficult on-boarding process helped the company set itself a par, how it plans to monetize and why the company is betting on the “local graph.”

In the past two decades you’ve sent a rover to Mars, catalogued the world’s books with Google, and helped build YouTube into a worldwide phenomenon. Help us understand where a local social network fits into the story.
It starts with building and revitalizing local communities. As human beings we are social animals, and throughout the history of mankind, community has been central to our lives. It’s only been in the last 20 years that virtual communities have become important parts of our daily lives. In this hyper social world,where we’re more connected than ever before with people across the globe, we are increasingly less connected with people that are closest to us — that is our local community.

Often, I think people from the Web 2.0 generation tend to look at local as a subset of the virtual world — as just a segment of people online. What challenges do you face in building a product for a local community that are materially different than those you face building a virtual one?
A big part of the use of a local community is trust. That’s been a central tenet in our mission to make sure that we have verified identification on the platform. On Facebook, your degree of trust is determined by who you know — by your existing relationships. But when you’re talking about Nextdoor, you do not necessarily have a relationship with these people. So we built a platform to verify that you are who you say you are.

The other big part is affinity. We choose where we live, and we take time to think about this, because we chose places where there will be other people who share our values and priorities. As we build this community based on locality, it’s actually a great initial approximation for affinity and discovery — people that are kind of like me but not exactly the same.

Traditionally, the “killer application” for Nextdoor has been crime and safety. Can you talk a little about what use cases you see developing that may carry Nextdoor over the next few years?
The next [big use case] is really about recommendations. Today, 26% of our posts are people looking for recommendations or advice for a plumber, babysitter or some other local service. These are obviously areas which we’re looking at for monetization because people are sharing their intent — they are sharing that they need a contractor or baby sitter. The interesting thing is that it’s not just a request for a specific provider. They are often specific about the problems they have, and they get specific advice tailored to their needs.

Let’s talk about monetization. I know the company is just starting to develop its business model, but I’m sure that there’s already a sense of the value it could provide to businesses.
We do think that it’s important to integrate a monetization strategy into the product in an organic way. It shouldn’t be something that’s glued on after the fact. We’re starting to experiment with monetization this year.

One of the ways Google was both smart and lucky was that its monetization strategy for search actually improved the product. I believe Nextdoor is in a similar situation because people come with an intent in mind. In many ways, the monetization is not in competition with the organic experience.

If Google has its search intent and Facebook has its social graph, what’s the unique asset on which Nextdoor can build a billion-dollar business?
It’s all about the local graph. It’s all about understanding where you live, and being able to chart your relationships with local organizations over time. We want to understand what school district your kids go to; whether you belong to a church; what businesses you frequent. It’s about not just understanding your relationships with other people in your neighborhood but understanding your relationships, more broadly, with these local institutions.

For so long, local media was where people went to find information about their neighborhood. What role, if any, does local media play in the future of Nextdoor?
Local media has traditionally been a very important part of the local community. That’s where you used to go to find out about garage sales; about what’s playing at the theater; about what’s happening at the city council meeting. And even as the media industry has struggled, we see the hyperlocal newspapers are doing quite well because access to local information is still an important need.

I feel like there are a lot of opportunities for us to work closely with local media in the future. We are a distribution platform for them to get their information to the community. While we don’t have partnerships live right now with publishers, I do think there’s a lot of opportunities there.

Nextdoor isn’t the first company to pitch the concept of a local social  network. Why has Nextdoor succeeded while so many others,  startups like Everyblock, have struggled?
I certainly think that — as with all products — there’s a timing component where there’s a spark ignites growth. There’s certainly some luck involved. But there are certain decision that matter in the lifespan of any startup. At YouTube, for instance, the company made a crucial decision to allow videos to be embedded on the web. They used the World Wide Web as their discovery engines, and that was their key insight that allowed them to surpass the other video startups.

For Nextdoor, I think trust and identity was hugely important — and that ties into privacy. Nextdoor didn’t make it super-easy to sign up. But the fact that there was friction in our on-boarding process, which is initially counter-intuitive if you’re trying to build a network, was hugely important. We lost some members because of that — and we lose them today — but that tells everyone in the community that you can feel free to post things that you would never post on other networks because you know who’s listening. Building trust and identity was one of the critical insights that sparked our growth.

Steven Jacobs is Street Fight’s deputy editor.

See Nextdoor’s Dan Clancy at Street Fight Summit West in San Francisco on June 2nd. More info and buy tickets here.