Nextdoor to Replace Yelp?
Nextdoor is creating virtual neighborhood communities with lucrative demonetization opportunities.
Nextdoor was launched over 3 years ago with the goal of creating a virtual neighborhood community. Similar to a community message board, users can post neighborhood news, ask for help finding a local drycleaner, or even plan a block party. Next door has also partnered with government agencies to include information on power outages, emergency preparedness, and crime alerts. They have built over 50,000 micro communities across the U.S. and are rumored to have just under 1 million users.
Nextdoor is committed to building a community of trust with authentic user reviews so new users must verify their identity and home address when signing up and can only interact with one another if they are within the same neighborhood boundaries. Nextdoor’s theory is that a recommendation from someone in your community carries more weight than someone completely random and with no shared connection to you.
Similar to Facebook’s initial strategy, Nextdoor is creating a safe closed group to grow its user base before trying to monetize. By growing the number of users in each community, Nextdoor will create direct network effects because users will have more information about local service providers (wider array of local service providers being reviewed and more reviews for each service provider). As Nextdoor starts to monetize their user base (as outlined below), they will create indirect network effects because each additional user will add more value to local service providers who are advertising through the platform.
Value Capture – Nextdoor has spent the last 3 years building communities and growing the user base and has not focused on monetizing its strategy yet. They are starting with a strong product offering to get users to sign up, and will then shift to a platform. Nextdoor can capture value through two primary means. First, they can allow local vendors to advertise through their network. By leveraging the data they have on recommendations, Nextdoor can find the highest rated service providers and allow them to advertise through their platform. This monetization strategy is interesting because unlike Facebook, where users go to check in on their friends, Nextdoor users go to the social networking site to get recommendations for local services so they are much more likely to be influenced by the advertisement. By advertising to the consumer at the time they are making the purchase decision, advertising campaigns will be more successful. The second monetization strategy for Nextdoor is to leverage the on-demand economy and allow users to book these services directly through their platform in exchange for a cut of the fee. 80% of the posts are discussions about local service providers so Nextdoor could leverage their data to understand which local merchants are most often recommended and arrange to book their service directly through the platform.
Value Creation – Value is created for users because they can easily access suggested local services, important information about their community like crime alerts or neighborhood events, and it also allows individuals who recently moved to connect with their community. As Nextdoor starts to monetize their user base, value will be created for local businesses because they will be able to advertise to or book a service with individuals in their community.
Nextdoor is not the first to target the small neighborhood demographic. Others like Foursquare, Yelp, and Google have also attempted but unlike its competitors Nextdoor has honed in on the community aspect by restricting access only to those within a strict neighborhood boundary. If their theory is correct and if users are more likely to trust recommendations from their neighbors, then they might be the first to really succeed in this space. I think the latest valuation of $1.1 billion is high for only having 1 million users but there is strong potential if user growth picks up.
Great post. I think local community-based service have a huge potential in the next years. Currently there is a bunch of new apps and services that are trying to address certain problems or needs of a local community. A major success factor is probably the focus on a smaller geographical area, which makes it easy to reach the desired network effects and mouth to mouth marketing. You compared this to Facebook’s initial strategy, which is definitely a similar approach. However, I’m wondering if they also follow the Facebook strategy when expanding their business: this would mean that the restrictions (e.g. the registration with a home address) have to be relaxed (e.g. to also allow users from other cities to ask questions about a certain neighborhood, for example if they plan to visit the area etc.). I think it will be interesting to see how Nextdoor’s service will evolve during the next years.
That’s a great point that they could follow Facebook’s approach and expand the network so users who are traveling can access reviews on restaurants, grocers, etc. And perhaps through some sort of partnership with Airbnb? The company doesn’t publicly disclose how many users they have which is why I said they are “rumored” to have 1 million. Since they’ve been around for three years now, I’d love to know how many users they have to really evaluate user adoption.