The Billion Dollar Question: Is the Answer Nextdoor?

Nextdoor-App-Store.pngThe Civic Info Sector took a leap forward this month with the announcement of $110 million in new funding assembled by Nextdoor, a local networking site founded by three experienced, well connected former Epinion/Shopping.com executives in 2010. Nextdoor has now raised a total of $210.2 Million from a long (and not entirely consistent among stories) list of investors reported by Techcrunch and their Crunchbase site.

The latest round implies a $1.1 Billion valuation according to the NYT story picked up by Mashable.  That ain’t bad considering that, according Nextdoor’s website, “Nextdoor does not currently generate revenue… Long term, our goal is to figure out a way to generate revenue that provides value to our users as well as to Nextdoor.” 

 

Nextdoor_demo_map.jpgWhat makes Nextdoor worth your attention is that participation requires and verifies user identity and household location, referencing databases that map to the individual real estate parcel level, tie into social media and who-knows-what-else.  Information channeled with this precision on a large scale could be worth many billions of dollars because even if an economic model is never precisely figured out, someone is going to figure out political-economic models.  The economics of politics alone is nothing to sneeze at- campaigns are a multi-billion (7 billion in the 2012 cycle) industry.  However, political and economic values are fungible (can be traded or substituted), and it should be clear there is far more than just money at stake in a platform such as Nextdoor.

Nextdoor was one of the companies classified as part of the Civic Tech Sector in the Knight Foundation report of 2013 on Civic Tech investment.  That report found 76 private investments and 101 grants totaling $431 million, updated last year without the mapping detail to $695 million in 241 investments.  However, over half the money Knight classified as Civic Tech was in peer-to-peer “sharing” e.g. AirBNB which I would not consider to be part of the Civic Information picture.  This most recent Nextdoor round much more heavily weights the info part of civic tech.

The Nexdoor website goes on to say, “We will NOT require members to pay to use Nextdoor and we will not sell users' private information to other companies.”  Presumably, their model is to sell stuff through the site or sell advertising on the site or some combination of both; but it is safe to assume they are thinking of content beyond the current “do you know a good plumber.” You can see a sample of the content at http://demo.trynextdoor.com/news_feed/

Press coverage has compared the Nextdoor to Patch, the hyperlocal news business that AOL poured $200 million into before offloading majority ownership to Hale Global in January, 2014.  Within a month under new management, the now stripped-down business was reportedly profitable according to the New York Times and headed for annual revenues in the $21 million range.  Apparently, Patch’s new success is derived from a refocus on national advertising, which I always assumed was the plan from- the-get-go.  There are no big economies of scale of the editorial side of the concept (although they now seem to be employing free lancers to fudge local stories from afar – I recently traced a garbled story about my town in Massachusetts to a very young and confused writer in Brooklyn).  Local news content is lots of hard work and hardly seems like a VC investment.

A more likely comparison is to Craigslist, which decimated the multibillion dollar classified advertising business of newspapers.  Craigslist is private and according to a press release put out by the A.I.M. Group had revenue of $335 million in 2014 but is wildly profitable, supposedly generating $269 million in profit (80 percent of revenue).  Only certain types of advertisers pay fees on Craigslist and it would appear that the service is leaving a lot of value on the table so it makes sense that VC’s would be eager to pull up a chair.

Nextdoor explains “we're extremely confident in building a huge business. We anticipate that the revenue model will focus on working with local businesses to give them an easy way to connect with the people who live around their business. When you’re supporting local businesses, you’re, in turn, strengthening neighborhoods. Local advertising peaked at $100 billion in 2006, yet the traditional mediums for local advertising – such as the newspaper and Yellow Pages – are on the decline. People will look to the Internet.”

My guess would be that Nextdoor has something a lot bigger in mind than listings from your local dry cleaners.  Think of the geo specific advertising spending of major retailers for instance.  But whatever they do have in mind, it is safe to say they too will leave plenty on the table simply because the feast is so big.


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