Posted on Friday, Aug 25th 2017
Facebook’s social networking skills have inspired a few others to set up their own networking channels. For instance, LinkedIn established a professional focused networking service. A smaller organization is San Francisco-based Nextdoor, which has established a social network based on neighborhoods. Nextdoor has managed to attain a Billion Dollar Unicorn status, but its financials are still a matter of concern.
Nextdoor was founded in 2006 by serial entrepreneur Nirav Tolia, Sarah Leary, and Prakash Janakiraman. Nextdoor offers a private social network based on the users’ residence, allowing them to connect with their neighbors. The network allows residents to share information about handymen and events, establish watch groups and act as a highly localized newspaper and classifieds portal. Today the networking site connects more than 160,000 neighborhoods in the US, UK, Netherlands, and Germany.
For the first ten years of its existence, Nextdoor had not focused on monetizing its business. Due to the nature of the network, Nextdoor users use real names and addresses. To ensure their security, Nextdoor only allows users to register for the secure HTTPS website after they have verified their addresses. The security requirements do not allow Nextdoor to openly share user database, and this has delayed its monetization capabilities.
But since last year, Nextdoor has begun to focus on advertising capabilities. Users are now seeing a limited number of sponsored posts from paying businesses in their daily digest email and newsfeed. Nextdoor still maintains security by denying participating businesses access to the users’ personal information, neighborhood, or the directory. The service is still being tested. Nextdoor claims that since advertisers can target specific locations, they are delivering higher click-through rates on the ads placed. According to Nextdoor, click-through rates on its ads range from 5%-7% compared with the industry average of 2%. Nextdoor believes that this will allow it to offer the service to all sizes of businesses to help them connect with its neighborhood communities.
Nextdoor does not disclose its financials, but it claims that it projects ad revenue in the “tens of millions” this year. It is not known if the company is profitable.
Nextdoor has been venture funded so far with $210.2 million in funding from Valor Capital Group, Insight Venture Partners, Redpoint Ventures, Slow Ventures, Kleiner Perkins Caufield & Byers, Tiger Global Management, Comcast Ventures, Benchmark, Greylock Partners, Bezos Expeditions, Pinnacle Ventures, Allen & Company, Shasta Ventures, DAG Ventures, and SV Angel. Its last round of funding was held in 2015 when it raised $110 million at a valuation of $1.11 billion.
Nextdoor’s Expanding Monetization Opportunities
Nextdoor continues to be focused on increasing monetization. It is now looking to expand its advertising reach to include real estate firms. It plans to allow them to use its site to list homes for sale or rent. It will allow agents and brokers to create official business pages on its site and establish them as local experts. Agents can also pay to sponsor a neighborhood section and buy branded listings so their Nextdoor profile shows up alongside their listings when someone searches for homes in the area. Additionally, it will expand to local handymen and other service providers. Nextdoor will earn revenues by charging these service providers for the customer leads its provides.
Even though Nextdoor is unique, I am not convinced by its monetization strategy so far. The level of capital injected is so huge, and the relative monetization so low, it seems to me that this may become another Valuation without Revenue flame-out story.
More investigation and analysis of Unicorn companies can be found in my latest Entrepreneur Journeys book, Billion Dollar Unicorns. The term Unicorn was coined in a TechCrunch article by Aileen Lee of Cowboy Ventures.
This segment is a part in the series : Billion Dollar Unicorns
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