What Nextdoor is doing right with hyperlocal and Patch is doing wrong

Serving hyperlocal community-level or neighborhood-level markets with news and information is a tough business — just ask NBC, which recently closed the doors on its EveryBlock unit, or AOL, which is still fighting to keep the losses at its Patch operation from sinking the ship. So why should anyone pay attention to a startup like Nextdoor, which just got $ 21 million in financing from a group of venture capital funds? Because Nextdoor is doing the exact opposite of what Patch and others have done — instead of making its network wide-open, it is keeping the barriers to entry high, and that could be the key to its future success.

At first glance, it might not look like Nextdoor and Patch are even in the same game: after all, Nextdoor describes itself as “the private social network for your neighborhood,” while AOL has always described Patch as a source of news and information, more like a community newspaper. But when it comes right down to it, these are really just two different ways of looking at the same problem: how to get important information about a community to the residents who care most about that information — whether it’s school closings or local government ineptitude or criminal activity.

Blurring the line between news and social network

That kind of content has always been the core of what small town and community-level newspapers have done, and the best ones have been similar to a social network in many ways as well — in the sense that readers pay more attention to the birth and death notices and the letters to the editor than they do to the actual “news.”

This is the goal that EveryBlock was going after, first as a data-driven startup launched by programmer/journalist Adrian Holovaty with a grant from the Knight Foundation, and then as a subsidiary of NBC after it was acquired in 2009. In 2011, the service added a lot more human-powered and community features — which Holovaty said he had come to believe were crucial for such a network to succeed — but it wasn’t enough to keep the service afloat.

Patch recently did something similar: instead of relying exclusively on journalists, it is opening up the service in an attempt to make it more of a community noticeboard. The main goal seems to be to cut the costs of the network, which AOL has poured more than $ 150 million into. According to comments made during its latest conference call with analysts, Patch is doing well — but it is still well short of the revenue targets that AOL chief executive Tim Armstrong has repeatedly promised to hit.

Instead of starting with the news and then trying to add social-networking aspects later, Nextdoor started with the social networking side: the idea behind the service is that you and your neighbors need a place to talk about those school closings or crime reports or even where to find a good mechanic or babysitter, and doing it on Facebook or Twitter or another public network isn’t appealing for a variety of reasons, including privacy concerns.

High barriers to entry improve the signal

So what Nextdoor does is make it as difficult as possible to join — the exact opposite of what Facebook and even Patch try to do. Only people who actually live in a specific neighborhood can join the Nextdoor network for that area, and the service doesn’t just accept your word: it verifies it by checking your credit-card information, calling your home phone or sending a postcard directly to your house with a special registration code on it.

Nextdoor CEO Nirav Tolia says the company is sending out about 15,000 of these postcards every day, and admits that the service builds in “a lot of friction to join” the network.

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In part because of Facebook, we are used to thinking of social networks as being more powerful the more open they are, but in the case of Nextdoor the private and restricted nature of the network could be its biggest strength — and it’s almost certainly why David Sze of Greylock, an early investor in LinkedIn, was interested in the company. In many ways, Nextdoor is like a LinkedIn for your neighborhood, but even more restrictive: so if you are interacting with someone on the site, you have a high degree of confidence that what they say is going to be relevant to you.

When it comes to monetization, Nextdoor and its backers say there are some fairly obvious advertising or e-commerce tie-ins to such local content — and given the network’s focus on keeping the signal-to-noise ratio high, an argument could be made that it is more likely to succeed at this strategy than either Patch or the existing hyperlocal media players (newspapers, etc.) in those regions. Nextdoor says it has doubled in size in the last six months and now covers over 8,000 neighborhoods in all 50 states.

Images courtesy of Flickr users Jason Parks and Pew Center