How Nextdoor Could Put Home Service Directories Out Of Business

The popular kid on the block

I have been watching lead generation companies for the home services market very closely for over a decade, about the time I launched my own local lead-gen company serving the Dallas market. Back then, there were a small handful of companies that built their business model of promising leads to land in your inbox. Big names included Service Magic (now HomeAdvisor), Angie’s List, and YellowPages.com to name a few. In the past five years, I have observed over a dozen companies popping up on the scene (e.g. Thumbtack, Porch). Of all the new lead-generating kids on the block, one company that stands out among them is Nextdoor.

Nextdoor does not consider itself a “lead generation” company but rather the free social media network for your neighborhood. From finding a reputable plumber, to selling your guitar you never play, to hearing about recent car burglaries on your street, Nextdoor has built their platform with one focus in mind: promoting a strong sense of community.

The social platform launched in 2009 and to date they boast serving over 125,000 neighborhoods in the U.S. (do the math, that’s a lot of neighbors – plus they’re expanding into the U.K. this year after acquiring UK’s StreetLife).

They’re also financially healthy. In 2015, Nextdoor was valued at $1.1 billion and they’re backed by several venture capital firms (some of which invested early in Facebook and LinkedIn).

What makes Nextdoor so different?

Most of us have heard the adage that the “best form of advertising is word of mouth”. Nowadays, the essence of “word of mouth” is fully immersed into the online world of referrals, ratings, and reviews. While Facebook has done a tremendous job of getting friends and family to rant about life’s little (and big) things, its core is not about promoting your local community.

Nextdoor carries a stronger sense of community than other social platforms on the Web due to its tight knit nature and its focus on proximity. When you sign up for the first time, your address is tied to a specific subdivision, so your home or apartment is confined to a very localized zone. Residents outside of your perimeter won’t be able to access or chime in on news feeds happening within your own subdivision. This “hyper-local” approach combined with broad social acceptance and prolific sharing of Did you hear what just happened down the street? is what makes Nextdoor so special.

And while Nextdoor has become the stage, microphone, and auditorium for local residents to get the word out on happenings within walking distance of home, it also serves as a can’t-live-without platform for local service companies.

Bobby Vickers, VP of Brennan window installation company in Arlington, Texas, has seen an uptick in referrals come from Nextdoor recently and explains, “Our prospects care less about the remodel we performed 30 miles across town, they’re more interested in the work we’ve done for their neighbor who lives two streets over.”

Out with the old and in with the new

I have personal experience seeing Nextdoor’s usage take off. Last year, my wife Mandy ran our North Texas neighborhood website of nearly 1,000 homes which used an older neighborhood platform. While that original community-oriented site still exists, I noticed how its membership started to wane. One by one, I witnessed my neighbors abandoning the old neighborhood website for Nextdoor. I suspect this trend will continue and eventually put fee-based neighborhood website platforms out of business. Nextdoor’s ease-of-use, daily email digests, and strong focus on connecting neighbors with one another are all key ingredients to its rapid widespread adoption.

Last week I was needing an electrician and discovered Rob with Dub Electric that a neighbor recommended on Nextdoor. When I told him that’s how I found him, he immediately lit up and mentioned how he is seeing more and more calls come from Nextdoor referrals. He expressed, “I found it amazing how I was getting a lot of calls at the same rate as the Yellow Pages and it wasn’t costing me a dime.”

When I asked about the quality of the leads, he continued, “True and honest referrals came in because another neighbor trusted me, so the sale was pretty much guaranteed ahead of time based purely on their trust.”

Embraced by public agencies

Beyond neighbors finding an easy way to communicate with each other, Nextdoor is being adopted by law enforcement agencies at an unprecedented rate.

Local police departments report on recent crime as well as tips and pointers educating residents on how to not become a victim. Fire departments hold special events to talk about fire safety.

Even parks and recreation departments use Nextdoor as their megaphone to schedule community events and report on topics like West Nile virus spottings.

All of these local agencies have a vested interest to inform and educate the local public and Nextdoor is the conduit the connects city officials with nearby residents.

So how do they make money?

Most current home service lead generation companies have built their platform based on a type of subscription model. They either charge the contractor directly for the lead (or a monthly payment to receive leads), charge customers for access to an elite list of consumer-rated contractors, or a combination of the two.

Nextdoor doesn’t cost anything for us as consumers. At the time of this writing, a local mom and pop service provider cannot advertise on Nextdoor, but give it time. Currently, Nextdoor is piloting a handful of large companies (e.g. Nest, Ring, ADT) but emphasize how their number one goal is to ensure that the community comes first.

Just a few years ago, Facebook did not allow ads — but the moment they had tens of millions of people using their platform daily, they quickly found a way to make money too. It’s no surprise that Nextdoor recently made the decision to allow subtle ads (a.k.a. sponsored content) from local service companies that are intermingled with neighbor conversations, similar to how Facebook displays in-line ads today in their newsfeeds. In January, 2017 Nextdoor issued a statement that will impact both residents as well as service businesses:

Over the next few months, you will begin to see a limited number of sponsored posts from paying businesses in your daily digest email and newsfeed.

Participating businesses will not have access to your personal information, neighborhood, or the directory. They will only be able to see replies to their own posts and recommendations shared with them.

We believe that when advertising is done right, it can be relevant and add value to the neighborhood. This is our first effort – we will go slow and take the time to get this right.

I make a living as an online marketing practitioner and while most advertising messages get a bad rap, I 100% agree with Nextdoor’s stance that says “when advertising is done right… it adds value”.

Well said, Nextdoor.

It’s also important to note that businesses can’t “tap in” to private conversations among neighbors. Their privacy policy clearly states:

As always, protecting your privacy is paramount for us. Participating businesses will not have access to your neighborhood conversations or the directory. They will only be able to see and reply to comments on their own posts and messages neighbors choose to share with them.

Why should home service directories be concerned?

Why should home service directories that make money by generating leads for home service companies be scared to death of Nextdoor?

Nextdoor has completely disrupted the online directory model by fostering an environment of trust among the community. By taking the trust factor to a new level, they have removed the random factor.

Not long ago we would randomly thumb through a thick yellow book using our index finger to skim companies listed in alphabetical order, and start dialing to ask about pricing and availability.

Nowadays, we simply Google “hvac company dallas” or search via an online directory. Searching online is certainly faster, more convenient than a book, and reveals the good contractors from the bad via ratings and reviews, but there’s still one flaw: those who reviewed the companies on that directory are random strangers. Whether that customer wrote a shining review on a company or gave that brand a black eye, you don’t know who that customer is and whether to 100% trust their review.

Nextdoor’s model changes all of this because you know exactly who is recommending (or not recommending) a particular contractor. Large online directories and search engines are behind on reducing the random factor and are resting their laurels on the words of strangers.

While online directories and search engines showcase a plethora of reviews and are often the leading source for contractor look-ups, I predict that consumers will soon prefer expect service professionals to be referred based on personal experiences from someone who lives near them. These neighborly referrals will become the more common “go to” source any time a service professional is needed for the home.