How Can Internet Companies Tap Local Markets?

Yesterday TechCrunch reported that FatDoor, originally envisioned as a social network for neighbors, was abandoning its business model. FatDoor is another in an increasingly long line of well funded Internet startups focused on the local market that have gone out of business or changed their focus over the last few years. Why is the local market so hard to crack, even for a company like FatDoor that raised $7M in venture capital?

As the founder of YourStreet, an Internet company focusing on the local market, I can sympathize with FatDoor and try to relate some of the lessons I’ve learned along the way:

Create a foundation of content. FatDoor was essentially a blank slate - neighbors came to the site, figured out who else might have signed up, and then did - what? Talk to each other? Not really. Learn about what’s going on in their neighborhood? There wasn’t much information on that.

We realized this same problem with the first incarnation of YourStreet. We originally envisioned YourStreet as a site where people could go to talk about real estate and what was going on in their neighborhoods. We expected users to flock to the site, adding their invaluable inside information. One problem: people didn’t do it. There was no motivation for them to do so and not enough content for them to stick around or ever come back.

With the current incarnation of YourStreet we realized there had to be a strong core of content to bring people onto the site and keep them coming back long enough so that they would start commenting and discussing things in their neighborhood. We decided this core of content should be constantly updated hyper-local news articles that are aggregated from around the web and plotted on an interactive map. This becomes the foundation upon which social features can be built.

The need for SEO. Almost all social media sites rely to some degree (especially in the early phases) on search engine optimization (SEO). This isn’t a bad thing, as long as you can convert some percentage of the search engine visitors into users who come back on a regular basis. One of the challenges for many local sites - especially ones that rely solely on user generated content - is the lack of content that can be indexed by search engines.

This sets up a cycle where no one finds out about the website, so no one visits it, and no content is created. One of my favorite ways of figuring out whether a local startup has a shot is by looking at the number of pages it has indexed in Google. Unless you are a super-specialized website, if you’ve got less than 100,000 pages indexed you’re facing an uphill climb to get users.

The users are dispersed. When you create a social media site about, say, sports cars, it doesn’t matter where the user is located. Users from around the world can get together and talk about sports cars - it doesn’t matter if you’re in San Francisco or Beijing. With local sites, however, it matters very much where you’re located. If you’re coming to a site to meet your neighbors, there has to be a critical mass of users in each neighborhood to make it work. This is hard.

What keeps users coming back? This is a question that all websites have to answer, but especially local sites. For a sports car site, those enthusiasts will naturally return on a regular basis because they are passionate about the subject. On the local level, however, the range of interests is so varied that there has to be some other reason for users to return to the site. This could be constantly updated information, or some kind of gaming element where users try to out-do each other. FatDoor had none of these elements.

FatDoor has a large capital base which allows them to try a new direction - a local planning site. Less fortunate startups have learned the lessons of local the hard way.