FORTUNE -- Ever heard of EveryBlock or Village Soup? What about Backfence? Each community-focused venture launched, then folded. Many more so-called hyperlocal sites have also tried and failed. Even AOL's Patch news sites have had trouble sticking. Their struggles beg the question: Why is hyperlocal so hard?
It shouldn't be in theory, at least where news is concerned. The ongoing decline of small, local newspapers presents what seems like a significant opportunity for ventures like Patch. (Arguably, many local residents still want to stay informed on nearby goings-on.) And yet the company that AOL (AOL) CEO Tim Armstrong acquired for an estimated $7 million back in 2009 has since struggled to reach profitability. In 2011, Patch made $20 million in revenues; a former employee told Fortune that just 12 of the 863 Patch sites then were profitable. Fast-forward two years: Armstrong announced this month that 400 of Patch's 900 sites would either be shuttered or partnered off, resulting in 500 employees losing their jobs. Ouch.
Part of Patch's problem, and other previous hyperlocal efforts, has to do with way it rapidly expanded. "They went all in before they perfected the product, and in retrospect, that wasn't ideal," a former AOL executive told Fortune last year. To be fair, Armstrong has said one-third of Patch sites are already successful, while the other third will likely turn a profit. If Patch becomes largely profitable by the end of year, which Armstrong has pledged, it will have done so amid serious struggles and major changes in strategy, from having bloggers contribute content to trimming budgets across the board.
Indeed, the better approach sounds ridiculously basic but important: get the core product right first, then grow from there. Patch grew first, problem-solved later, then dealt with the fallout caused by its brash expansion. Also, different geographic areas will use a product differently, with popular content in one market being less read in another. New hyperlocal startups should be taking note of Patch's failures.
"When you start to fragment editorial into hundreds if not thousands of different sites, well, I can't think of an example that's worked," admits Nirav Tolia, CEO of Nextdoor, who admires Patch's efforts but differs on how to grow a company. Prior to Nextdoor's launch in October 2011, Tolia and his team spent a year in a pilot phase, testing out their idea of neighborhood-focused social networks, learning how they were used, and tweaking features accordingly. One of Nextdoor's first testbeds was a Menlo Park neighborhood with 150 households, a number the company believed would be the average sweet spot for all neighborhoods. But more testing proved otherwise, with each network ranging between 500 and 3,000 homes.
Two years later, Nextdoor is now available in nearly 18,000 neighborhoods in all 50 states, with users numbering in the single-digit millions, who chatter on about bikes they want to buy or last night's burglary. And according to Tolia, there isn't a place where a Nextdoor social network has not eventually grown into a local hub with between 500 and 1,000 users. Promising growth to be sure, but it's still too early to tell whether Nextdoor's viral user growth will translate into a long-term profits. Still, it is enough for Nextdoor to push up its goal of introducing new streams from 2015 to summer of next year. "Long-term we believe there's the potential to build the next yellow pages," waxed Tolia.
Outside of news, the strategy has also worked for other hyperlocal players. Yelp (YELP), the business directory and customer review site, took a similar approach and now, eight years later, trumped Wall Street estimates with $55 million in sales during the second quarter, a 69% jump year-over-year. And according to CEO Travis Kalanick, his four-year-old car-summoning app Uber is profitable in many of the 38 cities it's expanded into, a process that involves sending employees to a potential market for up to several months to study factors including local transportation systems to anticipate potential supply and demand.
Indeed, in the case of hyperlocal, the Facebook motto of moving fast and breaking things may just beg for trouble.
AOL CEO Tim Armstrong has been on a roll - and he wants to make the most of it.
FORTUNE -- To AOL CEO Tim Armstrong, Silicon Valley is a "pig pile" where every company is copying every other company. "Everyone is putting out the same services, the devices have become more commoditized, and the platforms are the same," he said Thursday during a presentation at the Paley Center for Media in MOREDan Mitchell, contributor - Mar 8, 2013 1:48 PM ET
Fortune's curated selection of tech stories from the last 24 hours. Sign up to get the round-up delivered to you each and every day.
* It's confirmed: As part of a $926 million restructuring effort, Sony (SNE) will lay off 10,000 employees by the end of March 2013. The struggling Japanese electronics giant also explained its plans to focus on core businesses like gaming, digital imaging, and mobile, as well as hopes of turning around MOREJP Mangalindan, Writer - Apr 12, 2012 11:00 AM ET
A glimpse into his private life from a writer who lives down the street
Here's portrait of Apple's (AAPL) famous CEO that I suspect is unlike any you've read over the past week.
It was posted Monday by his Palo Alto neighbor, Lisen Stromberg, on AOL's Patch and on her personal blog.
While Newsweek and the Wall Street Journal and CNET continue to drone on about the impact of the Steve Jobs era, I won't be pondering the MacBook MOREPhilip Elmer-DeWitt - Sep 1, 2011 6:13 AM ET
A round-up of the companies, deals, and trends that made headlines.
Every day, the Fortune staff spends hours poring over tech stories, posts, and reviews from all over the Web to keep tabs on the companies that matter. We've assembled the day's most newsworthy bits below.
Early reviews of The Social Network, director David Fincher and screenwriter Aaron Sorkin's adaptation of Ben Mezrich's The MOREJP Mangalindan, Writer - Sep 22, 2010 7:00 AM ET
|Five predictions for the World Wide Web that were way, way, way off|
|Why casino workers hate Obamacare|
|Social Security is the best deal|
|The Deep Web you don't know about|
|House panel to investigate GM response to problem linked to 13 deaths|