2 years ago I started my summer internship at Nestpick. Back then it was a start-up in the first stage with 7 employees and great ambitions. Nestpick business model is easy: it is like Airbnb for medium-long stay. That means, if you are looking for a place to rent for some months, you can apply to a a room online and if you are chosen from the landlord, you will have a deal: you will book your room in advance for a lower fee than rental agencies, your landlord will have his room rented out. Everybody coming to the Netherlands experienced the housing problem and how hard it is to find a place to stay.Even locals struggle with it when moving out.
Nestpick’s ambition was to fill this gap in the market and help students searching for a room. The idea was to build a platform so that users would stick around for longer time and make multiple purchases. In 2014 it had a good start yet looking at the network effects the story becomes more complicated.
Same-side network effects do not exist. Landlords do not benefit from having more landlords on the platform, nor student from having more student. Only for the sake of the platform surivival one could invite people in the platform, so that Nestpick would have more active users.
Cross-side network effects do exist, but only to a litlle extent. Both landlords and the average student-tenant would benefit from a bigger pool of houses or potential customers. Their return to scale is little for them.
Yet, renting a house is a one-time transaction. Once you get your room, you do not need to search for a new one. And maybe the year afterwards your friends can move in with you or they invite you to join their place. The same applies for landlords. In the Netherlands there are different platforms to find a place like Kamernet, Pararius and many groups on Facebook too. Landlords can use any of those to find a new tenant and usually they find a new one in a matter of days.
Secondly, the cost structure is not so efficient either. A place on airbnb can be rented twice per week, users can give feedback and they are mainly using it for fun. For Nestpick, the customer service was constantly busy because the potential tenants wanted to know more information about the room and wanted to make sure it would not be a scam. To avoid this, Nestpick hired professional photographers to visit the properties and take pictures. This had a huge cost which sometimes was not recovered, for example when the landlord changed his mind or just rented the room via another platform. The assumption was that room online would be used several times. Often that happens, some times it is just a one-time supply or not even, which beats the revenue down.
Also just finding landlords in the Netherlands willing to rent out via a website or in busy big cities is never easy, because they are used to traditional ways and they do not have a real incentive to do it online, since their rooms will be rented out anyway. The utility of Nestpick is just in big cities, where students or young professionals move to when they have a new opportunity in their lives, yet that is also the fiercest housing market.
At this moment Nestpick managed to expand to Germany, Italy, France and some more countries. The problem of finding landlords stay, the administrative and customer service costs too. Everybody can see the benefit of such a platform, the question is: is this going to be a lucrative platform? are there going to be enough users to keep it running?
My personal opinion is that if the growth of the platform is not explosive and the break even point is not reached in 1 year then the platform will never be a real success in terms of monetary returns. It will be useful for some users, can have a long existence but it cannot revolutionize the market if the number of users is low. Do you agree?
Dear David, thank you for your post! I have heard about Nestpick, and my friend did an internship there as well. What I always thought was strange was that you had to pay upfront, and then wait for the landlord to accept/confirm your booking. While I knew it was safe because my friend worked there, my parents did not want to use the website because of this. They did not want to pay upfront before the booking was secured, or before actually having seen the place. Maybe if that changes, the platform will attract more tenants? Unless most people do not mind paying upfront? While I like the idea behind Nestpick, renting a room for a longer period of time is still an important process for most people, so it might be hard to fully complete it online.
Hey Ananda, nice comment!
The problem is that if a tenant sees the place or gets in touch personally with the landlord, then it makes no sense for them to use the platform to rent anymore, since they can just transfer the money to each other.
What I thought is that they could use a model like kamernet, or at least ask a membership fee if you want to apply to some rooms. But then the business model will look like kamernet or any other local website which would be much stronger than Nestpick.
Dear David, I agree with Ananda on this one. Paying upfront without confirmation from the landlord is really tricky. If you look at one of Nestpick’s main competitors, Housinganywhere, which I have actually used a couple of times, their approach is way different. Only if a students selects a room and this students is also accepted by the landlord/former tenant, the deal is done. The money is then transferred to the platform, Housinganywhere, and will only be paid to the landlord/former tenant once the new tenant has arrived at the place and has confirmed that everything is in order. This process seems a lot more attractive to students (and also to Ananda’s parents). If Nestpick manages to recreate this part of their business model, the company might have a chance to stay afloat in this market.
The title of this article should have been – Netspick, the perfect example of how Rocket Internet destroys startups. I have 3 friends who worked there and moved to Berlin with the company. What happened afterwards? Rocket Internet in action…
David, maybe you can tell us more about this – it’s really interesting to deep dive into this topic and find out how investors / other companies / sharks can come in and simply destroy a startup which of course is fragile at the beginning and cannot say LEFT when these sharks say RIGHT.
Hey Vlad,
I know more or less what happened there, yet I hear every time a different story. Discussing how Rocket acquired Nestpick and what happened is out of the scope of this article, which analyzes only the business model.
Hi David, Thanks for the post!
I’ve heard quite a bit about Nestpick, and I was amazed how quickly it grew and expanded to become a significant market player in the rental market.
Do you know whether Nestpick has considered growing the platform further by introducing a rent-management system? You mentioned that one-time transaction is downside of the entire business model. What if Nestpick introduced an additional service that could be cross-sold with the existing pricing model, however, this time the pricing would be subscription based? Perhaps this service could be interesting for landlords that manage multiple properties and thus could handle all administrative operations (communicating with tenants regarding issues, collecting rent) on one integrated platform?
Nowadays it seems that platforms are predominantly offering this type of subscription model. I wonder whether this could generate a more stable cash-flow and increase customer (landlord) retention and repeat use. However, it would definitely require some in-depth market research in order to find the right audience that would become the “money side” of the two-sided rental market.
Hey Kristian,
The landlords are also a little issue because they can easily rent their properties, therefore Nestpick is not really necessary. Also there are 2 types of landlords. The first one are really small, like 1-2 houses maximum, which they use as an extra income. So they have maybe 3-4 new tenants per year and they do not need a “rent manager”. The other side are the big ones, who have 10 or more houses and probably already have a “manager”. And they do not want to change things, so they are fine with their current situations..
Very good article! Good job David!
I have just experimented the housing problem myself … Very great idea and helpful for the students who come to a new country ! The next time I will look for a room I will use this useful platform. To me it looks promising. It will not attain the success Airbnb has had but it will still have a chance to be a revolutionary startup.
The idea is simple and once the platform is there people will get used to it and use it multiple times, with no additional costs for the company. Also the complaints for the customer service will diminish over time because the firm will get to know its customers better.
The platform can be very useful for all the foreign students and not who maybe come from other countries or want to change their apartment/room faster. Knowing the place by pictures witch represents exactly the true can be a way to not waste time going around, taking appointment etc. So if this platform it’s been running for over a year and people who used it had no problems with the payment and the house or room they rented, i will give it a chance to prove its value and get to know it also abroad.
Very useful blog post. You explained the business model of Nestpick in an easy and understandable way. It is much clearer to me now what Nestpick does and what differentiates them from competitors. I agree with you that if your business model is dependent on the number of platform users it is of significant importance to reach as many people as possible from the start.
Hey David,
Great article! I think if Nestpick is to really achieve anything more than local presence limited by the invested time by the company’s direct employees, it should find a way to generate housing postings automatically via the landlords or agencies. That would be the fastest path to growth.
Cheers! Keep up the good work!
I really liked your article, David! Very inspiring and well-written! It really makes you think about the options in this market and maybe even of future possibilities. I hope to read more articles in this light from you!
Very nice contemplation David. Have not heard about nestpick before but its quite interesting. I also think that there is a huge demand for the rental of houses as you mentioned. However, in my opinion nestpick is not really a disruptive innovation on the rental market. At least not disruptive enough. Basically it is the same as any other housing association but then for the private market. So that’s why I think that they are going to have some troubles making money. Or do I completely miss the clue?
But on the other hand, if they accomplish to become the biggest player on the private long term rental market they might be able to turn this into their advantage. Airbnb had a hard time in the beginning to attract enough landlords and tenants and the competition was fierce. But once Airbnb managed to attract a critical mass they became the market player and now everyone uses airbnb.
So the way I see it is as follows; Nestpick is a coin that flips and inclines to fall on the wrong side, but maybe there is just enough space to flip one more time so it falls on the good side. Concluding, I don’t think we will still see Nestpick over 5 years, at least not with its current business model.