Note: Before we dive into Pinterest’s business model, we’re going to look at how Pinterest is positioned as a platform and how it works to establish a better context.
Pinterest is not what most people think it is. Most people consider Pinterest to be a social media platform, but unlike social media platforms where user behaviour leans towards sharing personal updates and learning about the personal updates of friends and family, Pinterest is a visual discovery platform where people go to discover new ideas and seek inspiration.
And Pinterest facilitates visual discovery by providing a visual search experience instead of text-based search experience. In their S1 document, Pinterest describes how visual search differs from traditional text-based search, “Search helps people find a discrete piece of information quickly, but it isn’t an adequate tool if you don’t know exactly what you’re looking for, you can’t describe it in words or you’re seeking something that is tailored to your taste. These common dilemmas are best solved by a visual discovery journey, rather than by a text-based search. Discovery on Pinterest is a rich experience that combines some of the utility features of search with some of the enjoyable features of media.”
So how does visual discovery on Pinterest work and what do people use Pinterest for?
Let’s say you’re an interior designer looking for bedroom design ideas. You ask Pinterest for help and it lists down a bunch of images, based on your personal taste & interests which Pinterest refers to as Pins.
You can then save and organize these images into collections called boards, which can also be seen by other Pinterest users unless made private.
Users can also directly upload images to Pinterest or add images they find on the web using Pinterest’s browser extension.
While the interior design example is just one use case, people use Pinterest for several activities like deciding what to wear, finding cooking recipes, planning a wedding and looking up things they’re passionate about.
Pinterest is home to a variety of different types of pins, which are customized to the user’s intent.
1. Product Pin
Product Pins are associated with shoppable products. They contain product pricing, availability status and links that redirect users directly to the checkout page of the seller’s websites.
2. Recipe Pins
Recipe Pins make life easier for those looking for cooking inspiration by bringing relevant information like ingredients, cooking time and serving information right to the Pin.
3. Shop the Look
Shop the look pins make it possible for Pinners to shop for individual products they see within the fashion and home decor pins.
4. Video Pins
Video pins are short how-to videos on topics like cooking & beauty that engage Pinners deeply by showing them the transformation of an idea.
Pinterest User Demographics
According to Pinterest’s Q2 2019 reports, Pinterest has around 300 million monthly active users, a metric which has shown slow but steady growth since Q2 2018. Out of the 300 million monthly active users, 215 million of them were based in the US and the remaining 85 million were international. The disparity in the number of Pinterest users in the US and internationally is a result of Pinterest’s initial growth efforts being focused in the US.
Source: Pinterest Q2 2019 Report
In their 2018 S1 filing, Pinterest had mentioned that two-thirds of their then 250 million-plus users were females. At that time, their audience included 43% of internet users in the United States as per an independent study by Comscore based on total unique visitors, which included 8 out of 10 moms, who are often the primary decision makers when it comes to buying products and services for their household, making Pinterest a lucrative platform for advertisers.
How Pinterest makes money?
Similar to digitals platform that aggregate user attention and sell it to advertisers, Pinterest makes money allowing advertisers to buy user attention via ads.
Source: Pinterest 2018 S1 filing
In 2018, Pinterest generated a revenue of around $756 million at a net loss of 62 million. While Pinterest is yet to achieve profitability, the positive thing is that revenue is growing Year-Over-Year(YOY) and losses are shrinking.
According to Pinterest’s 2018 S1 filing, more than 90% of Pinterest’s revenue was generated from the United States. Here’s a breakdown of Pinterest’s international revenue vs national revenue.
Source: Pinterest 2018 S1 filing
Pinterest’s revenue is higher in the US than international because of the relative maturity of the US digital advertising market & Pinterest’s decision to focus their monetization efforts in the US first, which means Pinterest’s still has room for growing its revenue by focussing on international monetization efforts.
Here’s how Pinterest has fared in terms of Average Revenue Per user from Q2 2018 to Q2 2019
Source: Pinterest’s Q2 2019 Report
Who does Pinterest compete with?
While Pinterest is a digital platform, Pinterest essentially competes for brand ad spends that happen on traditional offline channels like print, direct mail, television and radio as well as ad spends on online channels like Google, Facebook, Amazon & Snapchat to name a few. While offline media budgets are shifting to online media and online media is expected to grow substantially, growing revenue will be a tough task for Pinterest revenue since most media budgets are allocated to digital advertising behemoths like Google, Facebook & Amazon, which account for more than 70% of the digital ad spending.
What makes Pinterest advertising unique in a sea of digital advertising platforms?
The ability of any digital advertising to rake in brand ad spends depends on its unique value proposition and capability to deliver ROI to advertisers.
When it comes to Google, search advertising is valuable because it is user-intent driven. Amazon advertising is valuable because Amazon has become the default shopping search engine. Facebook takes a big chunk of digital spends because it commands most of the social media space user attention.
So unique value proposition does Pinterest provide advertisers?
Here what Pinterest said in its S1 filing, “The value of Pinterest’s audience to advertisers is driven not merely by the number of Pinners on our platform or their demographics, but also by the reason they come to Pinterest in the first place. Getting inspiration for your home, your style or your travel often means that you are actively looking for products and services to buy. Billions of searches happen on Pinterest every month. In the United States, more people use Pinterest to find or shop for products than on social networks, according to a survey by Cowen and Company. Sales at retail stores that primarily focus on our core verticals of food, home, beauty and fashion and internet retail sales of products in those verticals represented nearly two-thirds of retail sales of consumer goods in 2018 in the United States, according to Euromonitor. An analysis by Oracle of retail transactions from 2016 to 2017 showed that on average Pinterest households were 39% more likely to buy retail products, and they spent 29% more than the average household. Commercial content from brands, retailers and advertisers is central to Pinterest; the majority of Pins saved on our service are from businesses. Ads do not compete with the content Pinners want to see—they are native content. The mutually beneficial alignment between advertisers and Pinners differentiates us from other platforms where ads can be distracting or annoying. Pinners travel from inspiration to action and back again on our service. Advertisers have the opportunity to put relevant content in front of them at every stage of this journey—when they are browsing through many possibilities, when they are comparing a handful of options and when they are ready to make a purchase. As a result, advertisers can achieve a range of objectives on Pinterest.”
While Pinterest makes a good case for its advertising platform, it’s worth noting that Google, Facebook & Amazon also provide advertisers with the ability to target people in all three phases of the marketing funnel which are brand awareness, consideration and sales.
In the case of Google, Google Display ads are targeted at people in the awareness and consideration phases of the marketing funnel while Google Search is more about targeting people in the consideration and sales phase of the funnel.
When it comes to Facebook, it provides advertisers with the ability to run ads using different objectives across all the three phases of the funnel. Likewise, Amazon is also used to generate brand awareness, spark consideration and drive sales by digital advertisers.
While any of this does not take away Pinterest’s unique value proposition to advertisers, competing with Google, Amazon & Facebook for ad spends is going to be a challenge for Pinterest.
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