Pinterest is one of the most inspiring Apps around. They are a late entrant into the markets that they monetise on (advertising). And they have demonstrated well how to capture market share as a late entrant.
They have done so by focusing all elements of their business model onto a number of selected opportunities. They too have their share of initial experimentation. But quite quickly and aptly realised where the opportunities are. This would not have worked without a careful design of their business model.
Like many of the most successful Apps, their App is based on the platform business model which I have covered them in great depth: Google, Facebook, Twitter, Uber, Airbnb, Booking.com, TripAdvisor, Expedia, Groupon, Yelp, Amazon, Amazon Prime TV, Amazon Kindle, Netflix.
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Pinterest: “An overnight success four years in the making”
The early story of Pinterest reads like the story of many other start-ups. A great idea followed by many struggles to make it come true. Their initial idea did not work out (though one of their recent features is pretty close to the original idea).
Pinterest’s vision and what they stand for
Best known as an inspiring visual discovery platform:
“Our mission is to bring everyone the inspiration to create a life they love. We believe that when people find great products from trusted merchants, it can empower them to do things they care about.”
Would you agree that the presentation above for the searches “travel” or “dining room” are more useful and inspiring than on a text-based search engine?
It also depends on where you are in the customer’s journey. If you have made up your mind about the details of your travel, then you may be more interested in finding the right hotel at your selected destination. If you don’t know yet, you might be more interested in compiling some options (or a bucket list).
The customer’s journey
The most-known model for the customer journey is the funnel but with mobile phones, this is changing more to a very iterative process. Pinterest is naturally well-suited to play a role in the early discovery phase.
But they also state their ambition to be there in all phases of the customer journey and they are building tools and features to be adding value to users and advertisers throughout all phases.
Google Images also delivers inspiring results. But it does not offer the functionality of collecting and organising your ideas.
Pinterest offers functionality to capture, collect and share images and the ideas embodied therein. This approach supports the often non-linear customer journey. Users can collect ideas and come back to them at a later stage.
These differences on the surface have deep-reaching impacts on all elements of Pinterest’s business model.
Pinterest generates revenue by building ads into their website and app. The ad creatives (i.e. the visuals) are displayed as a Pin (on Pinterest, all images are called a “Pin”). Typically, the user is taken to the business’ site when they click an advertising (ad) Pin.
Pinterest uses the commonly-known digital monetisation models:
- Cost per thousand impressions (CPM)
- Cost per Click (CPC)
- Cost per action (CPA)
- For videos: Cost per View (CPV) or CPM
Looking from an advertiser’s perspective, the different monetisation models can be applied to different types of campaign objectives:
- Brand awareness
- Video view
- App install
- Shopping catalogue
Revenue by geography
Pinterest segments their revenue by geography. This requires tracking of impressions and other metrics to be put in place by geography. Monetisation efforts first started in the US which has a mature digital advertising market.
And they are expanding their monetisation to a number of international markets. They are taking a slower approach to the international expansion (of their monetisation efforts), likely because of the experiences other platforms have had (see also our in-depth report on Groupon who expanded internationally too soon and had to re-focus down the track). WeWork’s recent failure to launch their IPO may be a warning to the idea of blitzscaling.
This makes Pinterest’s business model an advertising model within the platform business model.
Revenue by advertising objective
As of Dec ‘19, two-thirds of their revenues came from performance ads (i.e. ads aiming for conversions, e.g. sales, app installs, signing up, taking up a trial or other discrete user actions) and one-third from brand ads.
As always with platform business models, we need to think about the value proposition to all sides of our multi-sided platform.
Value proposition for pinners (users)
- Visual discovery: enables users to search and discover visually rather than text-based. Pinterest’s hypothesis is that (at least a certain amount of) search is better done visually
- Personalised curation: Most content is human-curated and presented by the algorithms based on many factors including the user’s taste. This is based on the Pinterest taste graph
- Inspiration: the content is presented in very inspirational ways. This is particularly true for verticals where visuals/optics play a great role
- Journey & widening views: The journey of discovery is often the goal in itself rather than necessarily a targeted search and discovery. Therefore, widening the user’s view can, in many cases, be more important than narrowing down (again, very different from other search-based platforms)
- Planning: Users can organise their pins on different boards around different themes or projects. E.g. a user collecting ideas to change their dining room can organise all ideas in one board. They can create sub-boards (called “sections”) for the different elements
- Action & engagement: The UI/UX is designed in a way to entice taking further action. Pinners can follow other pinners (whose boards they like). They can follow everything or selected boards of other pinners
- Empowerment: “Eighty-nine percent of Pinners say that they leave our service feeling empowered, according to a Talk Shoppe survey.” Pinterest
I have found that Pinterest helps me discover things I did not have a clue exist. Other search engines are more useful for chasing down specific information.
Value proposition for businesses
- Pinterest aims to reach users (pinners) that are in the right mindset and believes that this makes ads on Pinterest more effective
- Users come to Pinterest for inspiration and planning. And Pinterest offers planning tools in the form of boards and sections. They believe that showing ads during the planning process (i.e. right timing) will offer great returns on marketing investment
- Non-interruption marketing: On many platforms, ads are not what people are looking for, think of most ad banners. Same holds true for most display ads, may it be on Facebook or Google Display Network. Most of this can be called interruption marketing. The most extreme form of interruption ads are on broadcast TV. Pinterest ranks pretty far to the non-interruption end of such a spectrum
- Return on advertising investment: Pinterest promises to get good returns on advertising investment due to the combination of right mindset, right timing and native ads. This would manifest itself in the right metrics (e.g. high Click-Through Rates, CTR).
- These properties can make Pinterest a great platform for brand building (which is not necessarily about getting consumers into a sales funnel) but much more about building (retaining) the emotional connection with a brand and staying top-of-mind
- Valuable audience: They have a huge user base (>300m MAUs) and are particularly strong in certain segments which are particularly relevant to certain verticals (more under customer segments)
- From a marketers perspective: at the moment, they are probably still a “secret” marketing gem offering a chance of great returns for those who manage to master this channel well first (first / early movers)
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- Users: Most pins are created by users by saving them via the app or browser plugin. Every user is also a “creator” in that their pins and boards are visible to others (though the option of secret boards exists but is not default). Their way of organising and describing the pins is used by Pinterest to build their taste graph. There are also super users (collectors) who just like to showcase their curation and gain followers
- Content creators: There are those people who may have their own small business or blog and create pins do showcase their products. Many of them have done so to gain organic traffic. “Businesses also create Pins on our platform in the form of both organic content and paid advertisements. We believe the addition of organic content from merchants adds significant value to the experience of both Pinners and advertisers. We expect that these Pins will become a larger part of our content in the future.” However, organic business pins may get crowded out by ad pins due to Pinterest’s monetisation efforts. Pinterest will need to make adjustments carefully to avoid that too many valuable content creators abandon the page for other promotional channels
- Businesses/advertisers: Businesses and brands are content creators as well. But here I am talking about those that readily have included Pinterest as a paid advertising channel (of course, they leverage organic content too). Some brands have wholeheartedly embraced Pinterest and are creating images and videos tailored to Pinterest (e.g. by having most of their photos in portrait format rather than landscape). Etsy is probably the most stunning example with many boards and over fifteen thousand beautiful pins!
- Researchers: One of their biggest expenses is research and development. They have dedicated Labs pages to get in touch with other researchers and attract talent
- Acquisitions are always a great insight into the capabilities a company wants to gain (and who they see a potential competitor). Pinterest’s acquisitions show an interest in various types and methods of content curation
- Data (Internet) Service Providers: Pinterest has an expanding set of “zero rating” agreements with data/internet service providers that allow Pinners to use the Pinterest app without it counting toward their monthly data allowance (changes in FCC ruling may impact these agreements – see below)
- Ecommerce / shopping partners
- Technology partners: Pinterest is using technologies and software tools to build their own platform and for their day-to-day operations of the platform (see also key assets)
- Search engines and social media platforms: Google and Facebook are partners as well as competitors. E.g. Google is using images sourced from Pinterest on their own image search results (though, of course, neither one is the copyright holder of the images). And Pinterest allows sharing of pins on Facebook (among other social platforms)
- Lobby groups: discussions on political/legislation matters can significantly influence the trajectory of tech businesses. Pinterest spends only small amounts on lobbying ($80k in 2018 and $80k in 2019) and is part of a larger lobby group of tech companies
- Affiliate links: While Pinterest does not have an affiliate program themselves (like say Amazon affiliates), they allow the use of affiliate links (i.e. links through which people can make money) on their platform. This was banned and has been reinstated as of recent
- Investors: investor’s assessment of the company plays a considerable role. It can affect their ability to inject new capital in the form of further dilution of shares or issuance of bonds and alter their weighted average cost of capital (WACC). Funding prior IPO is particularly important
- Regulators: The regulatory space is getting increasingly important for tech companies with increasing restrictions and risks coming from that area (regulators are not necessarily a key partner but a key stakeholder)
The key activities revolve around enhancing the network effects through engagement, expansion (user, content, businesses), improving the platform through R&D and monetise the network effects
- Growing the user base in the US and internationally
- Engaging the users through the presentation of the “right” pins, great UX/UI, notifications, following feeds, sharing with friends on Pinterest and other social platforms, emails, etc
- Growing the number of (good) pins via engagement of the users (virtuous cycle), good categorisation (via taste graph), weeding out poor content, etc
- Growing the number of companies and brands on Pinterest and support with creating good pins and ads
- Improve the app, website, UI/UX principles and technology assets
- Improve the underlying algorithms through research and development (R&D is one of the largest expenses in the business):
- Image recognition,
- User modelling,
- Recommender systems,
- Big data analytics,
- The taste graph
- By using machine learning and artificial intelligence
- Making sure there is a critical mass of relevant content by interest and customer segment
- Sales: engineering and sales teams are the largest teams in Pinterest. The sales teams have tailored approaches depending on the customers:
- Marketing via organic and paid traffic across various channels. So far, Pinterest has been growing largely organically through their unique value proposition, user advocacy/sharing and brand. They are now ramping up their paid marketing efforts
- Expansion geographically and by demographic segments: you will see that they are strong in certain segments which means there is the opportunity to expand in other segments as well (though it has to be done without reducing the value to the segments where they are naturally strong – it’s always dangerous trying to be “everything to everyone”)
- Expansion in terms of verticals: They are strong in the CPG vertical and plan to enhance within this vertical in terms of advertising dollars. Further, they are focusing on a number of verticals to expand into next (see customer segments)
Key Resources / Assets
The master resource (or asset) of any platform are its network effects. It is the resource/asset that needs to be built and nurtured.
The network effects arise among Pinners (those that pin and those that view). Most Pinners are in both roles alternatingly. Without pinning actions there would be no content on the platform. People pin (collect) and view what others pin (get inspiration). In the good old days, one would have said “let’s compare stamp collections”. Ads are being integrated as naturally as possible among the organic pins
Other key resources/assets are:
- Huge amount of content assets:
- 175b+ Pins: including the image, description, the user and board it is pinned on, category and other user-generated and meta data
- 4b+ boards created
- 2b+ monthly searches
- >6,700 Interests (for user searches, content categorisation and ad targeting)
- Relationship to users (Pinners):
- 300m+ MAUs (monthly active users) as of Q2 ‘19
- 170m+ WAUs (weekly active users, assuming an unchanged ratio of 57% WAU/MAU)
- Relationship to advertisers ranging from small/medium size business to large multinational brands
- Total team size: ~1,800 full-time employees
- Largest teams: Engineering and Sales
- The Pinterest brand: Ranking high on many brand surveys and often ranking on top in categories of inspiring people (more later)
- The utility to the users: as shown in the beginning, Pinterest does not see themselves as a social network but a tool of value to self-serving users
- The technology / digital assets
- The app (4.6-stars on Google Store, 4.8-stars on Apple App Store)
- The website: (1) Desktop/tablet version (2) Mobile version
- Intellectual property, e.g. their UI/UX, ad tools, IP embedded in the technology and acquired firms, Patents, etc
- “In a relatively short period of time, our journey has forced us to build and rebuild our systems multiple times — sometimes with urgency.” Pinterest Engineering
- The tech stack
- “[…] As a result, different parts of the stack sometimes collide and conflict with each other. Other times, there has been significant overlap and duplication between systems.” Pinterest Engineering
- User Data and insights – usable for better marketing
- Algorithms: The algorithms are what is powering the platform
- One of the key technological/algorithmic key assets is the taste graph which I will cover in more depth later
- See key activities section for other areas of algorithm research
(We are looking at this from the lens of the underlying needs, how they are served and the things that affect customer relationships. There is a natural overlap with the value proposition)
Relationships to users
- Visual discovery: a vast amount of appealing pins always presented based on previous action showing previously unknown things to discover
- Inspiration: User surveys confirm that users feel inspired and leave the platform empowered
- Personalised curation & self-serving collection: Pins are presented based on the user’s previous actions and based on the taste graph (which among other things includes machine learning on other users’ actions) and can be “collected” and organised by the user in a self-serving way
- Journey: Sometimes the journey is the destination. Users may not be looking for anything specific but just spending time browsing
- Action: Guiding to the next action that Pinterest expects to keep the user engaged (including, of course, getting to advertiser’s pages)
Relationships to advertisers
- Self-serving: Ability to organise own ad copy and creatives with more freedom than on other platforms (e.g. no 20% ad copy rule, a Facebook rule much disliked by advertisers; and not the strict limitations of Google ads on both, text and image)
- Ability to create visually stunning boards supporting the ability to showcase their products
- Pinterest as a positive place to build an emotional connection with users
- Value: Building more credible claims of return on investment value for advertising money in form of insourced and independent 3rd party tracking tools
- Tailored support model: strong support for large advertisers, moderate support for mid-size and self-serving tools for small-medium size advertisers
Customer relationships are incredibly important for platform businesses. Platform businesses work and scale well due to indirect network effects. The items listed under customer relationships can enhance or dampen these effects which can bullwhip into strong positive or negative effects.
- Pinterest has managed well a positive external image and has not been drawn into all the bad publicity that other large platforms (esp Facebook, Twitter, Google and Amazon) have encountered
- Classic geo-demographic segments (as of 31/12/2019)
- 250m users
- 2/3rd female of which 80% age 18-64
- “8 of 10 moms are on Pinterest” (primary decision makers of household purchases, source: Comscore study)
- >50% of US millennials
- The stats below also show that Pinterest scores well in the higher educated, higher-income segments
- Behavioural, based on user data collected, e.g.:
- Actions taken during session
- Browsing history
- Interests based on browsing, pinning history/boards, shares, etc
- And more
- Behavioural, based on interest data
- Over 6,700 Interests across 23 categories (more later)
The big game are the micro segments (which allow targeted ads). You can easily fathom from the collected data and the interest segment the richness that can be achieved in this respect – but it requires good algorithms and insights.
- By business size:
- Large national / multinational brands
- Mid-size companies
- Small or medium-size businesses
- Sole-traders, individuals, influencers, etc
- By business type (Pinterest business set-up):
- By interest served:
- Over 6,700 Interests across 23 categories
- The interesting thing is that the interests are largely organised based on user actions
- By vertical: They are strong in the CPG vertical focusing on these verticals to expand into next:
- financial services,
- entertainment and
The big prize in the segmentation is the ability to target the most valuable segments. Having everything organised via the taste graph is a promising approach. Rather than having the information organised through links and crawled by robots, Pinterest relies on (many) users establishing these connections. Google, on the other hand, relies on content creators for this (linking their pages to others’ pages).
Most transactions on the user side are automated through the app/website. Large advertisers typically make more use of the support channels.
Transaction, interaction and advertising channels:
- App, website and mobile browser version of the site
- App stores organic and ads
- Notifications in-app/website related to pins/boards, previous searches
- Social media pages:
- User support: largely automated and/or help pages and contact form
- Search engines largely organic, especially in image results
- Advertising: So far, a relatively small amount of paid advertising but we can expect it to grow, esp digital advertising across various platforms
- Email prods
- Business advertising tools
- Large sales team with a tiered support model
- Business and resource pages:
- There is no Pinterest business app at this stage
- Partner pages: various 3rd party partners with currently >40 partners across 7 specialities
- Community: interestingly, Pinterest has no dedicated community or charitable partner pages which is something that many large tech companies have
- Other (we see a great focus on engineering / R&D):
Here are extensive cost details from the annual report 2018
(1) Cost of Revenue
“Cost of revenue consists primarily of:
- expenses associated with the delivery of our service, including the cost of hosting our website and mobile application;
- personnel-related expense, including salaries, benefits and share-based compensation for employees on our operations teams;
- payments associated with partner arrangements,
- credit card and other transaction processing fees; and
- allocated facilities and other supporting overhead costs.”
(2) Research and Development
“Research and development consists primarily of:
- personnel-related expense, including salaries, benefits and share-based compensation for our engineers and other employees engaged in the research and development of our products; and
- allocated facilities and other supporting overhead costs.”
(3) Sales and Marketing
“Sales and marketing consists primarily of:
- personnel-related expense, including salaries, commissions, benefits and share-based compensation for our employees engaged in sales, sales support, marketing, business development and customer service functions;
- advertising and promotional expenditures,
- professional services; and
- allocated facilities and other supporting overhead costs;
- user and advertiser focused marketing expenditures.”
(4) General and Administrative
“General and administrative consists primarily of:
- Personnel-related expense, including salaries, benefits and share-based compensation for our employees engaged in finance, legal, human resources and other administrative functions;
- professional services, including outside legal and accounting services; and
- allocated facilities and other supporting overhead costs.”