Pinterest Business Model Explained - Inside the $31B Social Platform
How did three guys flip social media on its head and create one of the most unique platforms out there? Pinterest’s billion-dollar story is inspiring, interesting, and different from everything else in social media.
And although Pinterest is a publicly-traded company with over 440 million monthly active users, it's struggled to make money since its inception. We'll explain why.
In this guide, we’ll break down the complete story behind the Pinterest business model. We’ll cover how Pinteres started, why it became so popular, and what its future looks like.
Pinterest Business Model Key Takeaways
Pinterest is a unique social media platform that acts as a visual search engine. Instead of being socially focused to connect with users and their lives, Pinterest is more of a discovery service for users to curate collections based on their interests.
The idea behind Pinterest came from a failed app that allowed users to browse different retailers to find the right product. The app (called Tote) never took off, but the creators discovered that users were gathering their favorite products and sending these collections to themselves.
After a slow launch, Pinterest passed the 100 million user mark in 2015. Today the platform has over 440 million monthly active users.
Pinterest went public in 2019 with a market capitalization of $31.82B. This brought the company’s valuation up to $12.3 billion in 2017.
Pinterest has struggled to make a profit despite its growing revenue. This comes down to various monetization challenges that the platform faces.
With continued platform additions and expansions, Pinterest’s growth is far from over.
What is Pinterest?
In case you don’t know, Pinterest is a unique photo and video-sharing platform. Instead of having users only share visuals to their networks, Pinterest users can curate personal boards uploaded by other users on the platform. Users can also upload, or “pin”, their own visual content and add these to boards.
Pinterest describes itself as “a visual discovery engine for finding ideas like recipes, home and style inspiration, and more.” This means that it's not just a social platform, but a visual search engine. Users can share and discover images based on their interests and add them to collections.
Pinterest may be considered one of the big social media channels, but its business model approaches social media very differently. Instead of being a socially-focused platform to connect with users and see what’s happening in their lives, Pinterest sees itself as a discovery service.
Users use Pinterest to discover things like wedding inspiration, recipes, decor tips, and outfit ideas.
Why is Pinterest Unique?
So, why was Pinterest started? And why was Pinterest a unique idea?
Ben Silbermann, Paul Sciarra, and Evan Sharp created Pinterest with the idea of establishing a platform that everyone could use and understand instantly - whether they were tech junkies or not.
Pinterest is unique because it emphasizes sharing what users like, unlike other social networks that focus on sharing updates about ourselves.
“It’s a service that’s a little bit different than a lot of the other online services because it’s about you. It’s about your interests, your aspirations, your future. It’s not as much about keeping up with your friends, or following celebrities, or reading the news.”
Above: Pinterest founders
How Pinterest Started
Pinterest has an interesting story. Here’s a quick breakdown of how the platform was started and where the Pinterest business idea came from.
Cold Brew Labs and Tote
The foundations for Pinterest were laid in 2006 when Sciarra left his job at a New York venture capital firm. He joined hands with Silberman, formerly of Google, to create an app development company called ‘Cold Brew Labs.’
They developed a shopping comparison platform called ‘Tote’ where users could browse through apparel by 30 or so different retailers, save them as favorites and find deals with reduced prices.
Even though Cold Brew managed to get funding for ‘Tote,’ the app did not succeed for two reasons. First, people weren’t using mobile apps for shopping yet. Second, Apple’s App Store was too slow to support the frequent version updates businesses like theirs made.
However, the one good thing that came out of ‘Tote’ was that Silbermann and Sciarra realized how popular their ‘favorites’ feature was with their customer base. They discovered that their users were collecting the items they liked and sending images of them to themselves. And that is where the idea for ‘Pinterest’ started taking form.
The two immediately began developing a prototype and were joined by Evan Sharp, a product designer for Facebook. Sharp is credited with coding most of the website and developing the visual language for Pinterest that we are all so familiar with today.
The three of them then started pitching their developed prototype to venture capitalists to receive funding for their ‘visual collection’ app. And while three would develop the app, Silberman’s girlfriend came up with the name, sharing it over Thanksgiving dinner in 2009.
With their first batch of beta testers, Pinterest targeted home-makers living in America, giving them a good way to pass their time.
So, while platforms like Facebook, Twitter, and Instagram used extreme marketing tactics and celebrity ambassadors to promote themselves, Pinterest targeted a demographic usually ignored by everyone else. It may have been a risky move, but it ultimately paid off in the end.
When Pinterest officially launched in 2010, the landscape of social media was in a major shift. Pinterest’s direct competition was Facebook - a platform that already had more than 300 million users when Pinterest was launched. Even Twitter had about 20 million users at the time.
The first few months were challenging for Pinterest. The app was working on an invite-only model with beta users. This usually sparks a lot of attention, but the idea just wasn’t working for Pinterest. Nine months after Pinterest went into open beta, the site had fewer than 10,000 users.
Silbermann contacted roughly half of these users personally. he gave them his cell number with an invitation to call him any time, day or night. Silbermann reportedly remained in touch with many of those 5,000 users for several years to help build Pinterest a loyal customer base.
Above: Example of a Pinterest pin
Pinterest’s Rise in Popularity
Silbermann’s personal connection with users was enough for investors to believe in the potential for the platform. Eventbrite CEO Kevin Hartz joined the round as an angel investor. Hartz is a PayPal veteran, and his involvement exposed Pinterest to one of the Valley's most influential investor networks.
However, the big break for the company didn’t come until March 2011 when the Pinterest App was launched on the Apple app store, helping the company pass the 1 million user mark by July of that year.
The next breakthrough came a few months later when TIME magazine featured Pinterest in a round-up of their ‘50 best websites’.
By the end of the year, Pinterest had grown into one of the biggest social media platforms in the world, generating more than 11 million new visits every single week - leading TechCrunch to declare Pinterest as the Best New Startup of 2011. By August 2012, Pinterest had over 20 million users pinning items and creating boards every single day.
Pinterest experienced a surge from 2013. By the spring of 2014, Pinterest users had pinned more than 30B images, almost half of which had been pinned only during the last six months. Pinterest started utilizing user data to target ads based on user interests and searches, and other demographics. This helped them develop their product even more.
Pinterest passed the 100 million user mark in 2015 and continued to see steady growth while maintaining a loyal fanbase. The pandemic fueled its growth in 2020 adding 100 million new users for a total of 454 million users in Q3 2021. This put it ahead of platforms such as Reddit, Twitter, and Quora.
Who Uses Pinterest?
One very important point for potential investors is that Pinterest's user base is diverse.
Women make up more than 60% of the platform’s global audience. It’s also a great way to reach millennial shoppers that use Pinterest as a product discovery engine. 35-49 years olds make up the largest user base, and Gen Z is the second biggest bracket.
Overall, Pinterest has a diverse audience. This is thanks to all of the different niches represented in the platform’s content.
How Much is Pinterest Worth?
In total, Pinterest has raised $1.5B in funding over 23 rounds bringing its valuation to $12.3B by June 2017.
Two years later in 2019, the company went public and is listed on the New York Stock Exchange with a market capitalization of $31.82B.
How Pinterest Makes Money?
So, how does Pinterest make money?
As far as the business model of Pinterest is concerned, Pinterest makes money mainly through ads and promoted pins where users pay to have their pins or boards featured on the app. Pinterest also went back to its roots and allowed users to purchase specific items straight from the app.
Even though Pinterest is such a popular platform, it’s still struggling to generate a profit through this business model.
In 2020, Pinterest saw a $128M net loss compared to an almost $1.4B net loss in 2019. For investors, this can be a positive sign on the road to profitability for the company.
What’s most important, Pinterest’s Q3 revenue grew 43% year over year to $633 million, posting a net income of $94M, up from a net loss of $94 million the previous year. This can be attributed to increased demand from large retail advertisers, as well as growth in its international business.
Above: Example of a promoted pin by JCPenney on the right
Why is Pinterest Not Profitable?
So, with stable growth rates like these, why is Pinterest struggling to generate a significant profit from its millions of users? The main reason comes from a lack of a monetization strategy in the Pinterest business model.
This puts Pinterest at a massive disadvantage compared to other social media platforms, all of which are generating revenue in one way or the other.
While promoted pins and shoppable pins are revenue generators for the Pinterest business model, the company failed to utilize them to their full potential. This is because they were rolled out too late and too slow, causing users to start leaving the platform for something better.
Another reason why Pinterest struggled initially was that many advertisers were reluctant to reallocate their budgets from the proven success of Facebook to Pinterest’s cheaper, yet largely untested, Promoted Pins. Many businesses were hesitant to use Pinterest for digital advertising compared to other social networking platforms that focused on advertising sooner.
A final issue in the Pinterest business model is that the company’s technology is lagging. For example, while Pinterest launched video support and built a native video player in 2016, Facebook had already been using video ads and seeing strong revenue growth for two years.
Above: Example of a shoppable pin
Pinterest Updates and Improvements
Pinterest continues to expand its ads platform to new locations, but it’s currently only available in 29 countries. It has, however, launched new features such as Story Pins and Pinterest Shopping, which offer new opportunities for users to find products to pin or purchase, indicating its commitment to eCommerce.
What Does the Future of Pinterest Look Like?
Pinterest is in an interesting position. It’s shown plenty of growth, but it’s still unprofitable.
For Silbermann, the focus of Pinterest is not on turning a short-term profit but on allowing Pinterest to grow to its full potential. He explained this in an interview with CNBC’s Jim Cramer after the company's first-quarter report as a public company.
“We’re definitely in the growth phase of our business. We try to be very transparent and clear, and the reason that we think we’re in the growth phase is that we think we’re really early on in our journey, we’re early on here in the United States, where we’re working with retail and CPG companies, but we want to expand to small and medium-sized businesses, and we’re super early internationally where two-thirds of our users are, so we’ve gone from 7 markets where our ads can be bought to 14 markets this quarter, but really we’re just in the first innings, we just hired folks on the ground.”
Emerging from a pivot and after a slow start, Pinterest has grown into one of the largest social platforms. While its IPO was a good move, having almost tripled its valuation, Pinterest’s slow and steady approach to growth means it lags behind other platforms when it comes to monetization.
While it has invested in the technology to enable monetization, it remains to be seen whether consumers and brands will use them, considering other platforms have already integrated eCommerce.
Pinterest’s story stands out from the rest of the social media world. This platform has a unique business model and looks at social media differently from any other site. This has helped Pinterest carve out a major space in the digital world. However, this hasn’t been without its challenges.
Pinterest makes money and has millions of users, but it’s struggled with turning a profit. This could be because of its visual discovery focus, but it also has to do with lagging technology and being late to the digital advertising party.
However, Pinterest has also doubled its stock price multiple times since becoming public. For all we know, this business may only just be getting started.
What do you think of this unique social platform? Do you think they’ll find a way to monetize it effectively? Let us know in the comments below.
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