Pinterest: The Future of E-Commerce

Introduction

Over the last two decades, the rise and expansion of the Internet, social media, and digital communication have changed the way we communicate and engage with one another. As of January 2021, 4.66 billion people are active internet users, accounting for 59% of the world’s total population. Of these, 3.78 billion people actively use at least one social media network (Statista, 2021). An Online Social Network (OSN) like Facebook, Twitter, LinkedIn, Instagram, and more are web-based platforms that help users to interact, share thoughts, interests, activities and now promote their businesses, which enables consumers/users to establish real-life connections over the internet (Mittal et. al, 2013).

The Early 2000s saw social media networks gain immense prominence. Websites such as MySpace, LinkedIn, Flickr started gaining popularity. Facebook was launched in 2004 and YouTube. By 2006, Twitter and Facebook were being used by people all around the world. The rise of social media gained a meteoric pace in the 2000s and was highlighted by Facebook’s $1 billion acquisition of Instagram in 2012. Founded in 2009 by Ben Silbermann and Evan Sharp, Pinterest entered the industry relatively later. As of 2021 Q1, Pinterest has 478 million users (Statista, 2021).

Overview & History of Pinterest

In 2009, Ben Silbermann and Evan Sharp founded Pinterest as a unique platform that enabled users to curate pinboards of existing photos uploaded by friends, strangers, and companies. Additionally, users can also upload their photos and pin them to their online portfolio, which is known as pinboards. They differentiate themselves from others by positioning Pinterest as a visual discovery service, which helps users plan for the future by allowing them to curate images or a set of images (Tarver, 2019).

In March 2010, a ‘closed beta’ version of Pinterest was launched for a limited number of ‘invite only’ users. Nine months after the launch, Pinterest had 10,000 users. By 2012, the platform had made Time magazine’s list of '50 best websites’ and was being used by people across the world. By 2012, Pinterest had more than 11 million users, making it one of the fastest-growing websites with more than 421 million page views (Rioja, 2021). By this time, Pinterest was valued at $2.5 Billion. By 2016, Pinterest had more than 150 million users with 2 billion searches every month. However, Pinterest was yet to figure out how to drive revenue. The company had been trying to position itself as a natural companion tool for shoppers. In 2017, Pinterest’s focus on visual search had become very clear, this is when the company launched two new proprietary features, first was ‘Lens’ - image recognition technology, which allowed users to identify and purchase products by quickly identifying and analyzing various objects. The second product was ‘Instant Ideas’, a tool that added a small circle beneath each pin. Users could tap the pin to reveal a large range of items and pins that were relevant to the original pin. Pinterest has always been a technology-heavy company but has never marketed itself as one because it never mattered to its users. These two inventions marked an integral time in Pinterest’s growth and offered the company a unique way of monetizing the platform. The launch of the Lens technology attracted a lot of attention from larger retailers and led to a partnership with Target. Under the partnership, Pinterest users could take a picture of merchandise in Target, and Lens would offer thematically and visually matches. Even with the new partnerships and technology, Pinterest was still struggling to find ways to meet its revenue targets. By 2018, Pinterest had become one of the most popular social networking websites with a user base of 250 billion+ users. In 2019, Pinterest went public with an Initial Public Offering (IPO) price of $19 per share and raised $1.4 Billion, giving it a valuation of $12.7 billion (Product Habits, 2019)

User Demographics

Pinterest's total active mostly user base amounts to 478 million which can be divided into two categories: businesses and personal users. In 2020, Pinterest saw a huge increase in users. As more and more people were confined to their homes due to COVID-19, people started spending more time viewing and pinning images and videos. Pinterest's largest user base, approximately 43.95% is located in the United States, making it the fourth most popular social networking platform. According to Pinterest (2021), The gender-based data for Pinterest is skewed towards women where every six out of ten Pinterest users are female. The data further reflected that Pinterest is predominantly used by females, with two times as many females than males. This can be explained by a few reasons. First, according to statistics, women tend to ‘shop’ more than men. Second, women feel more of an emotional connection to the platform and often use it for emotional and motivational purposes. Further, a survey of Pinterest users found that 34% were in the age category of 18-29 years, 35% were in the category of 30-49 years and 27% were in the age category of 50-64 years. The platform seems to be extremely popular among millennials with every 1 out of 2 millennials in the US using the platform. Data also showed that the millennials on the platform tend to spend as much as 17% more than the ones not on Pinterest.

According to the latest GWI (2021) report, With over 200 billion pins saved on Pinterest, the top three reasons for Pinners to use the platform were, to search for home decor and design inspiration, recipes, and food-related ideas and style, beauty, and fashion inspiration. Pinterest can be compared to Google, with a focus on visual content. Out of all the social platforms, Pinterest has an unusually high customer engagement rate with 82% of the users logged in from their smartphones. The high engagement rate can be attributed to the fact that Pinterest is typically free and Pinterest holds a certain ‘feel-good' factor. The positive conception of Pinterest can be correlated with their content moderation policy where the company has banned political ads in 2018, therefore making people feel that Pinterest is a safe place to network (Sehl, 2021).

What is Pinterest?

Pinterest is an image and video-based social bookmarking website, where users share content that is of interest to them, in the form of pins and pinboards. In contrast to social networks such as Instagram, TikTok, and more, It focuses on discovery and curation of content rather than original content creation (Mittal et. al, 2013). This makes Pinterest extremely attractive to retailers and businesses looking to expand their customer base. Pinterest has four primary features:

1. Pins: A pin is the most integral feature of Pinterest and is also unique to the network. A pin can be an image or video that has some metadata attached to it. The act of posting a pin is known as ‘pinning’ and the act of reposting a pin is known as ‘repinning’ (Mittal et. al, 2013). A pin that tags a product and contains pricing info, availability, and product title is known as a ‘product pin’ and is intended to convince a user to make a purchase. (Pinterest, 2021). Recently, Pinterest launched a new and improved version of its pin,

known as Pinterest Rich Pins. These pins have been designed to have a higher reach and engagement and can be divided into four categories: article, app, product, and recipe (Huxley, 2019). Pinterest has also recently introduced carousel pins and story pins as an added functionality.

1. Pinboards: A user's profile is made up of boards. These ‘Pinboards’ are a collection of themed pins, curated by the user with a description and category. This has been created and named deliberately to match a real-life pinboard. The users can also choose to keep these boards a secret, which will only allow the user to see and access the content in the ‘secret board’
2. Source: Every pin has a ‘source’ URL associated with it, which redirects the user to the website it originated from. If the user uploads an image directly from their device, the source URL will become pinterest.com

As Pinterest’s user base continues to expand, it has been noted that four-fifths of its traffic now comes from mobile devices. To monetize the same and give more functionality to the mobile user, Pinterest recently introduced ‘Pinterest Lens’. Within this feature, a user can simply click on the camera icon next to the search bar, snap or upload a photo, and see a “Shop” tab. This will then generate a feed of stoppable pins of in-stock items (Pinterest, 2020).

Transition to Video Content - Idea Pins

In 2020, Pinterest launched a beta version of story pins that was tested in a small group of creators. After receiving feedback from the creators, Pinterest launched a video-first feature called ‘Idea pins’ in 2021 (Perez, 2021). Idea pins are an evolution of Story Pins with a focus on video. The feature allows users to share up to 20 pages of video with a limit of 60 seconds for each clip or image content but unlike Story pins, Idea pins do not expire in 24 hours. Idea pins will give content creators a lot of new and improved features including video recording, detail pages, video over recording, and interactive elements. Pinterest is looking to expand its video features and boost Idea Pins in the future and add a product tag to the Idea Pins, which will allow users to shop directly from Pinterest (Hutchinson, 2021). As Pinterest explained:

"Idea Pins are an evolution of Story Pins, with a fresh name to better match the uniqueness of a product that empowers creators to share long-lasting ideas and not ephemeral stories. Starting today, creators will have a suite of new publishing tools including, video-first features, fresh editing tools, and updates to make creating Idea Pins easier and more creative.”

Idea Pins are aimed at creators who want to tell their stories using video, music, and creative editing tools. This new feature very closely resembles Instagram Reels and Tiktok. Idea Pins is Pinterest’s tool to respond to the growing consumer demand for short-form videos. In addition, Pinterest is also working with the royalty-free music database Epidemic Sound, to offer its users the option to add music layovers on Idea Pins. According to a test conducted by Pinterest, Idea Pins tend to be more engaging than other pins with a 9x average comment rate. Since Idea Pins primarily targets creators and enables them to reach their audience more efficiently, Pinterest is also improving its analytics tool to help creators drive more traffic to their accounts. The next step for Pinterest is to make Idea Pins more ‘shoppable’ (Perez, 2021)

The Pinterest Creators Fund

Pinterest recently announced a series of updates including a new ‘Creators Fund’ of $500,000 with a new content policy and creator code. Pinterest has been increasingly investing in its creators and making the platform more creator-friendly. The new content guidelines encourage creators to be more careful with their content and make sure that it is authentic and based on facts. It is also launching comment moderation tools that will allow content creators to filter, delete and highlight comments. It is also adding new “positivity reminders” that encourage users to reconsider their comment before posting to make sure that it is not harmful or offensive. They want Pinterest to be a social media ‘ haven’ that encourages positivity and self-care. The fund will also concentrate on elevating content from underrepresented communities (Perez, 2021).

Pinterest Premiere

One of the most recent tools that Pinterest announced during their first-ever global advertising summit is Pinterest Premiere (Digital Media Solutions, 2021). With Pinterest Premiere, companies will be able to advertise within the users’ home feeds during specific time frames to reach optimized audiences. This tool has been introduced to take advantage of Pinterest’s exponential growth in video views. According to Pinterest, video views have increased by 100% year over year in Q4, 2020, while unique video uploads increased sixfold. Further, the total number of videos uploaded in 2020 increased by 800% with 1 billion video views (Swant, 2021). Pinterest is reiterating its focus on inclusivity, diversity, and positivity through Pinterest Premiere as well. During the pandemic, the amount of positive content on Pinterest saw massive growth and Pinterest has taken notice that a consumer is more likely to make a purchase from advertised content in a more trusting and positive environment, this also increases brand security for the advertisers, making sure that their ad is placed in a positive and optimistic environment that matched the brand’s core values (Digital Media Solutions, 2021).

Competitors

Pinterest is one of the most widely utilized photos sharing platforms for content creators, artists, and casual users. Until 2019, when Pinterest issued its IPO, Pinterest’s biggest competitors were Facebook, Snapchat, and Alphabet’s Google. As they went public, they announced plans to expand into the e-commerce market, and compete directly with the likes of Amazon and Instagram.

A surprising competitor - Amazon

In 2017, Pinterest launched buyable pins. Buyable pins allow customers to buy your products without leaving Pinterest. Due to its popularity in fashion and design, Pinterest is intending to be a commerce platform that directly competes with the likes of Amazon and Instagram (Young, 2019). The personal experience on Pinterest creates an environment for users that encourages spending. Users searching for Buyable Pins, can see what their friends have pinned and further re-pin them as their recommendations. As an extension to buyable pins, Pinterest has also introduced Sponsored Pins, which gives brands the ability to generate higher rates by targeting customers based on their interests (Jaekel, 2017)

Although Google, Facebook, and Instagram are the more obvious competitors, Amazon competes with Pinterest in almost all areas which puts Amazon and Pinterest on a collision course in the future. Both the companies have adopted extremely different strategies to achieve one common goal, using machine learning to interpret images and understand people’s interests, and in turn, trigger the lower purchase funnel. Pinterest’s foundation is based on consumer inspiration whereas, Amazon targets consumer pragmatism (Mann, 2017). Both the companies have their strengths, Pinteret’s being their smart “visual discovery”

According to Cowen and Company, 48% of users on Pinterest are looking to make a purchase. This number is significantly lower in the case of Facebook, Google, and Instagram. However, Amazon is a marketplace, and to compete with the ‘everything” company, Pinterest will need to lay more focus on the e-commerce aspect of Pinterest.

Pinterest vs the Ad Duopoly - Facebook & Google

Google and Facebook have dominated the digital ad space for a long time, but now it’s become clear that Pinterest’s ad business is growing faster than the industry giants, which allows brands of all sizes to diversify their ad spend (Graham, 2019). Pinterest’s area of strength is shopping, which makes Pinterest the prime platform to drive users to make purchases. Over the last few years, Pinterest has also been gaining a lot of traction beyond its original popular categories of fashion, home, and garden. Another ad format that Pinterest is yet to develop to the full extent is Video Ads. Video Ads tend to do better as they allow consumers to convey a deeper story about their product or service and statistically convert better as well. However, although Pinterest is experiencing a period of significant growth in its ad segment, it still needs to develop and fine-tune its ad algorithm. Currently, Pinterest only runs ads in Canada and US but is planning to expand the ads to other lucrative international markets.

With the introduction of Buyable Pins and the Shop the Look feature, Pinterest is making large bets on becoming the preferred e-commerce platform. What works to their advantage is that the difference between sponsored and organic ads is extremely blurry, making consumers more receptive to the ads on Pinterest than on Facebook. According to CNBC, Pinterest recorded a 47% year-over-year growth in Digital Advertising (Graham,2019). Facebook’s appeal lies in its vast data and reach. However, Facebook is built on past experiences and memories, which is not beneficial to advertisers, this is where Pinterest shines.

Further, Pinterest competes with Google in two main aspects; discovery and ads. Both the companies are essentially search engines and manage a form of visual search (Barry, 2011). The key difference between the two is that Google is based on intent, which means when a consumer comes to Google, they know what they’re looking for. In contrast, when a consumer comes on Pinterest, they don’t know what they’re looking for (Shontell, 2014)

How does Pinterest Make Money? - Monetizing Pinterest

Pinterest’s revenue has more than doubled between 2020 and 2021 reaching $613.2 million, a 125% growth in the same period in 2020 (Cohen, 2021). Over the years, Pinterest’s priority was to gain a substantial user base. Now that they have established a loyal user base, it has shifted their focus on generating revenue. Like any other social media platform, Pinterest makes most of its money through digital advertising by helping businesses target users on Pinterest across their decision-making journey. This is done primarily through Promoted Pins, which are ads that contain images or a carousel of images and videos. In May 2020, Pinterest entered into a partnership with the online e-commerce platform, Shopify. This allowed Shopify merchants to upload catalogs to Pinterest and turn them into shoppable product pins, making it easier for Pinterest users to buy from Shopify Merchants. Pinterest has also made similar deals that add a ‘buy button’ for companies on platforms such as IBM Commerce, Salesforce, and Commerce Cloud. These companies in turn spend marketing dollars to promote their products on Pinterest (Opto, 2021). To drive their strategy and understand conversion, Pinterest uses two key metrics; Monthly Active Users (MAU) and Average Revenue Per User (ARPU). Its APRU increased from $0.7 in Q2, 2020 to $1.57 in Q4, 2020 (Statista, 2021). Pinterest is yet to exploit its full potential, and it can do this by constantly improving its product for both users and advertisers.

The Path Ahead / Conclusion

Pinterest is going through a period of massive growth with a promising future ahead. Moving forward the company needs to focus on three primary aspects to generate more revenue and improve its user experience:

1. Improving International Monetization: According to Pinterest, 50% of their active users are located in the United States and 50% are located in International locations. The split poses an interesting opportunity where it can drive significant growth from international markets such as Brazil, India, and China. 46 million people in Brazil use Pinterest and to capitalize the same, Pinterest expanded their ads to the geography in 2021. It also announced that it will be expanding its partnership with Shopify to 27 countries.
2. Video Expansion into E-commerce: Pinterest has been investing heavily in video and is looking to convert Pinterest into a video-centric e-commerce platform that creates a positive and right environment for its users to make a purchase.
3. Automatic Advertising Bidding: Since the launch of automatic bidding, the company has noticed an increase in spending by advertisers. To increase revenues, automatic bidding will play a key role. Improvements in their analytics tool that will enable advertisers to better target their customers will enable Pinterest to increase their revenues manifold. Product improvements along with global expansion will be key to Pinterest’s future success (Sanchez, 2021).

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