Pinterest: A Monetization Solution that willRetain the Integrity of its User Experience

By Jane Yu

Pinterest is the new craze these days; the golden child of the social networking scene. The platform has raised $338MM to date and being recently valued at about $2.5B dollars although not having yet communicated a clear monetization strategy (to the outside world, at least). Pinterest’s high valuation, however, suggests that the tech community is hoping that the website will be the next greatest revenue generating engine.

In a time of skepticism and disenchantment with the potential for new-age online business models to drive commerce, Pinterest is not without substance. Research has shown that across the web, the average sale from a Pinterest user is $180, versus $80 on Facebook and $70 on Twitter. Pinterest users are also more likely to buy: One Kings Lane discovered that users who are directed to their site from Pinterest are three times more likely than the average user to commit a purchase.

The platform clearly has enormous potential, but so far, it has remained conspicuously mum about how it plans to monetize. While the most obvious solutions are to rely on ad-based or affiliate models, the site’s design and history suggests this might not be the case.

It is unlikely that Pinterest will go in the direction of ads any time soon. The founders are notoriously design-focused, and splashing banner ads across the pages will certainly do an injustice to their meticulously planned layout and user experience that has been the keys to the site’s success thus far. Additionally, while many online sites design their sites to generate as much page views as possible (e.g. Facebook) in an effort to maximize potential CPMs, Pinterest demonstrates a continuous scroll function that allows users to browse near-endless content without refreshing the page.

Affiliate advertising seems to be another obvious and profitable solution. This model has helped Pinterest’s smaller-scale competitor, The Fancy, to draw in close to $10,000 a day in sales, despite having 1% of Pinterest’s traffic figures. This too, however, seems unlikely, as they have experimented with Skimlinks in 2010 and later switched off that revenue stream.

Perhaps a solution that could allow Pinterest to leverage its strengths and monetize without compromising the user experience is to partner with a major display network to earn revenue share on display advertising within content landing pages. To break it down: Whenever a Pinterest user clicks through to a landing page, there are usually display ads on that page. Display networks earn CPC or CPM revenue from those ads. Pinterest could negotiate to get a share of that revenue when the traffic originates from Pinterest.  

Why would a display network concede to sharing its pie? Retargeting data. Imagine if the display content network in question is the Google Display Network. Pinterest has enormous leverage in its negotiations with Google because Pinterest has a goldmine of potential retargeting data. Pinterest has information on what its users are coveting, and who within their Pinterest community has also expressed interest in similar items through repins and by following certain boards. Imagine a day when a Google advertising executive could tell a retailer like JCREW that not only could they target users who type in “sweaters” into the Google search bar, but they could also retarget to the same users who have pinned images of JCREW sweaters throughout their display network. What if Google could one day tell Crate & Barrel that not only do they know who has looked up home decorating tips on Google, but they also users who have pinboards featuring Crate & Barrel furniture.  In a world where a users’ online activity is spread across numerous sites, the larger advertising ecosystem should evolve to become equally permeable.

So, the question remains: If Pinterest were to follow this strategy, with whom should they partner? It probably won’t be Google. If you take a peek at the investors who participated in their Series C, you’ll see one investor that is dissimilar to the rest: Amongst the VC firms, is Rakuten, owner of Linkshare, a leading affiliate network. Is this a mere coincidence or suggestion of a more strategic partnership to come?






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