How did three guys flip social media on its head
and create one of the most unique platforms out there? Pinterest has an amazing story,
and you wouldn't believe how much the company is worth today.
And although it's a publicly-traded company with over 320 million monthly users,
it's struggled to make money since its inception. We'll explain why.
Join us as we break down the complete story behind Pinterest, how it started, why it became
so popular, and what its future looks like. If you want to learn more about billion-dollar
businesses, subscribe to our channel. You will be the first to know when
we publish a new Business Breakdown. 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. This is known as pinning.
And the collections are know as ‘boards’ So, why was Pinterest started? 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 media platforms 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.” The foundations for Pinterest were laid in 2006
when Sciarra left his job at a New York venture capital firm and 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. And while that was a risky move, 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.
The first few months were challenging for Pinterest. The app was working on an
invite-only model with beta users. And while that usually sparks a lot of attention towards things,
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 these users
personally and 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. And this 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, helping 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, putting it ahead of platforms such as Reddit,
Twitter, and Quora. One very important point for
potential investors is that Pinterest's user base is diverse, with women making 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 with 35-49 years olds making the largest user base,
and Gen Z being the second biggest bracket. Want to make stunning landing pages in minutes?
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about our all-in-one marketing platform. Let’s talk numbers for a second. In total,
Pinterest has raised $1.5B in funding over 23 rounds bringing its valuation to $12.3B
by June 2017. Two year later in 2019, the company went public and is listed
on the New York Stock Exchange with a market capitalization of $31.82B.
So, how does Pinterest make money? As far as their business model is concerned,
Pinterest mainly makes money 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.In 2020, Pinterest saw a $128M net
loss compared to an almost $1.4B net loss in 2019. Which for investors 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. Which can be attributed to increased demand from large retail advertisers, as
well as growth in its international business. So, with stable growth rates like these,
why is Pinterest struggling to generate a significant profit from its millions of users?
Well, first of all, the company has still not managed to roll out an effective monetization
strategy yet - putting it at a massive disadvantage compared to other social media
platforms, all of which are generating revenue in one way or the other.
While promoted and shoppable pins are revenue generators, the reason why Pinterest has failed
to utilize them to their full potential is the fact that 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. A final issue 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. Pinterest continues to expand its ads platform
to new locations but currently is 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.
For Silbermann, though, the focus is not on turning a short-term profit but on allowing
Pinterest to grow to its full potential, which he explained 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.
That’s it for our breakdown of Pinterest. 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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