Understanding Pinterest: A future advertising giant that may surpass FB and Twitter

Pinterest recently began experimenting with selling ads, and has been highly sought after by marketers. Forbes recently published an article that made an in-depth analysis of the company from the aspects of service attributes, advertising formats, and advantages over its competitors, saying that the social media service is expected to become an advertising giant, an advertising giant that is even larger than Facebook and Twitter.

A few weeks ago, Pinterest, a social media service popular with women and hobbyists, began experimenting with selling ads to its 70 million users. Because so many marketers wanted to participate, Pinterest limited the experiment to about 10 brand sponsors, earning more than $1 million from each transaction.

It can be said that Pinterest has been quite popular recently. On this visual social network, people can create and share albums of various content on their mobile phones or computers, such as recipes, hairstyles, baby homes, etc. Pinterest has not been established for 5 years, but looking at the female group (accounting for more than 80% of its users), it is already more popular than Twitter (market value of more than 30 billion US dollars) . Pinterest's US user base is expected to exceed 40 million this year, reaching a level comparable to Twitter and Instagram. In terms of overseas markets, it is also catching up with Twitter and Instagram quickly. In the past year, it has opened offices in London, Paris, Berlin, Tokyo and other places. According to data from market research firm Semiocast, international users currently account for nearly half of Pinterest's new registered users. In the past year, its active male users have even doubled.

To date, Pinterest users have created more than 750 million boards with more than 30 billion pins, and 54 million new pins are added every day. During the 2013 holiday shopping season, Pinterest accounted for nearly a quarter of all social sharing activity. Among major social networks, only Facebook, with 1.3 billion users, drives more traffic to online publishers than Pinterest.

Will it surpass Facebook and Twitter?

This level of activity sounds amazing, but it is not enough to explain the huge business opportunities in front of Pinterest. Although it is still in the early stages of commercialization, many analysts and observers believe that it is only a matter of time before Pinterest surpasses Facebook, Twitter and other mainstream social networks in terms of average revenue per user. "Pinterest's annual revenue will reach billions of dollars," said Dave Weinberg, founder of social marketing company Loop88.

For marketers, Pinterest has unique value as a new medium that has never been seen before. One difference between it and other popular social networks is the tense of content. As Pinterest CEO Ben Silbermann explained, Facebook is "about your contacts, your past and your memories." Users on Facebook voluntarily provide all kinds of personal information, such as birthdays, alma mater names, emotional status, etc., which the social network can use to push highly targeted ads. Twitter's user information is not as detailed, and because of this, its revenue per user is only half of Facebook's, about $3.50. Twitter's value still lies mainly in "happening" events, allowing advertisers to use real-time discussions of hot events for brand promotion, such as the World Cup, the presidential election, and the hit TV series "Orange Is the New Black".

If Facebook is about the past and Twitter is about the present, then Pinterest is about the future. "Pinterest is about what you aspire to do, what you want to do next," Silbermann said. This future is exactly what brand marketers want. When a user pins a photo of a wedding dress or a coffee table to her board, it sends a signal to the merchant that the merchant may want to sell her a wedding dress or a coffee table. "There is an intention behind every pin," said Joanne Bradford, director of partnerships at Pinterest. "Pinning is like saying, 'I'm going to organize this into my life,' just like cutting it out of a magazine."

Marketers are excited about the idea of ​​being able to target consumers at that delicate moment when browsing behavior turns into shopping action. "From a strategic perspective, one of the things we want to figure out is how to reach consumers as early as possible in the inspiration or planning stage," said David Doctorow, senior vice president of global marketing at Expedia, one of Pinterest's charter advertisers. "We don't have a good way to identify consumers in that process."

Currently, advertising is Pinterest's only source of revenue. However, it only needs to take a small step to become a middleman for the hundreds of thousands of retailers who already display products on its platform. "Our next step will be how to make it easy for you to shop for the products you want," said Silbermann. That's Amazon's territory, but Facebook and Twitter have already entered the field, and they are all experimenting with providing "buy" buttons to create a smooth and convenient shopping experience. But in comparison, Pinterest has a natural advantage in the field of e-commerce. Independent research data shows that its users are more likely to share product links and complete large transactions than users of other social platforms.

Google must be overthrown

For Pinterest to establish itself in the future, it will have to take down a very powerful market incumbent: Google. Google is also involved in using purchase intent signals to sell relevant information to marketers. That’s the foundation of its search advertising business, which generates about two-thirds of the company’s annual revenue ($55 billion).

Silbermann, who spent two years as a product specialist in Google's advertising division, knows exactly who he's up against. In his keynote at the Cannes Lions Advertising Festival, he called Google "the ultimate card catalog" - an outdated technology that only works if you know what you're looking for. Pinterest "enables people to see possibilities they didn't know existed," said Evan Sharp, another Pinterest co-founder.

Pinterest executives call this open-ended form of search discovery. Figuring out how to do discovery well “is the biggest opportunity on the internet in the last 10 to 20 years,” says Tim Kendall, Pinterest’s head of product. His time frame is no accident: As Facebook’s director of monetization from 2006 to 2010, he shaped the strategy that ultimately made the social network worth more than $200 billion. In Kendall’s view, Pinterest will be bigger than Facebook and Google. “That’s why I joined Pinterest.”

Pinterest has raised $764 million in seven rounds of funding so far, with investors including FirstMark Capital, Andreessen Horowitz and Bessemer Venture Partners. In May, it raised a massive $200 million round at a $5 billion valuation, fueling its international expansion.

The company now has more than 400 employees, up from fewer than 20 at the beginning of 2012. It recently signed a lease for a new office building (it has only been in its current building for two years). "I spend a lot of time trying to get internal communications right to make sure everyone is moving in the same direction," Silbermann says. "Technology has made it easier for small teams to scale products quickly, but no one has invented something that makes it easier to build culture commensurately quickly."

The cornerstone of Pinterest's culture is a principle called Knit. While other big Silicon Valley tech companies are led by people with a single skill set — engineers at Google, designers at Apple — Pinterest solves problems by combining different skills. "That way, you can build something that one person with one skill set couldn't do on their own," says Kendall, the company's chief product officer. "We're trying to build a culture that highly values ​​all kinds of talent," says Sharp.

Promote Pin Project

In Bellevue, Washington, a group of Pinterest ambassadors met to teach Expedia executives the art of pinning. Larkin Brown, a user experience researcher, explained how different purposes for pinning — planning a project, comparing styles or just getting inspired — correspond to product purchase stages: awareness, consideration, preference and purchase. “The thing to understand is that pinning triggers that pattern,” Brown said. Then Kevin Knight, head of advertising and brand marketing at Pinterest, stressed that every board created by a brand should correspond to an interest that people might have, because that’s how users organize their own boards. “Outdoor furniture is not an interest; outdoor living is an interest,” he said. In 2013, Expedia spent more than $1.7 billion on brand advertising and marketing for its brands, including Expedia.com, Hotels.com and Trivago.

Pinterest has held these five-hour workshops for more than a dozen partners (its advertisers, each of whom has invested $1 million to $2 million in a six-month campaign) in its Promoted Pins program. After the workshops, participants typically see a 25% increase in engagement with their pins. Bradford, who oversees sales, points out that making sure advertisers understand what's going on before they start spending money ensures they're happy with the results. Pinterest has to make sure they're happy, too, because they're reportedly paying Pinterest $30 to $40 per thousand impressions, several times what Facebook charges.

Advantages of Facebook

Similar to Facebook's Sponsored Posts and Twitter's Promoted Tweets, Pinterest's Promoted Pins are a form of native advertising, meaning that the form of the ad is the same as user-generated content. Native ads are suitable for mobile screens, where ads must be presented in the main information flow. According to industry data analysis, more than 90% of Pinterest's usage comes from mobile devices, higher than Facebook (68%) and Twitter (86%).

Pinterest has an advantage over other social networks in terms of native advertising. Facebook may know that you are a Cleveland Browns fan and wear size XL, but when it shows you an ad for a Browns jersey in your News Feed, you still feel intrusive. After all, who buys jerseys on Facebook?

Pinterest users, on the other hand, are essentially in the process of planning how to spend their money. If you’re browsing for beach vacation ideas, an Expedia pin showing beach resorts in Cancun isn’t intrusive — it’s informative. “Pinterest is a place where people love to discover things,” says Don Faul, the company’s chief operating officer. “Brands are at the center of that place.” To keep its ads from looking too much like ads, Pinterest has laid out some ground rules: Every promoted pin must start as a regular pin on a partner’s board, and partners are not allowed to run gimmicks like price promotions and contests.

The Vogue phenomenon

The right context is everything, especially for high-end marketers. Yahoo CEO Marissa Mayer calls context the "Vogue phenomenon," referring to how magazine ads look like part of the whole reading experience, while online ads always feel annoying. Yahoo's $1 billion acquisition of Tumblr, another visual social network, is intended to recreate that phenomenon at the pixel level. Pinterest, with its larger and more engaged audience, has a better chance of doing just that.

“On Pinterest, people are showing at least some intent to engage with the content you’re giving them,” said Meghan Burns, marketing director at Vineyard Vines. “As a luxury brand, this is a big step in the right direction. We can buy impressions throughout the day, but the point is to keep people actively engaged with the brand.”

Pinterest offers a suite of tools to help brands quantify the return on their time and money invested, and is working with them to develop new measurement tools tailored to their needs. Burns says her company has seen growth in web traffic and new users since it began paying for promoted pins, and that its non-paid pins are performing better in terms of audience reach and engagement . An analysis of data from 25,000 retailers showed that users directed to e-commerce sites by Pinterest were 10% more likely to ultimately make a purchase than users directed to other social sites. Still, Burns wants to see more evidence that a brand’s Pinterest fans can convert into sales. “I’m looking forward to additional data that says, ‘Shoppers are ready to shop here,’ ” she said.

If that happens, could Pinterest sell products directly? E-commerce is clearly part of Pinterest's roadmap, but it's not there yet, despite its ample funding. Its staff is still only one-eighth the size of Twitter's, and much smaller than Facebook and Google's. Pinterest is still very single-minded, even if that gives competitors a head start.

This didn't bother Silbermann and Sharp. They weren't focused on selling products to customers.

The business opportunity they are looking at now is much bigger than e-commerce. "How do we do to discovery what Google did to search?" Silbermann pondered. "How do we show you things you didn't consciously look for, but you'll like? We think if we can answer that question, the rest of the business will follow naturally."