how-does-pinterest-work-make-money

How Does Pinterest Work And Make Money? Pinterest Business Model In A Nutshell

Pinterest makes money by selling advertising for marketers and companies that can gain visibility for their brands and more sales for their shops. In 2018, Pinterest made over $755 million in advertising revenue, and it had 250 million monthly active users. 

The foundation of any business model needs to be built on top of a solid value proposition.

That’s why we’ll start from breaking down Pinterest value proposition. However, for digital businesses and in general for organizations built on top of more elaborated business models, there will be a few key players that make that business model viable in the first place.

The Pinterest mission is “to help people discover and do things they love.” Let’s see how it accomplishes that.

Who are Pinterest key customers?

The Pinterest business model targets two key players:

  • Pinners
  • And advertisers

Who is a Pinner and why it matters for the Pinterest business model?

As Pinterest pointed out in its financial prospectus:

Pinterest is where more than 250 million people around the world go to get inspiration for their lives. They come to discover ideas for just about anything you can imagine: daily activities like cooking dinner or deciding what to wear, major commitments like remodeling a house or training for a marathon, ongoing passions like fly fishing or fashion and milestone events like planning a wedding or a dream vacation.

Pinterest calls those people “Pinners.” The whole experience of Pinners moves around visual recommendations, which are called “Pins.” Those Pins are customized, contextualized and organized around interests, within boards.

Pinners get the service for free. They don’t pay a dime. However, the whole Pinterest business model is built on top of its Pinners. They are at the core of the Pinterest business model.

Indeed, without an engaged, consistent and robust user base, there wouldn’t be any advertising business. That’s why Pinterest focuses primarily on this segment by asking time and time again “How will this help Pinners?”

More precisely Pinterest claims to work on creating the right context for its user base, which has three core principles:

  • Transparency: especially in the privacy and terms of use of the service
  • Enforcement: in taking down content that doesn’t comply
  • Accountability: in applying laws and regulations

Advertisers instead are at the core of the Pinterest monetization strategy. Let’s see why both Pinners and advertisers stick so far to Pinterest.

Breaking down Pinterest value proposition

Pinterest value proposition needs to offer compelling reasons for both Pinners and advertisers to keep coming back to the platform.

Value Proposition for Pinners

The value proposition for Pinners moves around four key elements. It is essential to remark how Pinterest wants to position itself differently from other tech giants like Google and Facebook.

Where those companies make massive use of algorithms (Facebook), web crawlers (in Google’s case) and in automatic text content generation, Pinterest is all about visual experience and human content curation:

  • Visual experience: Pinterest focuses on visual discovery and search, which makes Pinterest a unique place on the web. Pinterest is not the only place that focuses on visual experiences. However, it has a core human curation and personalization that makes it unique
  • Human curation and personalization: As pointed out on Pinterest financial prospectus “Pins have been handpicked, saved and organized over the years by hundreds of millions of Pinners creating billions of boards; they are not the result of web crawling or indexing. We call this body of data the Pinterest taste graph” 
  • Designed for action: A visual experience is meant to make people visualize the future and take action
  • Empowering environment: Pinterest claims that most of its users feel empowered by using the platform. Indeed, the Pinterest environment wants to be different from other social networks. It doesn’t try to leverage the fear of missing out or people’s anxieties. It claims to generate inspiration for people

Value Proposition for Advertisers

The Pinterest value proposition for advertisers is critical for a sustainable monetization strategy. It moves around three areas:

  • Empowering Environment
  • Valuable Audience
  • The Discovery Journey

Pinterest claims to allow advertisers to cover the whole sales funnel, that goes from awareness to conversion. What draws advertisers to Pinterest? The objectives are usually:

  • Building brand awareness
  • Increasing online traffic
  • Driving sales

Breaking down the Pinterest digital advertising target market

In 2014, Pinterest introduced advertising to its platform. Initially, Pinterest focused on large organizations with large marketing budgets. 

As the company grew, it also adapted its sales force and available tools to advertisers to allowed smaller organizations to take advantage of Pinterest advertising platform. That also made its revenues scale fast.

At this stage, Pinterest is also focused on building a stronger international digital advertising platform.

Indeed Pinterest is in the digital advertising business. Therefore, its competitors are companies like Google, Facebook (Instagram as well), and other companies offering digital advertising opportunities.

The Pinterest total addressable market includes brand advertising and performance-based advertising served in various formats:

  • Online Brand Advertising: attractive to advertisers looking to raise awareness at the top of the purchasing funnel
  • Offline Brand Advertising: brand advertising is usually done offline. Pinterest draws part of that business online
  • Online Performance Advertising: primarily based on conversion

pinterest-discovery-journey

The Pinterest Sales Funnel (Source: Pinterest Financial Prospectus)

Pinners travel across this funnel that goes from inspiration, organization, and action. Advertisers can put their content in front of this audience and work from the top to the bottom of the funnel, thus, from awareness to conversion. 

How does Pinterest work?

Pinterest focuses most of its effort in allowing users, its Pinners, to curate and handpick content. Pinterest focuses on making this curated environment thrive. Therefore, the majority of Pins get handpicked, saved and organized by its user base. Those Pins are then matched with billions of boards to form the so-called Pinterest taste graph.

Inside Pinterest taste graph

pinterest-human-curation

The process of Human Curation and Personalization (Source: Pinterest Financial Prospectus)

To better understand how Pinterest works, when a user saves or “pins” an image of Machu Picchu this might get initially saved by the Pinner to a board name for instance “Bucket List.”

However, as that Pin will be available and discoverable, thousands of users will be able to save that image on other boards:

pinterest-taste-graph

How The Pinterest Taste Graph Gets Shaped (Source: Pinterest Financial Prospectus)

What is a Pin?

what-is-a-pin

Source: Pinterest Financial Prospectus

Pinterest defines a Pin as “an idea represented by an image or video, regularly linked to other websites that showcase a variety of content and ideas for Pinners to explore.”

what-is-a-product-pin

Example of a Product Pin

There are various types of pins. For instance, with a product Pin, an item can be shoppable, with information like: 

  • Up-to-date pricing
  • Availability
  • Links to the checkout page of the retailer’s website

Other pins kinds of Pins comprise:

  • Recipe Pins that makes it easy to cook a meal
  • Shop the Look which enables Pinners to shop for the individual products
  • Video Pins that mostly show how-to content about cooking and beauty

Inside Pinterest discovery engine

discovery-tools-pinterest

Source: Pinterest Financial Prospectus

The Pinterest discovery mechanism moves around four key areas

  • Home feed
  • Search
  • Related search
  • And visual search

This helps users refine and find the visual content they’re looking for. It allows Pinterest to anticipate the tastes of its users. And it also makes it easier for advertisers to attract the attention of Pinterest users through paid campaigns.

Breaking down Pinterest monetization strategy

Pinterest makes money by selling advertising to marketers and companies that want to gain visibility for their brands and want to drive sales to their websites. In 2018, Pinterest made over $755 million from advertising.

pinterest-financial-statement

Source: Pinterest Financial Prospectus

Pinterest, like Facebook, monetizes its users by offering targeted advertising on the platform. As a media business, therefore, has a few critical metrics:

  • MAUs: or monthly active users, defined as a “user as a logged-in Pinterest user who visits the website or opens the mobile application at least once during the 30 days ending on the date of measurement”
  • ARPU: or average revenue per user which tells us how good is Pinterest in monetizing its user base

Those two metrics drive Pinterest strategy:

pinterest-ARPU

Pinterest has still to tap into its growth potential; for instance, Facebook ARPU is about 10X of Pinterest:

facebook-arpu-2014-2018

If we compare the two, that is how the comparison looks like:

pinterest-vs-facebook

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Published by

Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which target is to reach over two million business students, executives, and aspiring entrepreneurs in 2020 alone | He is also Head of Business Development for a high-tech startup, which he helped grow at double-digit rate | Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy | Visit The FourWeekMBA BizSchool | Or Get in touch with Gennaro here

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