Pinterest makes money by selling advertising for marketers and companies that can gain visibility for their brands and more sales for their shops. In 2022, Pinterest generated $2.8 billion in advertising revenue, with 450 million monthly active users and a net loss of $96 million.
That’s why we’ll start by breaking down Pinterest’s 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 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 Pinterest business model is built on top of its Pinners.
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 repeatedly, “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 the Pinterest value proposition
Pinterest’s value proposition must offer compelling reasons for Pinners and advertisers to keep returning 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’s 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 makes people visualize the future and take action.
Empowering environment
Pinterest claims that most 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, from awareness to conversion.
What draws advertisers to Pinterest? The objectives are usually:
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, allowing smaller organizations to take advantage of the Pinterest advertising platform.
That also made its revenues scale fast.
Pinterest is also focused on building a stronger international digital advertising platform at this stage.
Therefore, its competitors are companies like Google, Facebook (Instagram), 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.
The Pinterest Sales Funnel (Source: Pinterest Financial Prospectus)
Pinners travel across this funnel 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 on allowing users, its Pinners, to curate and handpick content.
Pinterest focuses on making this curated environment thrive.
Therefore, most Pins get handpicked, saved, and organized by their user base.
Those Pins are then matched with billions of boards to form the Pinterest taste graph.
Inside Pinterest taste graph
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:
How The Pinterest Taste Graph Gets Shaped (Source: Pinterest Financial Prospectus)
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.”
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:
Links to the checkout page of the retailer’s website.
Other pins kinds of Pins comprise:
Recipe Pins that make it easy to cook a meal.
Shop the Look, which enables Pinners to shop for individual products.
Video Pins that mostly show how-to content about cooking and beauty.
Inside Pinterest discovery engine
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 brand visibility and drive sales to their websites.
In 2022, Pinterest generated$2.8 billion in advertising revenue, with 450 million monthly active users and a net loss of $96 million.
Pinterest, like Facebook, monetizes its users by offering targeted advertising on the platform.
As media business, therefore, has two critical metrics: MAU and ARPU.
Pinterest MAU
MAUs: monthly active users, defined 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.”
Pinterest ARPU
ARPU: or average revenue per user, which tells us how good Pinterest is at monetizing its user base
Pinterest still has to tap into its growth potential; for instance, it is about 10X of Facebook ARPU.
Facebook vs. Pinterest ARPU
The ARPU, or average revenue per user, is a key metric to track the success of Facebook – now Meta – family of products. For instance, by the end of 2021, Meta’s ARPU worldwide was $11.57. While in US & Canada, it was $60.57; in Europe, it was $19.68; in Asia, it was $4.89; and in the rest of the world, it was $3.43.
If we compare the two, that is what the comparison looks like:
Key Highlights
Revenue Generation: Pinterest generates its revenue primarily through selling advertising to marketers and companies. In 2022, the company generated $2.8 billion in advertising revenue. Advertisers use Pinterest to gain brand visibility and drive sales to their websites.
User Base: Pinterest has a user base of 450 million monthly active users (MAUs), who use the platform to discover and explore ideas for various aspects of their lives.
Key Customers: Pinterest’s business model focuses on two key customer groups: Pinners (users of the platform) and advertisers.
Pinners: Pinterest’s value proposition for users (Pinners) revolves around visual discovery, human curation, personalization, and empowerment. Pins, which are visual recommendations, are handpicked and organized by users into boards. Pinterest provides a unique visual experience compared to other platforms like Google and Facebook.
Advertisers: The platform’s value proposition for advertisers centers on creating an empowering environment, offering access to a valuable audience, and facilitating the discovery journey. Advertisers are drawn to Pinterest to achieve objectives like brand awareness, increasing online traffic, and driving sales.
Monetization Strategy: Pinterest monetizes its platform through advertising. Advertisers pay to have their content displayed to Pinterest users, allowing them to cover the entire sales funnel from awareness to conversion. Pinterest provides various types of Pins that cater to different objectives, such as product Pins, recipe Pins, shop-the-look Pins, and video Pins.
Advertising Market: Pinterest entered the digital advertising market in 2014, initially targeting larger organizations with sizable marketing budgets. Over time, it expanded its sales force and tools to cater to smaller businesses as well. The platform competes with companies like Google and Facebook (including Instagram) in the digital advertising space.
Metrics: Key metrics that drive Pinterest’s strategy include Monthly Active Users (MAU) and Average Revenue Per User (ARPU). As of now, Pinterest’s ARPU is lower compared to Facebook’s, indicating room for growth and potential for increased monetization.
Instagram makes money via visual advertising. Acquired by Facebook for a billion-dollar in 2012, today, Instagram is integrated into the overall Facebook (now rebranded as Meta) business strategy. In 2018, Instagram founders Kevin Systrom and Mike Krieger left the company as Facebook pushed toward tighter integration of the two platforms. In 2022, Instagram is the most successful product still, in Meta’s portfolio.
TikTok makes money through advertising. It is estimated that ByteDance, its owner, made $51 billion in 2021 in revenues. TikTok instead generated $11 billion in advertising in 2022, 3.3 billion downloads, and 1.2 billion monthly active users in 2021. TikTok, therefore, is a multi-billion company worth anywhere between $100 and-150 billion and among the most valuable social media platforms on earth.
Spotify is a two-sided marketplace where artists and music fans engage. Spotify has a free ad-supported service and a paid membership. Founded in 2008 with the belief that music should be universally accessible, it generated €11.7 billion in 2022. Of these revenues, 87.4% or €10.25 billion came from premium memberships, while over 12.6% or €1.47 billion came from ad-supported members. By 2022, Spotify had 489 million users, of which 205 million premium members and 295 million ad-supported users.
Founded in 2009 by Brian Acton, Jan Koum WhatsApp is a messaging app acquired by Facebook in 2014 for $19B. In 2018 WhatsApp rolled out customers’ interaction services, starting to make money on slow responses from companies. And Facebook also announced conversations on WhatsApp prompted by Facebook Ads.
Reddit is a social news and discussion website that also rates web content. The platform was created in 2005 after founders Alexis Ohanian and Steve Huffman met venture capitalist Paul Graham and pitched the company as the “front page of the internet.” Reddit makes money primarily via advertising. It also offers premium membership plans.
Twitter makes money in two ways: advertising and data licensing. In 2021, Twitter generated $4.5 billion from advertising and $570 million from data licensing. While Twitter generated $5 billion in total revenues, it lost 221 million.
Telegram is a messaging app emphasizing privacy and encryption, launched in 2013. It doesn’t make money yet, while it raised over $1.7 billion in Initial Coin Offerings throughout 2018, halted by the SEC in 2019. Telegram wants to keep the app 100% free while trying to sustain its growth.
Snapchat is a camera company which business model moves across three industries: social media, content marketing, and AR. Snapchat generates most of its revenue from several ad formats (AR Ads, Snap Ads, Sponsored Geolifters, and Sponsored Lenses). The company also produces Spectacles, a set of AR glasses enabling content creators to produce interactive experiences through Snapchat.
Facebook, the main product of Meta is an attention merchant. As such, its algorithms condense the attention of over 2.91 billion monthly active users as of June 2021. Meta generated $117.9 billion in revenues, in 2021, of which $114.9 billion from advertising (97.4% of the total revenues) and over $2.2 billion from Reality Labs (the augmented and virtual reality products arm).
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
