March 6, 2012 – Privately-held social media site Pinterest has been red hot since going live just 2-years ago. Founded in 2010 by a trio of social media veterans (Ben Silbermann and Paul Sciarra co-founded e-commerce site Cold Brew Labs), Pinterest has recently received venture capital injections from Andreessen Horowitz, Bessemer Venture Partners, and FirstMark Capital with individual funding from the who’s who of the startup community including: PayPal Co-Founder Max Levchin, super-angel Ron Conway, and former Microsoft exec turned full-time angel investor Fritz Lanman.
Operating in invite-only open beta, Pinterest boasts over 12 million monthly users and an engagement factor that has other social media sites drooling in envy. As a Facebook app, Pinterest allows users to see each other’s pins on their Facebook timelines. Pinterest’s impressive growth is turning heads in the startup and VC community with many wondering about a possible acquisition or partnership. The first and most obvious acquirer is none other than social media giant Facebook, Inc. With an IPO in the works, Facebook will soon be flush with cash for strategic acquisitions of companies exactly like Pinterest.
- Largely Diversified User Base: Pinterest’s devoted users, predominantly women in the Midwest and Central Southeast, are drastically different than their typical counterparts on Facebook and Youtube who hail from metropolitan cities in the Northeast and West Coast. In addition, the users are predominantly female (PrivCo estimates about 70%, with 85% of pins originating from women) between the ages of 25 and 44, the group which comprises our nation’s top spenders. By breaking through this user base, Pinterest provides a vehicle to monetize a very broad and diversified market.
- Quickly Monetizable: With a very lean team and virtually no operating costs, Pinterest can virtually break even tomorrow if it chose to display ads on its site. Opting instead to draw a bigger audience with a cleaner look (and no banner ads), Pinterest is purposely operating at a loss. However, its ability to quickly monetize and become a cash cow should be appealing to Facebook as it goes public since Pinterest could provide an extra revenue bump if the social media giant were to have a bad quarter. It is also key to note that over 10% of pins come from retail and consumer goods whose companies actively seek users to share and promote their product (Gap, Whole Foods, and CBS already actively market on Pinterest). This creates an easy way for Pinterest to monetize its large user base. The most obvious monetization vehicle Pinterest can use is an ad-based/sponsorship model where companies can sponsor certain "pins" on the page or advertise directly on the site. Another fairly obvious business model is a freemium or subscription-based model where additional features are available at a monthly fee.
- Facebook Synergies: As Facebook user engagement remains stagnant, Pinterest will help spark interest in an increasingly boring friends list. It is important to note 80% of pins are re-pinned, adding to the virility and user engagement aspect of the site. By providing a new way for people to interact, Pinterest can help rekindle the spark that once kept people addicted to Facebook. Another potential synergy is Pinterest’s potential as a “portal.” The top level domains that Pinterest links to come from a myriad of spaces in the online world. Etsy.com is the top source domain, but it only represents 3% of total Pins. Pinterest provides a “portal” to many other sites on the internet that would aid Facebook’s platform approach.
- Facebook Commerce Boost: After a brief 4-month stint in the daily deals market, Facebook pulled out in August 2011 due to a flurry of competition and small margins from merchants. In addition, Facebook's efforts towards hosting online stores from major retailers (known as "f-commerce") have been near complete failures. Pinterest would bring Facebook back to the forefront of commerce by directly linking to merchants’ products recommended by users, bypassing deal aggregators such as Groupon and Living Social, competing with Amazon and Google Shopping, while staying a step ahead of fast growing e-commerce sites such as Fab.come and Gilt.
Pinterest is currently the hot place to be in the virtual world with over 12 million monthly unique visitors as of January. The site is climbing at hyperspeed, with an actively engaged user base of women in demographics outside of Facebook's core. On an intangible level, Pinterest may redefine the way we search and express our interests. It is the modern day equivalent of browsing a mail order catalog or magazine that is specialized to your tastes and interests. Pinterest presents a way for users to systematically aggregate, organize, and share images in the same way Facebook allows users to organize, aggregate, and share friends. These synergies, coupled with the massive potential competitive threat to the Facebook network, makes a Pinterest acquisition a very appealing use of Facebook's IPO cash. Given how rapidly the social networking landscape can change, the sooner Facebook acquires Pinterest,the better.