Why I Bought Pinterest (Part 1)
Pinterest: A Hidden Monopoly
A few of you have asked me why I bought Pinterest, so I decided to share some thoughts below. Note, most of the below was written in June but I have tried to sprinkle in additional commentary based on more recent events. Feedback/discussion, as always, is welcomed! Feel free to email/tweet me.
I believe Pinterest is a high potential Maverick, a Contender if I may. Per my Scorecard, I bought Pinterest on March 20, 2020 for $12.68/share, and again on June 29, 2020 for $21.75/share. Its current price is roughly $35/share. It’s quite remarkable how quickly the stock has rebounded from the March lows.
Recall that Investing in Mavericks is an investment approach similar to "Venture Capital" investing, but in the Public Markets. It is therefore a high-risk, high-reward investment strategy trying to benefit from the Power Law. (Note: The Trade Desk and Bitcoin are two other Mavericks I’ve written about before.)
Lets use the following simplified checklist to evaluate Pinterest:
Is the company a Leader in a Large Growing Market?
Does the company have a Growing Competitive Advantage?
Does the company have Visionary Leadership?
Could it be a 10X in 10 Years?
First, What is Pinterest?
According to the company:
Pinterest is where 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.
We call these people Pinners. We show them visual recommendations, which we call Pins, based on their personal taste and interests. They then save and organize these recommendations into collections, called boards.
Pinterest is the productivity tool for planning your dreams. Dreaming and productivity may seem like polar opposites, but on Pinterest, inspiration enables action and dreams become reality.
Visualizing the future helps bring it to life.
With that said, let’s explore the checklist.
Is Pinterest a Leader in a Large and Growing Market?
Yes! Pinterest is the leader in online serendipitous discovery and planning, an emerging behavior.
Pinterest is a complement to Google. Google services specific intent. When you type in a query, you know what you’re looking for. In fact, when I worked at Bing, I recall that ~30% of queries were classified as “navigational queries”, that is, people already knew the website they wanted to visit. Yet they still used a search engine to get there!
On the other hand, with Pinterest , people don’t know what they want (although they know it when they see it). Pinners instead are looking for inspiration and ideas. Pinterest has spent a decade creating the rich visual language with which people can browse and discover things online.
When I was responsible for Discovery (i.e. Browsing and Navigation) in the Groupon Mobile App, it was clear to me that this was a very different challenge compared to Search. And not an easy one.
So kudos to Pinterest for all they have accomplished. I believe this is a strong moat.
Pinterest’s Visual Language
The visual discovery language that Pinterest has created should not be underestimated. Pinterest is doing with Visual Discovery what Google did with Search.
Google’s language was simple. They asked us to type in keywords and hit Search. In return Google presented 10 blue links. Over time, this simple request-response formed the Google Habit. Do you remember the last day when you didn’t use a search engine? I don’t.
Pinterest is trying to do something similar, but with a powerful visual language instead.
The Visual Discovery Journey: Explore → Evaluate → Take Action
Unlike Search, which tries to answer objective questions, the Discovery process is subjective. Discovery tries to help us answer questions like “how should I decorate my living room?” or “what costume should I wear this Halloween?”. These questions have no single right answer. Instead, the answer depends entirely on personal taste.
In answering such questions, Pinterest builds the tools to help you explore the vast possibilities, and to help find the answer that’s right for you... just you.
Here’s how:
You start by browsing Pins (images). If you come across something that interests you, you tap on it. You can then learn more about this pin, including the idea and content behind it. If interested, you can save it (i.e “Pin it”) into visual collections called Pinboards. Think of these as personal, shareable, and ever evolving vision boards.
Pinterest makes it easy to compare and evaluate similar objects based on the details of the content behind the images you tap, browse, classify and save. As a result, this process helps people to discover new things, to be creative, and ultimately to be inspired, so that they can build the confidence they need to then go and try those things. This can be a fun, exciting, and inspirational journey.
Here are some customer quotes demonstrating the powerful emotions this process can elicit:
“There is an excitement or anticipation because I just know I’m gonna find something!”
“It helps me ignite new things about myself that I didn’t know about”
“It wakes me up to things”
“Visuals give me confidence, by seeing how someone else has done it”
“It gives me new ideas”
Unlike Amazon, which people view as a utility, Pinterest facilitates a fun inspirational journey on the path to purchase. This reminds me of the early days of eBay, where people got the feeling of “winning” at the end of an auction. Similarly, Pinners love the treasure hunt, and they exhibit a much greater sense of satisfaction when their ideas later come to life.
Does Pinterest Have a Growing Competitive Advantage?
Peter Thiel is famous for saying the phrase “Competition Is For Losers”. He also once said that “if you get a creative monopoly for inventing something new, it's symptomatic of having created something really valuable.”
Well, Pinterest must have been listening because this is exactly what they’ve been able to do.
I believe Pinterest is a hidden monopoly.
The above visual language and discovery process is unique to Pinterest.
On the Internet, “to Pin” means to save an image on Pinterest.
As an aside, don’t you just love the ticker they chose? PINS. How fitting?
The Pinterest UGC Flywheel
Pinterest benefits from a classic user generated content flywheel. Here’s what that looks like:
This in turn helps Pinterest build its proprietary object graph. Recall that a Pin is NOT just an image. A Pin also represents an idea. Behind it is an underlying website and a description. People hand-curate and organize Pins into collections which gives them multiple meanings (the same pin could be part of different pin boards and mean different things to different people). It is this curation that gives Pinterest proprietary context, and allows it to codify people’s preferences i.e. individual tastes, at scale!
This has worked very well so far. Last year, Pinterest said that more than half of millennials use Pinterest, and 8 in 10 moms are avid Pinners (wow!). Pinterest has amassed a significant audience: 367 Million Monthly Active Users world-wide (looks like they surpassed just 416 million in Q2…I suppose it’s not surprising that when you’re stuck at home because of the pandemic, you spend your time planning and projecting your future). Although US user-growth seems to be peaking (they already have a massive footprint), healthy international user-growth continues. As their international user-base grows, it will be imperative that their flywheel keeps spinning as they expand into more countries, markets and languages.
This flywheel has resulted in a large and engaged audience. Pinterest is now trying to leverage this asset to create a valuable advertising business.
Pinterest Ads
A Pinner’s discovery journey often leads to inspiration and action (or at least that’s the goal). For example, if someone spends a lot of time trying to answer the question “how should i decorate my living room?”, at some point, they may act on their ideas and actually paint that room, or buy some furniture or some wall art. Advertisers want access to such people and their latent purchase intent.
In order for Pinterest to effectively monetize its users however, Pinterest must do the following:
Continue to expand their suite of advertising products and self-serve capabilities
Example: Pinterest needs better Mobile Advertising Tools.
Example: It doesn’t seem to offer bottom of funnel products like email lead-gen, or a way to message a business or a brand.
As a visual platform, over time I hope it can find ways to take a bigger cut of brand advertising budgets. Much of that is still spent offline today.
Etc
Demonstrate Strong Advertiser ROI
To increase demand and secure permanent budget. This is key.
Increase Ad Load
This should be easy if they can demonstrate #2.
Pinterest’s global ARPU was just $0.77 in Q1 2020 (Looks like it was $0.70 in Q2). This is tiny, both on an absolute basis and on a relative one, compared to those of other companies like Snap and Twitter. Since I believe Pinterest’s user data is substantially better than that of both Twitter and Snap, Pinterest has a realistic opportunity to surpass this ARPU gap, especially internationally and especially compared to Twitter. I believe Pinterest’s ARPU number can be multiples higher than it is today.
At just above $1B in annual revenue today (as of Q1 2020), Pinterest is still in the early innings. To invest today, you need to believe that Pinterest’s ad products and self-serve advertising tools will grow significantly over the next few years, thereby accelerating monetization.
Advertisers are looking for new, easy to use, and effective advertising channels other than Google & Facebook, and are willing to test new channels. Amazon has certainly benefited from this demand. So can Pinterest. But Pinterest will need to demonstrate strong advertiser ROI to keep that budget.
Combating Signal Loss: The Pinterest + Shopify Partnership
Shopify merchants can now easily upload their catalogs to Pinterest and turn their products into shoppable Product Pins.
As a result, Pinterest now gets to provide independent businesses an incredible new way to promote their brands and products.
This is a win in several ways:
It provides the Pinterest community, which often has shopping intent, access to even more products they may appreciate. This benefits their UGC flywheel.
It increases advertising demand from the long tail of independent businesses. This could be huge.
And it combats the coming signal loss.
The first two are pretty self explanatory, so let’s focus on the third. As Google and Apple have announced, cookie & IDFA signals are going away. This has the potential to significantly impact ad effectiveness. This means the quality, depth, and utility of data used by Pinterest for ad targeting will become even more important than in the past.
Although a move to “server to server” should mitigate some of the impact of signal loss, it’s unclear by how much and also, it’s unclear how long this might take.
As a result, advertising networks that can bring offsite signal onsite will have a huge advantage.
For Pinterest, the Shopify partnership is the first step in doing just that.
If I were a Product Manager at Pinterest, I would be trying to answer the following questions:
How can Pinterest enable more businesses to easily upload their catalogs?
How can Pinterest enable more businesses to turn their catalogs into ads?
How can Pinterest enable onsite checkout?
(1) and (2) are already starting to happen. This is great to see. (Looks like Q2 results demonstrated exciting early results!)
(3) is the holy grail. It’s unclear whether Pinterest will be able to do this, but if they manage to, they would then have a bottom of funnel purchase signal, which would significantly improve their advertising matching algorithms and mitigate offsite signal loss. Purchase signal is a big reason why Amazon seems to be driving greater ROI than Google.
Signal loss is a real risk to the business, but it’s great to see Pinterest taking proactive steps to combat it.
Do You Use Pinterest?
If yes, please message me, I’d love to hear about why you like or dislike it!
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Cheers.
For me, Pinterest is a giant catalog. What would take Pinterest to the next level is if they showed you clothes pins, for example, based on sizes that you entered into your profile (keeping your sizes hidden, of course.) Marketers would gladly pay for that information and shoppers would love that - nothing is more aggravating is seeing something you like but it's not in your size. Pinterest could even add style preferences too, such as "bohemian" "professional" "country weekend" or "prom." Pinterest is so close!