A Message in the Pins

To me, at least, the spector of litigation looming over Pinterest’s Palo Alto headquarters seems as much as anything a sign of the pinboard site’s success. What I like about Pinterest is exactly what I’m skeptical about in many other social ventures. Besides a pretty wall and an endless stream of gorgeous imagery, Pinterest has also offered up an interesting approach to the problem of translating social activity into a consistent revenue stream.

Just like their counterparts in the tangible world, online services need money to survive. There are only so many ways to make it. Alistair Croll describes the challenges in a neat analysis of Facebook’s revenue options, but the gist is that monetizing a social service means one of two things. If directly charging subscription, service, or transaction fees (#1) isn’t an option, the alternative is to provide value to paying advertisers (#2). For companies lacking Google-like knowledge of their customers’ online habits, that’s easier said than done.

But whether by design or by fate, Pinterest seems to have found a way. Marketers love social networks for their ability to generate customer-to-customer referrals, but they often struggle to reach receptive users. Pinterest has solved this problem by allowing its users to curate appealing products by themselves. Share the curated list with a few hundred followers, toss in a link to the “purchase” page the image came from, and voilà—kick back with a cold one and watch the commissions roll in.

No subscription necessary. No paywall. The advertisements aren’t even annoying. And the model seems to be working. One widely publicized infographic estimated that users arriving at the trendy online fashion shop Bottica from Pinterest spent roughly twice as much money as those driven by Facebook, despite significantly lower engagement and conversion rates. The strong suggestion is that rather than browsing within an existing inventory, users whose sales habits are influenced by Pinterest are doing their window shopping on Pinterest itself.

If that’s really the case*, it’s a remarkable blurring of the lines in online retail. Embedded storefronts (think Google Checkout) and vendor-direct marketplaces (Ebay, Etsy) have expanded the retailers’ options for doing business online, but Pinterest is something else entirely—a facade without a store. The products are neatly lined up, all interested parties have tagged items for their wishlists and left their recent receipts, but the salespeople, pitches, and cash register are nowhere to be seen.

This vision of online retail has several interesting implications.

- For shoppers, the word-of-mouth referrals that once dominated product selection may be making a comeback. Even the companies that are really, really good at automated referrals (here’s looking at you, Amazon) are limited to suggesting products based on a customer’s browsing, search, and purchase history. Products recommended socially, on the other hand, combine knowledge of a customer’s personal tastes with a stamp of approval from a trusted friend.
  • For marketers, Pinterest’s focus on individual products may mark the start of a transition away from campaigns targeted at a brand or flagship products to a wholesale product-by-product approach. Brilliant pictures and a little pin button in the company store represent a viral sales opportunity, while products accompanied by lackluster images miss the proverbial bus. That’s good news for photographers and graphic artists. Right-brainier types—your stock would be on the rise.
  • For online retailers, futher investment in social marketing efforts could very well signal a reduction in the resources poured into crafting in-house experiences. Home office developers, look out: if the number of sales being driven by referral traffic beings rising appreciably, the suits upstairs may begin to reconsider the amount of energy being invested into the company store.
  • For entrepreneurs, Pinterest provides a rare example of an application that exploits one of the tiny spaces where social networking and retail directly converge. Marketers benefit from direct referrals and a clean storefront where users can tout their wares, while users gain access to an efficient interface for collecting, organizing, and distributing visual imagery.

Most social startups maintain an uneasy balance between the needs of their userbase and the demands of whatever revenue source is (will be) funding their ongoing operations. Though those demands won’t be relaxing anytime soon, even the tiniest chance to develop coexistence over conflict seems well worth consideration.