Facebook, Google Live in Pinteresting Times

September 29, 2013, 7:33 p.m. ET

HEARD ON THE STREET: Facebook, Google Live in Pinteresting Times


What do you get when you cross the advertising potential of Facebook FB -1.97%and Google GOOG -0.05% ? A social network, and likely revenue machine, called Pinterest. Facebook and Twitter for that matter have fast-expanding ad revenues not because users like to see ads, but because advertisers can’t ignore their large reach. Meantime, Google search results are an ideal spot to grab customers who already know what they are looking to buy. Pinterest, which is almost the social-networking equivalent of window shopping, sits somewhere in between.The fast-expanding private company is just beginning to test advertising on its site.

But one figure suggests its potential. RichRelevance, a technology firm that tracks online traffic for retailers, said in April that among customers who were referred by social networks, those coming from Pinterest spent $140 to $180 an order. That compared with $80 for those coming from Facebook and $60 for those coming from Twitter.

Figures like that suggest that, over time, retailers could shift more of their advertising budgets to Pinterest, at the expense perhaps of other Internet giants, as well as companies that specialize in helping send out print catalogs.

Indeed, Pinterest is essentially an online shopping catalog that users fill with stuff they want to buy and much more. They do this by clicking Pinterest’s clever “pin” button when they find images or Web pages they like.

It is like bookmarking a Web page. But instead of a simple Web link stored in a browser, Pinterest users are collecting images and links for e-scrapbooks accessible via Pinterest.com or its mobile app.

And because they are the ones generating the content, users are often more engaged and enthusiastic than they would otherwise be. One comment on a Pinterest post of a fall outfit found in the women’s fashion section of the site is typical: “lovvvve this and especially the boots!!!”

Such comments point to the threat Pinterest represents to Google or Amazon.com,AMZN -1.07% too. Users of those sites may have already decided what they want to buy and mostly need to compare prices. Pinterest users, meanwhile, are looking for ideas, suggesting they should be particularly receptive to advertising and branding. The company’s venture-capital backers are certainly excited by its potential. Despite generating no revenue, Andreessen Horowitz, among others, gave the company a $2.5 billion valuation when Pinterest raised new equity financing this year.

Pinterest doesn’t disclose user figures, but comScore said it had 44 million unique visitors in the U.S. in July, about half of whom are accessing the service via a mobile device. It has increased that huge user base in just three years.

One concern is that the number of desktop Pinterest users in the U.S. has declined to 26 million since peaking in January at 30 million, according to comScore estimates. But that could be due to growth of mobile users. According to research firm App Annie, Pinterest’s mobile app has been among the top 100 most downloaded apps for iPhone and Android users in the U.S. since last year. Another reason for that slowing desktop engagement may be that Pinterest doesn’t appeal to many men. Women make up a large majority of users, and that is reflected in the site’s content. Men searching for shoes on Pinterest get hundreds of images of platform heels.

Investing in technology to better target its content could allow Pinterest, though, to turn that into an opportunity to expand its base of users.

And advertisers are already tapping into the service’s potential. J. Crew Group uploaded its September catalog to Pinterest before sending the print version. On Target‘s TGT +0.06% Pinterest page, items are listed with prices and whether they are in stock.

Retailers will want to pay to promote items in the feeds of Pinterest users who have expressed interest in similar ones. That should make for a profitable business model and potentially lucrative public stock offering in a few years.

So investors should keep their eye on the new company, as should Facebook, Google and Amazon.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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