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Feb 18, 2012
Pinterest uniquely challenges the pay-per-click online business model
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Business models are the underlying and sometimes hidden rationales that describe how an organization creates, delivers and captures value. Start-up companies often spend large sections of their written business plan articulating their value and then providing figures and projections that support this position.  This proactive thinking, taught in college courses across America, in turn entices investors and shows both financial feasibility and organizational sustainability.
 
Unless of course you are Pinterest. 
 
 
According to Pinterest -- which had more than 11 million unique visitors in the month of January -- they have no idea how they are going to make money. Oh, and they are currently unprofitable as well. Strangely enough, despite not have a revenue model or any solid plan to have one in the near future, they have received over $37 million in venture capital and are internally valued at approximately $200 million.
 
Pinterest is not alone in the way its evolution has played out thus far. Twitter and Facebook, who have grown into the top two social media platforms, were also initially launched without any idea on how to capitalize on their rapidly growing user bases. The revenues and supporting business models which eventually led to profitability came after the sites achieved popularity. Being at the top of the social media world is definitely not a bad thing. However, while Pinterest is similar to Twitter and Facebook in initial growth, its most obvious difference lies in its user base, which is mostly made up of women -- with some figures as high as 97 percent.
 
Why be a king when you can be a queen?
 
With that said, let's take a closer look at Pinterest to gain a better understanding of their purpose and some of their possibilities regarding monetization.
 
Pinterest is essentially a social media platform that helps users share their favorite recipes, clothing, household decor and just about anything else imaginable with their friends (and anyone else on the site since they have not yet made privacy setting customizable).  It is almost entirely visual, which makes it ideal for sharing apparel and other items that people frequently buy online.  The tendency of consumers to solicit feedback from friends before making a purchase makes for a very active user base, but also presents one way that Pinterest can make a small revenue, which they have already been capitalizing on to a certain degree.
 
 
A few weeks ago, several articles were published criticizing Pinterest not for the small amount of revenue they were making off of links, but for the way they are going about it and the fact that they did not disclose this to users. Basically, when a user uploads a pin, the link associated with that pin is automatically swapped with one of Pinterest's affiliate links and, if any purchases are made because of those links, Pinterest gets to keep a piece of the transaction. This task is accomplished using a third-party service called Skimlinks. Skimlinks, once privacy and intent issues are addressed, is one potential way that Pinterest could address monetization. Outside of privacy or disclosure concerns, this may be the fastest way for Pinterest to continue growing in a seamless fashion without impacting their user base. In a recent study, Pinterest drove more traffic via referral links than YouTube, LinkedIn and Google+ combined.  
 
This concept deserves additional exploration because Pinterest users -- in the name of their hobbies -- are essentially creating affinity diagrams which show relationships between singular objects. Therefore, through an application of crowdsourcing, the users are giving value to micro pieces of content by aggregating images (and their associated links). This is a process which no single company could afford despite the inherent value -- managing content on a micro level can become very expensive for reasons related to change control -- but in this case the users do it for free because of their passion for the topic.
 
The visual model used by Pinterest permits users to create microfarms of similar content, which the user often ties together with a common theme. These "boards" as they are called become clusters of content which can be re-purposed by the company to help critical (paying) sponsors. This is very similar to the financial model that was eventually put in place by Twitter. 
 
 
However, this may be insufficient as the company did accept venture capital, which means those external investors expect a large multiplier for their efforts. Ultimately, as is being discovered, social media platforms are typically offered 'free' to users because critical mass -- through large user bases -- is necessary for them to continue viral growth. Of course, as Facebook and Google+ have shown, nothing is really free as they are providing a service in which payment is in the form of massive amounts of personal data. Basically, users are selling their personal brands -- for nothing -- to the social media platform in question, which then cashes the check on their behalf. The aggregation and monetization of personal data is one option for Pinterest, but perhaps the most challenging because of personal privacy issues and because the platform is highly visual, meaning that unless implemented properly, exploitation of this will be very apparent.  
 
Pinterest faces numerous challenges with the financial aspects of their business model. Unfortunately, any solution which immediately affects the number of users joining -- including charging subscriptions fees -- is unlikely to be implemented in the immediate future. This means that the company must continue to explore third-party services like Skimlinks or monetize the aggregation of their user-created pools of content. Pinterest has a unique opportunity to be a different type of social media site not only in terms of content, but also in terms of its relationships with users. Facebook and Google may be seen as kings of social  media, but they are also kings of privacy issues. The bad practices around privacy and personal data implemented by these and other social media giants could open a door for Pinterest to be known for being different and more user friendly -- this could only help them during a time when everyone else is exploiting user data in increasingly questionable ways.  If they continue to grow as quickly as they have and manage to keep a more open and honest relationship with their users, I say, "Long live the Queen."
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