Pinners and Losers
Peter is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Sometimes being the best just isn’t good enough. One would think that building the largest online community the world has ever known would be sufficient to claim victory, but in the wake of the ill-fated Facebook (NASDAQ: FB) IPO, investors are asking "what has Facebook done for me lately?" And, more importantly, "where’s the beef?" And by beef they mean future. And by future they mean, “Dude, where’s my money?!”
Preaching to the Conversions
In 2008 the total value of the U.S. online ad market was $23.4 billion. By 2011 it exploded to $31.7 billion with no signs of slowing down anytime soon.
Despite its more than 900 million users, Facebook has struggled to monetize the platform, as most people see it as a place to talk to friends and family, not listen to advertisers hock their wares. Many advertisers claim to not need Facebook’s advertising offerings, saying the ads don’t deliver results and that the free options on the site are doing well enough for them, thank you very much. General Motors (NYSE: GM) recently pulled its paid ads from Facebook, not wanting to be perceived as a party-crashing cad.
A Picture is Worth 900 Million Friends
There is a lot to love about Facebook, but it was the photo tagging feature that caused it to really explode. People are visual, they are vain, they are voyeuristic; and they are materialistic. People love to see and be seen, and they love to look at stuff. From Facebook Timeline to Google (NASDAQ: GOOG) Images to Instagram (to name just a few), web 2.0 and mobile are exploding with new visual tools, apps and sites enabling images, infographics, data visualizations and memes to be created, distributed, shared and curated.
What makes Pinterest different is the way it displays information. Instead of a reverse chronological feed, Pinterest users organize their pins in boards based on interest categories, which other users can follow and receive updates about. This creates a social ecosystem around specific subject matter and topics, allowing people to connect based on shared interests. Microsoft’s experiment So.cl is merging these concepts around tagged searching; building a network through the active searching for shared interests.
It is estimated that about 2.5 billion people now own some sort of digital camera, with the average person taking 150 photos a year. That comes to about 375 billion photos. And digital cameras are relatively new on the scene, so we’re just getting started.
In retrospect, Pinterest seems obvious. It’s simple, elegant, visual and social. It feeds the need to see, browse, share and collect. If Facebook was created to take the social experience of college and put it online, then Pinterest is the equivalent for window shopping. According to comScore, Pinterest reached the 10 million user mark faster than any other site in history.
Location Versus Association
There is a battle underway between two camps over the future of how online advertising is done. The Google camp believes that any human behavior can be distilled down to an algorithmic equation, which can be used to determine the best ad to place in front of a user; whereas the Facebook camp believes that it’s all about people and who you know, and using them to get to who they know. The billboard versus word of mouth. Pinterest is a social play, using the power of sharing between people to generate engagement while still being sort of a billboard at the same time. Neat trick that.
One of the key features driving social engagement and stickiness across platforms is social sign in, allowing users to use their existing social media accounts to access other websites and carry their profile information and social graph along with them. Users who sign in to a site using a social media profile spend about 50% longer on-site than those using standard log in methods, and view twice as many pages while there. Predictably, Facebook sign in is the preferred method, with 61% of users, followed by Yahoo! (NASDAQ: YHOO) at 15%, Google (12%), Twitter (10%) and LinkedIn (2%) rounding out the list. About 20% of those who connect via Facebook use Pinterest every day. Again, according to ComScore, Pinterest users spend about 16 minutes on the site per visit, versus 12 minutes on Facebook, and just over three minutes on Google+.
About 33% of Facebook users have reduced the amount of time spent on the site in the last six months, causing some to wonder whether fatigue and boredom is setting in. Some 80% of users claim to never have purchased anything from a Facebook ad.
So powerful is the Pinterest image-based social network, that now only Facebook and Tumblr score more hang time with users. What’s more, the Pinterest demographic scratches retailers right where they itch, with the bulk of its users in the coveted 18-34 year old upscale female category.
There’s Gold in Them Thar Stills
Pinterest users on average spend more than twice as much money as users coming from Facebook, according to one Shopify survey. Pinterest drives more traffic to other sites than Google+, YouTube and LinkedIn combined.
A Bizrate Insights survey found that 32% of online shoppers have made a purchase via some image-sharing site, Pinterest included. The same report found an even higher rate of intent to purchase.
Studies have shown that conversion rates double when using photos of people. Currently Nordstrom (NYSE: JWN) has the most followers of any retail brand on Pinterest, totaling over 14,000. Many other companies, from Whole Foods to Mashable to Benjamin Moore Paint have gained huge followings on Pinterest as well.
Publically, Pinterest does not yet have a firm revenue model in place to monetize traffic, but affiliate links, paid pins and enhanced merchant pages are a few potential options being discussed.
Another thing about people is that they are fickle. Facebook has taken heat on several occasions for everything from unannounced changes to privacy settings to a short-lived feature that informed your entire network about your online purchases. Pinterest recently ended its cooperation with a company that embedded affiliate links in people’s pins after users raised a stink. Give people something for free and they love you, but alter that thing or ask for even the slightest thing in return and they’ll turn on you in an instant.
Just ask MySpace
So, the balance is a tricky one. The first social network to create sales without looking like it’s a carnival barker will hit the mother lode of internet e-commerce. Facebook hasn’t done it yet. LinkedIn is all about business so everyone knows when you sign in what you’re in for. Twitter is in the same boat as Facebook as of right now, and Pinterest is still in its early stage of development. The one thing we know is that we haven’t found that balance yet.
PeterPham8 has no positions in the stocks mentioned above. The Motley Fool owns shares of Facebook and Google. Motley Fool newsletter services recommend General Motors Company, Google, and Yahoo!. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.