MG's X501 Musings: 06 - Week " Pinterest Business Model Canvas"

PINTEREST Business Model Canvas

What is Pinterest?

"Pinterest is a social network that allows users to visually share, and discover new interests by posting (known as 'pinning' on Pinterest) images or videos to their own or others' boards (i.e. a collection of 'pins,' usually with a common theme) and browsing what other users have pinned. Using a visual orientation, the social network is very much focused on the concept of a person's lifestyle, allowing you to share your tastes and interests with others and discovering those of likeminded people. The social network's goal is to "connect everyone in the world through the 'things' they find interesting." Users can either upload images from their computer or pin things they find on the web using the Pinterest bookmarklet."

User market and Customer Segments:

General user:

Pinterest is 3rd largest social networking site after FB and Twitter with 46 million users and growing. 80% of the users on Pinterest are women between the ages of 18-35, 50% of them have children. They are Tech savvy, and are hobbyist and do-it yourselfers. 28% percent of them are affluent. Generally a user spends 16 mins per visit on Pinterest

Advertisers & Affiliate Partners:

Retail and online business that would like to advertize to the general users based on their interests and hobbies. Currently over 300 advertisers (Target, Macy's etc.. ) use pinterest to "pin" relevant ads to users. Blog users another affiliate partners use the platform to target the general user community with advertisements

Value Proposition:

Pinterest is unique as a Social network because it allows user to create online scrap books of their interests and share them with other friends and users. The users can also search other's billboards for similar items and and discuss and learn from each other. Users also use pinterest to discover new interests A 46 million strong community of mostly active users create a robust social experience for almost any interest or hobby.

Pinterest also provides a unique value proposition for businesses to advertise. It cuts out 1 or more steps in targeting the advertisement that are generally used on social websites like FB and Twitter. Generally a business needs to figure out what the customer is interested in by deciphering the posts and behaviors and likes and then target the advertisement to the user. In Pinterest targeting is much more straight forward. The user tells the business what they are interested in by posting pictures. Just by using pinterest the advertiser knows what the customer is interested in.

Ref: http://www.businessweek.com/articles/2013-10-24/why-investors-love-pinterest-so-much

Financials:

Investments and Valuation:

Total VC funding to date $746 million. Market Valuation based on funding and future revenue opportunities is a between $3.5 to $5.0 billion.

Costs:

Pinterest has two main sources of costs.

240 full time employee with annual wages to be estimated at $24,000,000
Pinterest uses amazon's cloud service to backup the data the users are posting on the website. The costs of managing about 15million visits per month is estimated at $20,000. If we assume that 15 million of pinterest users visiting and posting to the site 4 times a month on average we can factor in $100,000 in monthly costs. Which translates to $1,200,000 annually for web hosting.

Ref: http://thenextweb.com/dd/2013/12/02/much-cost-build-worlds-hottest-startups/

Revenue:

The projected revenue for in 2014 is $11,600,000 with expected revenue growing to $500,000,000 by the end of 2016.

In our model we factored in 2 sources of revenue:

Affiliate revenue: We 15 million users clicking through 4000 affiliate marketing sites would generate at $1000 in revenue per affiliate. This totals to $4 million annually through affiliate marketing.
Advertising Revenue: If users click through and purchase through the affiliate advertising we assume that Pinterest will make money off it as well. We calculated about $.10 in purchasing revenue per user. We factored in 80% of users being active on the site and interested in purchasing resulting in $7.6 million in revenue for advertising.

Ref: http://gigaom.com/2012/03/30/how-much-does-pinterest-actually-make/

Based on these calculations Pinterest would make a loss of 13.6 million in 2014

Projected revenue growth in 2015 and beyond:

The revenue model in this domain is well understood. Google, FB and Twitter already make billions through affiliate marketing and online advertizing. With more users and affiliate programs being launched there is little doubt the Pinterest will become profitable in 2015. Pinterest's Pin boards are a natural fit for marketing using images. Additionally Pinterest allows for much better targeting of products to users who would be interested in them.This will allow for more revenue per click and also per purchase. It is not far fetch to expect revenue per user to grow to $10 (from the current $.10) on average, with 80% of users active this can amount to $7.6 billion annually

Additionally, there are several other revenue models that Pinterest can adopt to grow its revenue stream:

Charging Customers: User customer data to build its own online retail store and and target current customers
Charging Advertisers: Expand the branded pins to include branded marketing campaigns. Where Pinterest allows brands to create their own pages to post pin the products that represent their brands
B2B Data Sales: Selling Pinterest user data to other business to help them target advertisements on Pinterest and other media.

Pinterest only recently started to make money through advertising. Revenue projection of $500 million by 2016 are achievable as the platform grow and advertising base grows.

MG's X501 Musings

Saturday, July 19, 2014

06 - Week " Pinterest Business Model Canvas"