Pinterest cofounders Evan Sharp and Ben Silbermann. Pinterest
Pinterest is a strong contender to go public in 2016, having already been valued at $11 billion after raising $1.3 billion in funding.
The visual scrapbook platform should be printing money. Its predominantly female audience browses Pinterest's various boards for inspiration about their next fashion purchases, vacation destination, or on how to decorate a house and they also act as free brand representatives by "pinning" their favorite products, making them visible to others.
It's an ideal environment for advertisers. But Pinterest has taken a somewhat of a soft approach to advertising so far.
That strategy has irked some within the ad industry one exec told us Pinterest looked "amateur" compared with the "slick" sales operations of its digital-media counterparts. One Silicon Valley figure feared Pinterest was "moving too slow." A former Pinterest sales staffer told us the company hesitated to close big deals and those clients moved on to rival platforms instead. Many of the people we spoke with and current and former staffers who left reviews on Glassdoor called for new management, or at least the hire of a high-profile business executive to shake things up.
Tim Kendall, Pinterest's general manager for monetization. Screenshot
But for all the negativity leveled at it, Pinterest isn't a company on the wane. Far from it. Tim Kendall, Pinterest's general manager for monetization, told Business Insider the company's revenue in 2015 was more than five times as high as it was in 2014 an enviable position for any company and that most of that was repeat business.
Those advertisers that do find value in Pinterest appear to be spending ever increasing amounts. And the fact Pinterest has approached monetization differently from other digital platforms is in fact what seems to impress its biggest advocates.
Documents leaked to TechCrunch show that the six-year-old Pinterest was targeting $169 million in revenue in 2015 after bringing in just $25 million in 2014 having officially launched its first advertising product only in January of that year. Pinterest declined to comment on the accuracy of those documents.
But consider the four-year-old Snapchat, for example, which sold its first ad in October 2014, brought in $3 million that year, and is on track to generate $100 million in revenue this year, according to The Financial Times. The numbers suggest Snapchat might be on track to outpace Pinterest in the next couple of years.
Pinterest's leaked financials revealed the company was targeting $2.8 billion in revenue by 2018. But sources close to the company and within the advertising and investment community think it will have to overcome huge challenges to get there.
It's not as if Pinterest is sitting still it has released a slew of ad products in recent months and restructured its sales organization to focus on its biggest advertisers in a bid to achieve that goal.
But there's a huge disconnect. Lots of people are saying Pinterest is not moving nearly as aggressively as it needs to. Pinterest, however, tells us that such cynicism is unfounded and that it is growing its ads business far faster than many other companies in digital media.
Plenty of evidence suggests Pinterest is an extremely effective platform for both paid-for promotions and engagement with organic content. It drives nearly as much traffic to the online marketplace Etsy as Facebook does, for example.
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And an October report from eMarketer shows US marketers rate Pinterest on par with Twitter and ahead of Instagram, Snapchat, and LinkedIn when it comes ad social ad effectiveness.
What makes Pinterest so appealing is that it delivers discovery of content, products, and curation closer to the point of purchase better than nearly any other platform, according to Ian Schafer, founder and chairman at the digital creative agency Deep Focus.
He added: "One of the biggest aspects of Pinterest that sometimes isn't obvious is that they continue to be a huge driver of traffic to content across all categories. Many publishers see more traffic to their content coming from Pinterest than Twitter. Clearly, Pinterest is a content-discovery platform for millions of people. As more and more advertisers focus on branded content, Pinterest can and should be a strong consideration for them, as it can lead to significant, highly targeted visibility and consumption of that content."
Some people in the ad industry think that as Pinterest reaches maturity it can start competing for search advertising dollars, thanks to its rich layer of intent data about the types of products its users want to purchase.
Chris Tuff, EVP and director of business development and partnerships at the ad agency 22Squared, told Adweek that Pinterest had evolved more than any other platform in the past nine months: "If you're looking at where Pinterest can truly start stealing dollars from Google, it's not necessarily for brand [keyword] terms it's more for the non-brand terms. Pinterest will not only compete but also win those dollars."
But many agency executives we spoke with disagree. They say Pinterest simply isn't yet front-of-mind for ad clients, compared with competing digital platforms. Agencies are often hesitant to criticize specific companies for fear of damaging future business relationships, and the executives Business Insider spoke with requested anonymity.
A digital director at one global agency told us: "Pinterest's big global competitors have become slick sales and marketing machines, which engage global brands at the most senior levels and increasingly steal the show at industry events like Cannes, CES, and SXSW. In comparison, Pinterest looks amateur, and now that their early positive PR buzz is fading, they barely feature on marketers' radars let alone engage with them at a senior level. Their approach to global partnerships is blunt, money-driven, and fails to acknowledge that it's much easier for marketers to cope without them than it is for them to cope without marketers."
Snapchat spent a wad of its marketing budget at CES this year. Matt Weinberger/Business Insider
One marketer said: "Their strategy has become a little confusing from an external standpoint ... any company that doesn't bake monetization in from the beginning really risks alienating its base."
The chief of a US-based digital-marketing agency said Pinterest's CPM, or cost per mille, which is the cost to reach 1,000 people, ad rates were relatively high, considering measurement was "lacking" compared with other platforms. "They don't make it easy for us to work with ... Pinterest has not really opened up and let it rip yet," he said.
Alex Pearmain, a UK-based social-media consultant, said it was not immediately clear which business functions had the most to gain from Pinterest. Is it a performance marketing play? A brand play? Or a communications play?
"They probably need better underlying analytics and to tell a clearer story to segment different buyers and to coin a language to describe what they do," Pearmain said. "Instagram has been great at the whole 'visual history of the world' big picture, or LinkedIn's 'economic graph.' Something similar is needed which shows the transformative nature of what they bring to the table."
A source with knowledge of Pinterest's sales organization described it as "one of the gnarliest places to work," in terms of the difficulty in getting things done. Executives there have little power as decisions about the commercial future are made "in a vacuum" by the company's founders, who are more focused on the consumer product, he said.Business Insider / Jillian D'Onfro
We spoke with a former employee from the Pinterest sales team. Having built a career in fast-paced sales environments, this person described time spent there as a frustrating experience.
"When I first got there it was a really easy sell," the person said. "There was tons of interest and it was a hot new platform, and all the brands, publishers, and media companies were excited to talk to us. But it dwindled, things just didn't flow."
"When you brought in deals, they just weren't willing to do them," the person continued. "You'd go down the path with these partners, get the partners really excited, and then nothing would happen, and the partner is disappointed. So these people would say: 'Pinterest doesn't want to do this deal, we've moved on from Pinterest, we're just going to go with Snapchat or Instagram. We did a long dance with Pinterest, and they weren't interested in working for us.'"
We asked why the person thought Pinterest had a slower pace to its sales approach than other organizations.
"One reason is that it works so well organically [for marketers] that it's been hard to build a business," the person said. "Why would I pay money when Pinterest works so well organically? Without spending any money you get a lot of the benefits."
There's also an issue of audience and scale, the person said: "When you think about Pinterest, it's more aspirational. You have a lot of lower-income, middle-America people on Pinterest than you do on other sites, and it's very female-centric. So if you're a marketer with a budget, where do you allocate it? Put it on Google or Facebook, where there are tons and tons of users where you can target very well? Or on Pinterest, which is a much smaller audience, female, lower-income, where you can't target well? It's just not as efficient."
Another tech-industry source who knows current and former employees within the sales organization said: "I think they talk like, 'Our environment is so insanely precious, our users are so precious, our platform is so precious, we have to be so careful about how we roll things out,' and they've taken that smugness into the marketplace."
One Silicon Valley figure with knowledge of Pinterest and of the early days at Twitter and Facebook said: "One thing I noticed about these companies is that there's a certain ferocity and drive that comes from the top. Pinterest is not fierce ... the leadership there are product people in the sense that they built something beautiful, but if you look at the core of Pinterest it's the same.
"It's not like Facebook where they kept pushing, pushing, pushing, releasing, releasing, releasing. [Pinterest] has been around five to six years at least. The development platform has not opened up very well, only lightly opened. Monetization has only been lightly opened; it's taken two years. If you want my honest opinion: yeah, they're going too slow."
Despite the dim view taken by some observers, 2015 was an eventful year for Pinterest.
Kendall, Pinterest's general manager for monetization, told Business Insider Pinterest had grown revenue by "more than 5X" between 2014 and 2015.
(If Pinterest generated $25 million in 2014, as those documents leaked to TechCrunch indicated, 2015 revenue would have been about $125 million to $137.5 million in 2015. But the documents also suggested Pinterest was targeting $169 million by the end of last year a growth rate of 6.76X.)
Kendall also said you need only to look at Pinterest's repeat customers to see that the platform is one marketers want to work with.
Pinterest's renewal rate in its direct channels where it works with its largest customers was 70% between the second and third quarters, Kendall said. The company's second half to first half "intended re-up rate" for its midmarket customers was 90%.
He said: "In my mind, is something working? You find out if something is working if the customers you work with continue to work with you and you're doing it in greater volumes. And every data point I look at for us is at a very high and impressive rate. That's why you're seeing that very, very impressive multiple of revenue."
In March, Kendall formerly Pinterest's head of product, and Facebook's director of monetization before that was promoted to take charge of all the company's monetization efforts, taking on some of partnerships head Joanne Bradford's responsibilities. Bradford left the company in the summer after declining to take on a new role as head of direct sales. She is now chief operating officer at the consumer finance company SoFi.
Kendall reorganized the revenue-generating side of the business so that product development, marketing, and sales all moved into one team, which reports to him. This team makes up just under a third of Pinterest's staff of roughly 600, but the company plans to hire "aggressively" in all three of the aforementioned areas this year, Kendall told Business Insider.
The reorganization has allowed Pinterest to build and launch products faster, a Pinterest spokesman said.
Big ad launches this year include the launch of a new animated ad unit called "cinematic pins"; new targeting options including being able to buy based on personas; allowing marketers to buy ads based on their business objectives; creating "buyable pins" that allow users to purchase products without leaving the Pinterest platform; and opening up its advertising API, letting advertisers purchase Pinterest ads through accredited third-parties.
Most notably, Kendall also led the move to narrow Pinterest's ad focus on just two categories, retailers and consumer-packaged-goods brands, as The Wall Street Journal first reported in December.
Kendall told Business Insider that the move was the "right long-term approach to building a scalable ads business" and that while focusing on two categories might seem reductive, retail and CPG brands actually accounted for 45% of total digital ad spend.
Pinterest users "disproportionately" want content that comes from CPG companies and retailers and those marketers want Pinterest's audience, Kendall said. That dynamic hasn't traditionally existed in digital where retailers and CPG companies have sometimes struggled to get their marketing content and ads to resonate with consumers on other online platforms. On the contrary, Kendall said about 75% of the organic content on Pinterest was posted by businesses partners are fundamental to Pinterest because it's their products and images its users want to pin.
Kendall said: "As a result, the traditional playbook of portals and of social networks has been to go after all verticals. But Pinterest isn't a portal and it isn't a social network, and you see this on the consumer side as well. We just think we owe it to ourselves to take a look at the information and in some cases take a novel and new approach. And in this case we think it's the best thing to do because it's in the best interest of building a big company."
But some marketers, including Bank of America senior vice president and enterprise media executive Lou Paskalis, were "really surprised" to receive an email from Pinterest saying its sales team would no longer provide support, The Journal reported back in December. Pinterest's pulling back the rug does run the risk of marketers choosing not to return.
As previously mentioned, however, marketers have another option. Pinterest has created a group of marketing developer partners, allowing brands outside the retail and CPG categories, plus smaller categories access to a "self-serve" system to purchase Pinterest ads. It also opens up the platform to smaller advertisers, which may not have had big enough budgets to work with Pinterest directly.
Facebook once sent one or two executives to Cannes. Now it takes over an entire beach. Facebook at Cannes Lions/Facebook
Bob Gilbreath, CEO of Pinterest's marketing developer partner Ahalogy, said while it was true that not having big sales forces like those of Facebook, Google, and Twitter might "hurt" in the short term, it's important to remember that Facebook, Google, and Twitter were once small too.
"I remember meeting the two execs from Facebook at Cannes when they came to the Lions ad fest for the first time in 2009," he said. "Six years later and they have the size and scale to take over the beach."
Gilbreath added: "CPG and retail are two areas where the education and fit curve for Pinterest is much clearer. And since Pinterest is so exciting and different for example superior on 'intent' than any platform you can find except for Google search the clients in these areas are the first ones to make big budgets available across the board. Call it the low-hanging fruit. And there's less wining and dining needed because these companies want to get in early and win before their competitors do."
But with all its funding, surely Pinterest could afford to hire a big sales team to do the "wining and dining"? We put this to Kendall.
"We are hiring, but just from a small base. And the names of the companies you mentioned," referring to Google and Facebook, "are at 10,000 to 50,000 employees and grew to those thresholds over the span of a decade," he said. "You cannot go from a couple dozen sellers to several hundred or 1,000 overnight. It takes time. In fact, there are lots of examples of companies who ramped their sales teams too quickly before they understood how to sell their product and ended up burning through all their money and never got to the point where they really could scale. I think you need to be very thoughtful and methodical."
Kendall also said the focus on just CPG and retail wouldn't last forever. Early this year, Pinterest will begin offering direct sales again to other verticals too.
So why pull back in the first place?
"Putting together a service organization that services every single advertiser out there is hard and requires a lot of people," Kendall said. "I think part of the logic was: Look, let's go deep with the customers who we know are going to be successful on our platform because their content is so native on the platform, as opposed to spreading ourselves so thin that all of our customers feel like they're not getting adequate service.
"We're starting to get to the point of scale and knowledge where we think slowly moving into other verticals such as entertainment and financial services is starting to make sense on an exploratory basis."
Pinterest's Glassdoor reviews are polarizing. Glassdoor
Glassdoor, the site on which companies' former and current employees can leave anonymous reviews about their employers, paints a confused picture of what workers think about Pinterest.
Spanning many roles within the company, lots of current employees (many of whom appear to have posted at a similar time in December, resulting in the first page broadcasting only positive reviews) rate Pinterest as a great place to work.
But the negative reviews (which currently start on page two) from both former and current employees tell a different and often similar story: "Streamline/improve management, "Clean house needed," "Great people, terrible management," "Reboot. Reorganize. Streamline,"
Of course, people disgruntled with their boss or former employer are perhaps more likely to leave a review than those happily coasting along in a job they enjoy. (One current employee even wrote on a review: "Don't sweat the grumpy cats that were let go from Pinterest and are now airing their issues in glassdoor reviews.") Interestingly, many of the negative reviews came in a flurry in December as well.
A former employee who asked not to be named said people who worked at Pinterest fell into one of two camps. The person described Pinterest cofounders Ben Silbermann and Evan Sharp as more introverted versions of Google cofounders Larry Page and Sergey Brin. "They're like the kings," the person said of one of the opposing mind-sets, "because they hired a bunch of insanely smart Type B kind of people, and people worship them because they have proved that introverted people, smart Type B types, can be successful."
He added of the other mind-set: "But look at Microsoft or Facebook. They've created this environment where equally smart, well-educated, more aggressive Type A people succeed. That's the culture they have built. And if you look at [Pinterest's] Glassdoor, you'll see that half the people absolutely love them and half the people say they lack leadership."
To an observer it might seem as if whether you're working with Pinterest, or working for it, you either love it or you hate it.
A prominent Silicon Valley-based entrepreneur and investor with close knowledge of Pinterest said that despite the company's impressive recent efforts, its big challenge would be to grow annual revenue beyond $1 billion.
To get there, the person said, one of two things must be true. "They need to either significantly step up their ARPU," the average revenue per user, "or they need to increase their user growth rate," he said. "I think where the challenge is on Pinterest is growth. I think that will be the real problem. ARPU is to be decided, to move from $1 billion, to $10 billion, to $20 billion that's going to be a challenge. They will have to start to innovate and look at the product a bit differently. Even if they doubled to a $2 billion company, if you look at growth rate, coupled with that, is that worth $11 billion when you count in cost and do the math? I guess that's hard to say."
Jack Dorsey, CEO of both Square and Twitter, outside the New York Stock Exchange for Square's initial public offering in New York on November 19. Lucas Jackson/Reuters
One alternative might be to emulate the mobile-payments company Square and go public at a lower valuation than its current $11 billion level.
"They might just have to hit and go out at $8 billion ... If they do that they will have to start thinking: OK what has to be true if we are going to go out at $8 billion? How do we shore up the team, make that a victory, and pull the Jack Dorsey, giving back to a bunch of employees to make sure they're happy?" he said. "That wouldn't be bad, actually go out at something like $7 billion or $8 billion and take the medicine now, because hitting at $11 billion to $15 billion to $20 billion if you run the numbers, is not trivial."
We talked to a wide variety of people about the next big move Pinterest should make. There was one recurring theme: Pinterest needs to hire an experienced, well-known business leader.
A former Pinterest employee said of Kendall: "Tim is a really smart, nice guy, but he's not Sheryl and he's not Eric Schmidt," referring to Sheryl Sandberg and Eric Schmidt. "He hasn't worked a lot of places ... he's an early Facebook employee, which has a bit of 'double or nothing' attached to it. People think you were successful if you were at Facebook because of the way it has grown, and if he makes Pinterest work, nobody will doubt him. If he doesn't, people will see that he was just at the right place at the right time ... I think he's apprehensive about how he has to make this work."
Our entrepreneur source said if he were on Pinterest's board, he would get the founders a partner, most likely a COO who could help the company become more aggressive and attract other senior people.
His ideal (but unlikely) candidate? Twitter's chief operating officer: "Adam Bain is a monster he went over to Twitter and he killed. Dude, this guy, you couldn't stop him, he just makes money. He prints it. They need someone like Adam. He understands brand sales, direct response he understands the internet. He's a product-oriented, sales-driven guy. And they don't have it."
Twitter COO Adam Bain. Naoise Culhane / SPORTSFILE via Getty Images
One digital-media executive suggested Pinterest might be trying too hard to emulate Google. Silbermann worked in Google's online advertising group before founding Pinterest, and a recent search on LinkedIn listed 77 Pinterest employees who used to work at Google.
"I think a lot of people who used to work at Google who lived in a comfortable, massively and consistently successful, really demagogic-type place where Larry and Sergey made all the decisions and they try to replicate that at other companies, where it just doesn't work," our source said. "Google is a kind of unique company and has a monetization engine that is literally better than anything in the history of the internet, so you can't just assume your successes there and the models for success implemented there will be successful elsewhere.
"You look at Marissa Mayer at Yahoo and the problem she's having there. I think unfortunately a lot of former Googlers sort of get high on their own supply and are used to success in a vacuum. They go on to other companies and they don't realize there will be employee issues, monetization challenges, growth issues. There are two companies that don't have to worry about this shit: Facebook and Google."
More than 70 current Pinterest employees used to work at Google. Roman Boed/Flickr
That said, Facebook too had growth problems in its early stages of monetization, notably not realizing the mobile shift quickly enough but then rectifying that to become a mobile advertising behemoth. A path to meaningful revenue generation might simply take time, and the investment Pinterest has received so far gives it the cushion to get there. (And let's not forget: Pinterest says it surpassed its 2014 revenue last year by five times.)
This data from Pinterest's marketing developer partner 4C shows how client ad spend on the platform rocketed in 2015. 4C Insights
Forrester analyst Erna Alfred Liousas told Business Insider: "This year Pinterest made strides in creating a variety of monetization options that also preserve their user experience. By focusing on that user experience, they've created ad formats that blend into their visual search engine experience. This is a good thing. Pinterest has high aspirations, and it very well may achieve them, but it needs more time to increase adoption of its monetization model. It took Facebook three years to get its monetization efforts on track. This is the first year Pinterest was truly able to focus resources on building something viable."
In the meantime, Pinterest has big plans for 2016. It is recruiting, it will start opening up direct sales to more categories beyond the CPG and retail verticals, and that initial public offering still looms on the horizon. While it is evidently not the darling of the entire advertising industry and as Kendall himself put it doesn't work to the playbook of other digital-media companies, it appears to be generating meaningful revenue growth. And, despite cutting back on direct sales to some clients and the volume of naysayers in the industry, it hasn't received any high-profile write-downs from its investors unlike some other notable tech startups like Snapchat and Dropbox.
Kendall tells us he's just focused on getting the job done rather than the perceptions of Pinterest in the market.
He added: "We've only been in market for a year and we're just getting started. People are getting used to the fact that we are in market and we have a marketing offering. As you know, I used to run monetization at Facebook, and I can't tell you how many times I had this dialog in '07 and '08, where there was just this fundamental disconnect between the results I was seeing internally and the reporters and external folks that I was talking to in terms of what they thought the prospects were for the company.
"I have been through this before, and my view is that if you worry too much about misperceptions, it's just time that gets taken away from actually building value."