In San Francisco last week I got to meet Chris Dixon, a partner at Silicon Valley investment firm Andreessen Horowitz. Naturally I asked him about Pinterest, which everyone expects will file for a huge IPO in the coming months.
Andreessen Horowitz participated in a $225 million investment round for Pinterest, so if anyone might know what Pinterest’s numbers look like, it would be an Andreessen partner. The round valued the company at $3.8 billion.
Dixon says that when it comes to monetization at Pinterest, people should think about Google rather than Facebook, in terms of how its e-commerce traffic performs. That suggests Pinterest’s traffic is much more valuable — and that revenues will be much higher per user — than Facebook’s is, in some scenarios. (Dixon didn’t specifically say this, but as his quote below indicates, these are the benchmarks we’re talking about.)
Dixon couldn’t be drawn on a dollar amount for Pinterest’s revenues — they’re likely modest right now as the company has not yet launched its advertising application programming interface. (An API is the device that will allow advertisers to plug their own ads into Pinterest.)
But he did give us a clue as to how robust they might be. Pinterest likely offers a stronger ad environment than social media does, but not as strong as search advertising does, he says.
The context here is that although Pinterest is obviously smaller than Facebook or Twitter as a social network, it dominates one specific niche: Online retail and shopping.
Pinterest delivers more traffic to retail sites than Reddit, YouTube and Twitter combined. Facebook still delivers more total traffic, but that’s because of it sheer size. In terms of retail, Pinterest bats above its league. Here’s what Pinterest’s share of all referred web traffic looks like according to Business Insider Intelligence:
Retailers found out at the end of last year that Pinterest is becoming an increasingly important source of traffic, as its users see things they like on Pinterest and then click through to see where they can buy them. According to Monetate, a social media retail traffic measurement company:
… Pinterest has emerged as this season’s social superstar, with its conversion rate jumping 29.8% in just one year. Its more than 70 million users looked increasingly toward the pin-centric site for holiday promotions and deals, and according to a recent survey by the Harvard Business Review, a full 21% of Pinners have bought an item after pinning, repinning it, or liking it.
And Pinterest dominates certain types of sharing, such as on the iPad — which is heavily used for shopping. On iPads, 48.2% of users have shared something on Pinterest:
For most retailers, according to Monetate, search provides about 33% of their traffic. That’s because shoppers generally start with search when they’re in the mood to buy something. By contrast, Social media provides only about 1% of traffic.
Dixon says Pinterest outperforms other social media in that respect, because it directly relates to a consumer’s “intent to purchase”: “Pinterest will be somewhere between social and search. It will be much better on a per impression basis than social. … inbound traffic from Pinterest converts like search,” he told Business Insider.
That sounds like a technicality that only a search engine optimization nerd would love. But in e-commerce it’s crucial. For years, Google has ruled e-commerce traffic with its search ads. Facebook has ruled e-commerce traffic in social ads.
If ads on Pinterest perform anywhere near the way ads on Google do, and above the way ads on Facebook do, then Pinterest’s revenue potential will be massive.