Pinterest is using AI to become a digital bazaar. GenZ's are loving it.
Pinterest, once a pandemic darling, saw its user growth fade in 2021 as inflation set in. Today, Pinterest's management is building an integrated shopping experience using AI & GenZs are loving it.
At a Glance
Pinterest is not a social media app. Rather, it is a social shopping platform meant to inspire people around the world to shop products personalized to their taste.
During the pandemic, Pinterest enjoyed the meteoric rise of its market value as people stayed at home and signed on to the Pinterest platform to find inspiration for things to shop for. However, as stimulus checks dried up and inflation set in, Pinterest’s user growth started to erode, with fewer people using the platform on a monthly basis.
During this time, the company decided to double down its efforts on building an end to end shopping experience on its platform by integrating AI and shoppable media features.
Users have started returning back to the platform once again, thus validating that the company’s strategy is working. In fact, GenZs are one of the key demographics that are coming back en masse. As GenZs are generally more compelled to buy products based on ideas they find on social media, this could be a huge tailwind for Pinterest moving forward.
But Pinterest is not alone. TikTok is also aggressively building out its social commerce solutions, so the competition in this space is something to watch out for.
Let’s set the record straight before we start this post - Pinterest is not a social media app.
Before you ask why, it’s important to understand the distinction between Pinterest and other social media platforms and the best place to start would be with co-founder and ex-CEO, Ben Silbermann’s mission for Pinterest. In Silbermann’s own words, Pinterest is a “catalogue of ideas” meant to inspire (not influence) people around the world to shop products personalized to their taste.
Another way to understand Pinterest is to think of what Pinterest is not — it is not glamorous like Instagram, nor it is as dope as Snapchat and it definitely tries to position itself as far away as possible from the boisterous bro culture raging on Twitter.
Users use the Pinterest platform to collect and pin ideas for food recipes, fashion, home decor, parenting and design on their digital corkboard or idea boards. These pins serve as ideas which inspire users to shop for products that they pinned on their idea boards. And it is this concept that made Pinterest arguably one of the pandemic’s hottest stocks as it saw its revenue double during that period of time.
A Pandemic Winning Stock that Quickly Fell out of Favor
Like many tech stocks during the pandemic, Pinterest enjoyed a meteoric rise in its market value as more and more people stayed at home looking for ways to spend their stimulus checks. Pinterest became one of the platforms that users went to find inspiration for things to shop for.
Japanese soaking tubs, outdoor kitchen bars & accessories, thrifted home decor and nordic solar lights were some of the things that users splurged money on that helped Pinterest record juicy revenue growth in 2021.
However, as stimulus checks dried up and inflation set in, the inspired-to-shop movement that Pinterest had so carefully crafted, began to fade. Pinterest’s user growth started to erode, with even fewer users using the platform on a monthly basis. As performance expectations were being missed on company’s earnings calls, the stock’s market value turned south and investors started asking Pinterest’s management tougher questions.
While the Social Media Industry pivots to subscription-based models, Pinterest is adamant not to take that route.
In one of our previous posts, we had discussed that the growth rate of social media ad spend is plateauing in the US. In the same post we had outlined the strategies that social media companies were using to create sustainable future paths to generate more revenue, now that social media ad spend is plateauing. Remember, up until now, social media ad spend is the biggest revenue contributor for all social media companies.
Today, prominent social media companies such as Meta Platforms (Facebook) META 0.00%↑ , X (Twitter), Snapchat SNAP 0.00%↑ and others are resorting to charging their users a monthly subscription fee to access their platforms in exchange for benefits such as branded check marks, ad-free experiences etc.
However, Pinterest PINS 0.00%↑ is not taking the subscription route. Instead, the management is focused on doubling down its efforts to enhance their users’ in-app shopping experience.
Pinterest hopes to become a “digital bazaar” by building in-app shopping capabilities.
When Pinterest started out as a platform to showcase ideas in 2011, doubts remained about the company’s revenue generation framework. The platform resembled a digital scrapbook, offering its users a social feed that had very little to do with people’s birthday wishes and baby pictures and more to do with photographs of clothes and shopping lists of presents to buy for loved ones.
Then in 2014, the company started to sell ads to marketers to generate revenue, similar to what other social media companies, such as Meta Platforms were doing. The ad revenue model continues till today, albeit a weaker outlook in global ad spend as the world’s economy is slowing.
However, unlike the subscription-based approach most of its peers are adopting, in order to create alternative revenue streams, Pinterest is laser focused on building an end to end shopping experience on its platform to boost its revenue growth.
During a Q4 2022 earnings call, Pinterest’s new CEO Bill Ready had said that over 50% of users view Pinterest as a place to shop, yet they haven’t made it easy for users to shop, as shoppable content was not integrated into core experiences.
Since then, the company has “doubled-down” on their shopping solutions strategy by integrating AI and shoppable media features to help users find products in any uploaded photo and mark them on the online shop. By integrating AI and shoppable media features, Pinterest hopes to become a sort of “digital bazaar,” where users can come to be inspired, discover new brands, and make purchases without leaving the app.
Starting early 2023, Pinterest has added a suite of shoppable features that includes collages, merchant catalogs and search features and it plans to make videos on the platform shoppable this year by using computer vision technology.
“When I think about the next 20 years of e-commerce, it will be about incorporating the joyful part of shopping, the inspiration, the discovery,” Ready said at Shoptalk Las Vegas 2023.
And it looks like the results are paying off so far. Pinterest has been growing its user base again for the first time in many months, since the pandemic boost faded off.
Pinterest’s strength lies in its User Demographics
On several conferences and earnings calls, Silbermann (ex-CEO of Pinterest) and other company execs have touted the platforms’ likability among its female user base. At one point, female users outnumbered male users by almost 4x.
The core reason Pinterest is proud of achieving this feat is because their own internal studies show that female users have a higher propensity to spend on shopping compared to male users. The platforms’ positive environment made it all the more inspiring for female users to sign up and feel good about shopping on the platform. Pinterest made sure to keep the platform free of any sensitive news throughout its tenure. For example, during the pandemic, the company’s shopping-based algorithm started removing search results related to vaccines and other sensational news which would usually be found on Twitter and Facebook.
Interestingly, over the past year Pinterest also saw a larger number of GenZ’s signing up on the Pinterest platform.
The company noticed that more and more GenZs started visiting the platform as the company released more shopping-related features. This was noted by Pinterest’s management last year as one of the early signs of success that they were seeing with their in-app shopping initiatives. And it looks like the company may be on to something.
A recent study by ICSC found that 85% of GenZ users are compelled to buy products based on ideas they find on social media while nearly half of them mentioned that the in-app experience is critical to them shopping on the platform. GenZ has increasingly become an important demographic as more of them graduate from school, transition to their first full-time job, and gather more spending power.
But Pinterest is not alone in their persistence on relying on this model. There is another social media behemoth that has started building out social commerce capabilities last year as well.
TikTok’s plans for social commerce collide with Pinterest’s
In August this year, news broke out that TikTok was heavily investing in social commerce. The platform has been actively engaging with big advertising brands, both through direct meetings and at industry events in recent months. TikTok has also been offering educational webinars and sharing tailored pitch decks designed to cater to the unique needs and interests of these brands.
In mid-June, TikTok hosted an online summit where it conveyed its own vision of social commerce — "Shoppertainment" — a portmanteau of "shopping" and "entertainment" — which the popular social media platform sees as the future of commerce. In the summit, TikTok mentioned that currently one in every two users discovers new products and brands via their For You feed, with a substantial 63% performing a search after encountering an ad on TikTok.
Moreover, TikTok talked about its 2-pronged strategy to focus on Social Content and Social Commerce. What was more intriguing from the slide deck was the fact that 65% of TikTok users are planning to buy from TikTok Shop because of the simplicity of the in-app shopping experience. While these numbers are definitely biased to showcase TikTok’s platform, it still shows the laser sharp focus TikTok has on social commerce.
What do investors think of Pinterest’s stock?
For now, it appears that investors are putting their faith behind Pinterest. Pinterest’s new CEO also appears to have the backing of the investors with the stock faring much better after Ben Silbermann’s departure.
The company was upgraded by a few investment firms earlier this year. Jefferies analysts believe that Pinterest has business upside potential due to its commerce-focused ad platform.
Closing Thoughts!!
Any kind of changes to business models usually take about 12-18 months to play out, whether the changes include transitions, extensions, pivots or side pivots to the business model. Its still early days, but Pinterest’s vision to create a full-funnel in-app shopping experience for its users where they get inspired, discover brands and shop is very exciting. It is showing initial signs of promise, as GenZs increasingly sign up on the platform, which would help the company spearhead its growth as users remain engaged and inspired.
Pinterest will report its Q3 earnings next week after market closes on October 30th.
Extra Reading for those who are interested
Pinterest Predicts - An official annual forecast by Pinterest’s data science team predicting shopping habits that may start trending the next year. (They usually get this right 7/10 times)
How Pinterest became GenZ’s favorite fashion inspiration | Vogue, September 4th, 2023
Pinterest Isn’t a Social Network. That’s what makes it great. | Slate.com, April 1st, 2018
Can Pinterest's new CEO Bill Ready make the social app your happy place? | Fast Company, October 9th, 2023
How to value Pinterest’s business | CNBC Video, April 18, 2019
Hope you enjoyed this post. How many of you are shopping on Pinterest and what is it that you like the most about it? Let us know in the comments section below.
Uttam & Amrita 👋🏼👋🏼
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Great article :-) Pinterest is a massive affiliate platform.
agree ) I combine everything related to fashion Aliexpress, Shein, Wish, Amazon, Some boutiques they got the same adv the same outfit, and see only those trends, same trends on Pinterest, which is useful for me only in terms of pictures of the Nature...