Can Pinterest turn its popularity into profits?

Even though it has never been in the black, the popular scrapbooking site secures $100 million in new financing.

By TheWeek.com May 18, 2012 3:56PM

Pinterest, the popular social-media site that allows users to "pin" images from the web on a virtual billboard, has secured $100 million in new financing, a deal that values the company at a cool $1.5 billion. While that's well short of Facebook's (FB) $100 billion value, Pinterest's new investors apparently believe that the site, which has never turned a profit, can transform itself into a money-making machine. Revenue often seems like an afterthought in the tech world these days -- just think of Facebook's $1 billion purchase of the business-model-less photo app Instagram. 


Does Pinterest actually have the potential to be a cash cow?


Absolutely. It's already a boon for companies: The Pinterest effect is already "reverberating through e-commerce sites," says Nidhi Subbaraman at Fast Company. The pinned images serve as glowing advertisements for various products, and data shows that Pinterest inspires its 20 million users to buy an impressive amount of stuff. And Pinterest users "shop big -- the average price tag is double that of a buy from a Facebook user." With that kind of a platform, it's easy to see how Pinterest could set up an advertising revenue model. 


And it will surely pay off for Pinterest's largest investor: The biggest investor in Pinterest, the Japanese e-commerce site Rakuten (RKUNF), knows that Pinterest "drives a lot of commercial traffic to retail sites,"says Jay Yarrow at Business Insider. Rakuten owns the online retail store Buy.com, and Pinterest can now direct a "firehose of traffic" there, instead of to Rakuten's competitor, Amazon. Pinterest can also earn "commission for each sale" made through the site.

 

But Pinterest is still no sure bet: "A growing number of brands are using Pinterest to advertise their wares," and this could easily be monetized, says Charles Arthur at Britain's The Guardian. But Pinterest is vulnerable to lawsuits, because the site "effectively allows the copying of images that are often copyrighted." Advertisers won't mind, but "photographers and commercial organizations will," and the popularity of the site could diminish if users are restricted from pinning certain images. 

 

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