Pinterest Begins to Use Promoted Pins in Search Results

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Pinterest announced on Thursday that they will start promoting specific pins for businesses  in “tasteful ads” that won’t contain “flashy banners or pop-up ads”.  The ads will be transparent and users will be fully notified when they are viewing a paid promotions, promised CEO Ben Silbermann.

Slibermann assured the public that the site is nowhere near shifting to a state of “ad madness” where users will be pummeled with advertisements on every page.  Instead, the promotions will be integrated into a gradual, experimental process, so that Pinterest can assess the impact and value of the paid promotions.  Currently, just a few promotions in search results and category feeds are being incorporated into the marketing plan and no company is actually paying for ad placement just yet.

“We want to know how things go and, more than anything, hear what you think” – Ben Silbermann, CEO of Pinterest

Not only are the pins designed to be tasteful and transparent, but they will be relevant and improved.  The pins will be based off of things users are actually interested in, and the pins will constantly change based on the feedback of what users like and don’t like.  For example, in a Pinterest search for “halloween”, a pin for a Darth Vader or Batman outfit from a costumer shop might be promoted.

This type of strategy has proved to be successful in other companies, like Google giving search suggestions after typing just a few letters in the search box, or Netflix giving moving and TV show recommendations based on what you’ve previously watched.

This new advertising strategy could be a response to Pinterest’s recent competition, Fancy, a New York startup that curates images of desirable items.  In July, Fancy received funding of $53 million, giving the company a valuation of $600 million.  This includes investments from Will Smith and American Express.

Pinterest currently has investors who have put approximately $338 million into the company that need to eventually be paid back, as well as a $2.5 billion company valuation that must be justified.  Since the company has such a vast, broad audience, it seems to be the perfect platform to seek revenue through advertising.  Also, the demographic of Pinterest’s community is more appealing than other social media platform to advertisers because of its strong support amongst women and higher-educated people

Although Pinterest has accumulated a large debt to its investors, this excessive funding represents the trend in fast-growing tech companies to add private-equity investors into the mix.  As Pinterest’s valuation climb, these types of large, venture-capital firms and traditional startup backers begin to feel more comfortable investing, knowing that the the ROI is strong.  Venture-capital firm Adreesen Horowitz is one of the largest investors of Pinterest and currently “is in” for the new advertising scheme.

With that being said, Pinterest is still struggling to generate revenue.  So why are investors jumping all over the opportunity to dump money into the website?  Because investors think that Pinterest could be the next Facebook, driving more traffic to sites in February than Twitter, Youtube, LinkedIn and Google+ combined.  The site is also consistently growing, and copyright is not an issue, since the company has demonstrated that it’s strong enough to deal with any legal issues it may face, especially when using their hired legal experts from Google.

Pinterest has explored other creative ways of monetizing their online popularity before.  In 2012, the company partnered with affiliate links provider Skimlinks, allowing them to earn  money every time someone made a purchase of a product pinned to the site.  Although this strategy initially worked, once users discovered that Pinterest was making money off of purchased pins, Pinterest discontinued their affiliate relationship with Skimlinks with fears of losing their user base and weakening their reputation.

Although their previous strategy failed, this new strategy could give retailers a great advantage.  Chelsey Binkley, social engagement coordinator of Engauge, told E-Commerce Times:

“There is definite potential for promoted pins to be successful, especially for businesses looking to showcase their wares.  For retail and fashion brands that already use the platform to drive discovery to their products and e-commerce sites, this will make for great extension of their Pinterest efforts”.

Chris Penn, vice president of marketing technology at SHIFT Communications, also stated:

“According to research firm Edison Research, 27 percent of Pinterest users have made a purchase based on a pin they’ve seen.  If Pinterest can work sponsored pins into relevant pinboards in an appropriate way that doesn’t alienate users, they’re going to be quite successful at their advertising program”.

Currently, Pinterest has no advertising whatsoever, which raises the question of if the campaign is going to jeopardize the integrity of the company and push users away.  Keither Trivitt, director of marketing and communications at MediaWhiz, believes that its going to be shocking when people first start seeing the promoted pins, and wonders if its going to be a positive or negative reaction.

He also raises the point that Pinterest has created a carefully cultivated network and an image of being the ultimate user-friendly platform; these promoted pins could begin to complicate this identity and give people a new opinion of the company.  The key to make this new campaign successful is to move slowly, Trivitt said, which Pinterest seems to be doing by only promoting the pins in search results, rather than dropping ads or messages directly into feeds.

Either way, the popularity of Pinterest is on the rise, and their is no decline in sight.  The ads may have a crippling effect on a small amount of users, but it could also serve as a facilitator for making it easier to purchase things users are actually interested in.