Insiders told us about what's going on inside $11 billion Pinterest -- and it's not all good

PinterestPinterestPinterest cofounders Evan Sharp and Ben Silbermann.

Pinterest is a strong IPO contender for 2016, already valued at $11 billion having raised $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 how to decorate a house — and they also act as free spokespeople for brands by “pinning” their favourite products and inspiring others to buy them.

It’s an ideal environment for advertisers. But Pinterest has taken a somewhat softly, softly approach to advertising so far.

That strategy has irked some within the ad industry — one exec told us Pinterest looks “amateur” compared to 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 to — 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 kendallScreenshotTim Kendall

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 monetisation, revealed to Business Insider that revenue had grown “more than 5X” in 2015 — an enviable position for any company — and the majority of that is repeat business. Those advertisers that do understand the value of Pinterest appear to be spending ever-increasing amounts. And it’s the very fact that Pinterest has approached monetisation in a different way to other digital platforms that seems to impress its biggest advocates.

Documents leaked to TechCrunch show that six-year-old Pinterest was targeting $169 million in revenue in 2015 after bringing in just $25 million in 2014 — having only officially launched its first advertising product in January of that year. Pinterest declined to comment on the accuracy of those documents.

However, compare that to 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 is targeted $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 like Pinterest is sitting still — it has released a slew of ad products in recent months and restructured its sales organisation to focus on its biggest advertisers in a bid to achieve that goal.

But there’s a huge disconnect. Lots of people are saying that Pinterest is not moving nearly as aggressively as it needs to. Pinterest, however, tells us that such cynicism is utterly unfounded and that it is growing its ads business far faster than many other digital media companies.

The advertising industry view

There is plenty of evidence that shows Pinterest is an extremely effective platform — both for paid-for promotions and engagement with organic content. It drives nearly as much traffic to online marketplace Etsy as Facebook does, for example.

And an October report from eMarketer shows US marketers rate Pinterest on a 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 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 ad agency 22Squared, told Adweek 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 to competitor digital platforms.

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 luxor editedMatt Weinberger/Business InsiderSnapchat spent a wad of its marketing budget at CES this year.

One marketer said: “Their strategy has become a little confusing from an external standpoint … any company that doesn’t bake monetisation in from the beginning really risks alienating its base.”

The chief of a US-based digital marketing agency said Pinterest’s CPM (“cost per-mille” — or cost to reach 1,000 people) ad rates were relatively high, considering measurement is “lacking” compared to 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’s not immediately clear which business functions most-benefit 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. 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,” Pearmain said.

What it’s like being on the Pinterest sales team

A source with knowledge of Pinterest’s sales organisation 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 its commercial future are made “in a vacuum” by the company’s founders who are more focused on the consumer product, he said.

We spoke to a former employee from the Pinterest sales team. Having built a career in fast-paced sales environments, this person described their time there as a frustrating experience.

“When I first got there it was a really easy sell. 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,” they said.

“When you brought in deals, they just weren’t willing to do them. You’d go down the path with these partners, get the partners really excited, and then nothing would happen and the partner is disappointed,” they said. “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 they thought Pinterest had a slower pace to its sales approach than other organisations.

“One reason is that it works so well organically [for marketers] that it’s been hard to build a business. 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: “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,” they added.

Another tech industry source who knows current and former employees within the sales organisation 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 have 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. Monetisation has only been lightly opened; it’s taken two years. If you want my honest opinion: yeah, they’re going too slow.”

Pinterest’s busy 2015 — it grew revenue by “more than 5X”

Despite the dim view taken by some observers, 2015 was actually an eventful year for Pinterest.

Tim Kendall, Pinterest’s general manager for monetisation, told Business Insider that Pinterest has grown revenue by “more than 5X” between 2014 and 2015.”

(If Pinterest generated $25 million in 2014, according to those documents leaked to TechCrunch, 2015 revenue would have been between ~$125 and ~$137.5 in 2015. However, 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 only need to look at Pinterest’s repeat customers to see that it is a platform that marketers want to work with.

Between Q2 to Q3, Pinterest’s renewal rate in its direct channels — where it works with its largest customers — was 70%, according to Kendall. The company’s second half to first half “intended re-up rate” for its mid-market 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.”

Here’s how it got there.

In March, Kendall — formerly Pinterest head of product, and the former Facebook director of monetisation before that — was promoted to head up all the company’s monetisation efforts, taking on some of head of partnerships 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 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 that now reports to him. This team makes up just under a third of Pinterest’s ~600 staff, but the company plans to hire “aggressively” in all three of the aforementioned areas this year, Kendall told Business Insider.

The re-organisation 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.

Pinterest moved back to target “low-hanging fruit”

Most notably, Kendall also led the move to narrow Pinterest’s ad focus on just two categories: Retailers and consumer packaged-goods (CPG) brands, as The Wall Street Journal first reported in December.

Kendall told Business Insider the move was the “right long-term approach to building a scaleable ads business” and while focusing on two categories might seem reductive, retail and CPG brands actually account 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, according to Kendall. 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, around Kendall said about 75% of the organic content on Pinterest is 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, was “really surprised” to receive an email from Pinterest saying its sales team would no longer provide support, the WSJ reported back in December. Pinterest pulling back the rug does run the risk of marketers choosing not to return.

As previously mentioned, marketers do have another option. Pinterest has created a group of marketing developer partners, allowing brands outside of 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.

Cannes lionsFacebook at Cannes Lions/FacebookFacebook once sent one or two executives to Cannes. Now it takes over an entire beach.

Bob Gilbreath, CEO of Pinterest marketing developer partner Ahalogy, said while it’s true that not having big salesforces like 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. Six years later and they have the size and scale to take over the beach,” he said.

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 in 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 [ — Google, Facebook — ] you mentioned are at 10,000 to 50,000 employees and grew to those thresholds over the span of a decade. You cannot go from a couple dozen sellers to several 100 or 1,000 overnight. It takes time,” he said. “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 won’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 organisation that services every single advertiser out there is hard and requires a lot of people. 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,” Kendall said. “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.”

But scepticism remains within the company too

GlassdoorGlassdoorPinterest’s Glassdoor reviews are polarising

Glassdoor, the site on which companies’ former and current employees can leave anonymous reviews about their employers, paints a confused picture of what Pinterest staff think about Pinterest.

Spanning many roles within the company, lots of current employees from (many of which all appear to have posted at a similar time in December,) resulting in the first page only broadcasting positive reviews, which rate Pinterest as a great place to work.

But the negative reviews from both former and current employees tell a different and often similar story: “Streamline/improve management, “Clean house needed,” “Great people, terrible management,” “Reboot. Reorganise. Streamline,” “All sizzle – no steak.”

Of course, it’s likely that people disgruntled with their boss or former employer are more likely to leave a review than someone happily coasting along in a job they enjoy (one current employee even writes on their review: “Don’t sweat the grumpy cats that were let go from Pinterest and are now airing their issues in glassdoor [sic] reviews.”) Interestingly, many of the negative reviews came in a flurry in December too.

One former employee who asked not to be named said there are two camps of people who work at Pinterest: “[Cofounders] Ben [Silbermann] and Evan [Sharp] are the more introverted versions of [Google cofounders] Larry [Page] and Sergey [Brin.] They’re like the kings 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: “But look at Microsoft or Facebook. They have 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 look like whether you’re working with Pinterest, or working for it, you either love it or you hate it.

The investment case

A prominent Silicon Valley based entrepreneur and investor with close knowledge of Pinterest said despite all its impressive recent efforts, the company’s big challenge will be to grow annual revenue beyond $1 billion.

“To get past $1 billion one of two things have to be true. They need to either significantly step up their ARPU [average revenue per user,] or they need to increase their user growth rate. 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 maths? I guess that’s hard to say,” he said.

One alternative might be to “do a Square” and IPO 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. 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,” he said.

What next?

We spoke to a wide variety of people about the next big move Pinterest should make. There was one recurring theme throughout: Pinterest needs to hire an experienced, well-known business leader.

A former Pinterest employee said: “[Monetisation boss] Tim [Kendall] is a really smart, nice guy but he’s not Sheryl [Sandberg] and he’s not 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 COO: “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.”

One digital media executive suggested Pinterest might be trying too hard to emulate Google. Prior to founding Pinterest, Ben Silbermann worked in Google’s online advertising group and a LinkedIn search shows ~77 current Pinterest employees are former Googlers.

“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 monetisation 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 realise there will be employee issues, monetisation challenges, growth issues. There are two companies that don’t have to worry about this shit: Facebook and Google.”

Google campusRoman Boed/FlickrMore than 70 current Pinterest employees used to work at Google.

That said, Facebook too had growth problems in its early stages of monetisation — famously not realising the mobile shift quickly enough, but then quickly 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 grew revenue at 5X last year.)

Pinterestgrowthadspend4C InsightsThis data from Pinterest marketing developer partner 4C shows how client ad spend on the platform rocketed in 2015.

Forrester analyst Erna Alfred Liousas told Business Insider: “This year Pinterest made strides in creating a variety of monetisation options that also preserve their user experience. By focusing on that user experience, they have 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 monetisation model. It took Facebook three years to get its monetisation 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’s recruiting, it will start opening up direct sales to more categories beyond the CPG and retail verticals, and that IPO still looms on the horizon. While it’s 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 writedowns 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 teh fact that we are in market and we have a marketing offering. As you know, I used to run monetisation 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.”

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