Photo: Jay Yarow/Business Insider
Japanese e-commerce giant Rakuten is the lead investor in Pinterest’s $100 million round.Most people in the United States have never heard of Rakuten. And that’s a big reason the company is trying to get in good with Pinterest.
Pinterest will be able to drive more traffic to Rakuten’s sites, and it will help Rakuten find a way into the U.S. market.
Earlier this year Rakuten flew us business class to Japan, and put us up in a bunch of nice hotels, and walked us through its business, so we have some familiarity with the company.
The takeaway from our trip: Rakuten has an excellent business model for Japan, but it has struggled to expand globally.
The problem for Rakuten is that the Japanese market is finite, and Rakuten has signed up just about every single Internet user in the country. It spent hundreds of millions trying to crack markets outside of Japan, and the results thus far have been underwhelming.
Specifically, in the U.S., Rakuten paid $250 million for Buy.com and hoped to use the site to create a Rakuten model here.
The Rakuten model is like a combination of Etsy and Amazon. Rakuten.com is a portal that draws lots of traffic. Retailers build their own mini-sites on Rakuten.com and try to attract users. At Rakuten, the retailer is the star. If you’re looking for shoes, you’ll see the store that sells the shoes. On Amazon, the product is the star. If you look for shoes, you’ll see shoes and you won’t know who sells them.
The Rakuten model hasn’t worked for Buy.com. Its traffic is tiny. With just 5 million uniques in December, during the craziest shopping season, it’s not even close to being a top 10 e-commerce site.
A partnership with Pinterest could solve some of this.
We haven’t spoken with anyone at Pinterest or Rakuten since the deal was announced, so what follows is speculation. However, it’s based on conversations with Rakuten executives and VCs who have looked at Pinterest.
Pinterest drives a lot of commercial traffic to retail sites. Its big promise is to develop into a social commerce site one day. To become a social commerce site, it will have to drive traffic to retailers sites.
A week ago, the beneficiary of that firehose of traffic could have been Amazon. Today, it’s much more likely that Rakuten’s Buy.com will be the winner. If it can tap into the promise of Pinterest, it can actually gain traction in the U.S.
Even if Pinterest doesn’t drive traffic to Buy.com, Rakuten can make money from Pinterest through Linkshare, which is an affliate marketing company that it owns. Linkshare sends traffic to retailers sites and gets a commission for each sale. If Pinterest does a deep integration with Linkshare, Rakuten will make lots of money.
So, for just a $50 million investment, Rakuten may has solved one of its biggest problems, and opened up a new stream of revenue.
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