Driving Engagement And Monetization Harmony: Q&A With Pinterest President Tim Kendall

“Web-scale” is reaching mind-boggling levels. Facebook connects 1.6 billion monthly active users. LinkedIn is connecting a huge portion of the world’s knowledge workers, not to mention the potential combination with Microsoft’s formidable assets. Netflix accounts for more than 1/3 of U.S. peak broadband traffic. Zillow is reaching 28% of the U.S. and the vast majority of real estate consumers. Spotify is serving 30 million paid music listeners. Category leaders are connecting consumers at massive scale, and those numbers will likely continue to climb, giving rise to exciting new applications. However, “web scale” is not cheap. It costs Facebook about $3 a year to support a daily active user (DAU)[1]. That might not sound like much, but it adds up quickly. For example, a service with 100 million DAUs could easily run up $300 million in annual infrastructure expenses even before paying other costs like rent, employees, and customer acquisition. And that’s assuming it could match Facebook’s considerable infrastructure and hardware chops. Throwing hundreds of millions of dollars in venture capital at the problem is clearly not the answer. When companies reach that kind of scale, they need a monetization model to do the heavy lifting. A monetization model that will grow faster than user engagement and at massive scale, yet that doesn’t kill the golden goose of user engagement. It’s a tough tightrope to walk. Tim Kendall has walked this tightrope - twice. Tim is a good friend and as the director of monetization at Facebook from 2006 to 2010, he built the company’s self-service ad platform. He was critical in helping us understand the Facebook story, and got us excited about investing (Thanks again Tim!). Tim joined Pinterest in 2012, where he led the product team before becoming the company’s president with global responsibilities over revenue, partner marketing, partner products, operations, and commerce. Few people can match his experience, or better understand what it takes to build the next big Internet platform. I recently sat down with Tim to discuss: The unique symbiotic relationship between pinners and partners on Pinterest Why it makes sense to reinvent ad formats to mirror your company's organic content How visual search can promote ideas, create intent and drive monetization [Dave]: Tim, you’ve helped to build one of the largest ad platforms on the planet at Facebook, and now are looking to do the same at Pinterest. Is this rinse and repeat, or what are the main differences? [Tim]: The scale and the global ambition are the same. But, what's special about Pinterest is that we don't ever have to trade off user needs for partner needs, and that is very different from social network services. Nearly all the content we show users – paid or organic – comes from partners. Without partners’ content, Pinterest wouldn't work properly. [Dave]: When you say partners, you mean advertisers, merchants, and content owners, correct? [Tim]: Yes. [Dave]: So what you’re saying is with social networks, content from partners — whether it's getting distributed for free (organic) or through a marketing solution (paid ads) — is at odds with user engagement. But at Pinterest, since the vast majority of organic content is partner content and the ads are partner content as well, there’s no tradeoff. [Tim]: Yes, we've created a unique opportunity, one in which users want to see great content from partners and partners want the right users to see their content. This symbiotic relationship between Pinners and partners is special to Pinterest and unlike most other Internet services. Partners’ content is not a tax on overall user engagement; instead, it drives engagement. Consumers find the ideas they love and partners get tangible business results. [Dave]: Not that the technology world needs more jargon, but there’s harmony between monetization and user engagement at Pinterest rather than a tax on user engagement. Few companies enjoy that other than perhaps Google, with search and Adwords, and LinkedIn with online resume and recruiting. [Tim]: Yeah. That's a fair parallel. [Dave]: What seems similar though to Facebook, and for that matter Google, is that you waited to prioritize monetization at Pinterest. How do you think of the role and timing of monetization efforts? [Tim]: Because our content spans so many compellingly monetizable categories (retail, CPG, travel, etc.), we were always confident that we could find a strong, sustainable business model. So we could afford to be patient and user-centric both about the impact of ads on the user experience, but also the user experience of the ad products themselves. We were very deliberate in rolling out advertising on the platform, which I think is critical. We tested ads for a long time and gathered feedback from Pinners before we started charging for ads in late 2014. As a result, we created advertising that our users like and that add value to the experience. Based on our research, we see that Pinners hide ads 90% less than industry standards. We are proud of that stat. [Dave]: And both platforms (Facebook and Pinterest) have been adamant about changing advertising industry standards. I remember Zuckerberg violently opposing the standard Interactive Advertising Bureau banner ad unit although it would have made it quite easy to sell display ads. With Pinterest, before your time, the company experimented briefly with affiliate links, but ultimately removed them. Why reject ad standards? Why re-invent the ad unit? [Tim]: While our ad creative front end and our consumer experience itself are quite new, a lot of the underlying fundamentals are the same. We felt strongly that the front end of advertising had to feel native and natural to the existing consumer experience. To that end, what better than to leverage an existing element of consumer product, the Pin, so that ads are inherently native? There are well over 1 million businesses on Pinterest that have an organic presence on the platform. Advertising is having these businesses take their best organic Pins and amplify reach through advertising. But on the backend, from a process stand point, we did want to adhere to standard ad management and delivery standards to make scaling easy for advertising partners. [Dave]: With Facebook, you got a chance to build an ad platform to incorporate the best of prior technology, such as CRM data and custom audiences, and reject the worst. Now that you’re reinventing it again at Pinterest, what are you keeping, what you are rejecting? What are you adding? [Tim]: Consumers on Pinterest express their intent more than on any other platform. Our consumers are shopping. They are actively in-market searching to buy something, or they are browsing in a window-shopping type of construct. For those actively searching for something, we have a search product that should generate similar commercial intent relative to generalized search engines such as Google. Marketers will have the high conversion rate driven by the intent signals within the classic search paradigm, but with Pinterest’s highly visual and native creative front end. For those more in a browsing or window-shopping mode, our ad solution will allow marketers to target audiences, understand consumer tastes and trends, target based on 420 interests, and build awareness and consideration. But again in a visual and native format in an environment primarily focused around products. Across both modes, we will enable marketers to leverage their existing marketing infrastructure and incorporate other data such as customer list targeting or CRM. [Dave]: Seems like the best of both Google and Facebook, but in a visual, and native format. [Tim]: We believe it is very powerful. We’ve been doing a bunch of research, and it confirmed our instinct that new visual platforms like Pinterest inspire users and foster creativity. What's more, Pinterest allows you to go one step further to discover new interests and explore new hobbies. The discovery is usually driven by an idea. Ideas create intent for us to purchase products, book a trip for travel, or do something. We know that to create intent, you must start first with an idea and move beyond a beautiful image. [Dave]: The execution though is more difficult. A big ad platform build is one thing; presumably, you can do that. But what do you need from the community – marketers, marketing tech, ad tech, and the agencies? [Tim]: The community is critical to scaling our ad platform. We cannot do it alone. We have tens of thousands of advertisers who have used our platform to reach engaged consumers and over 1 million businesses who are on Pinterest. Last year, we launched our Marketing Developer Partners Program, and now we have over a dozen partners who are running large ad campaigns through our APIs. We are now rolling out internationally, with the first country being the U.K., and are leveraging Marketing Developer Partners and agencies internationally as well. [Dave]: Any closing thoughts for marketers looking to engage with Pinterest as you scale the platform? [Tim]: 2015 was our first full year of revenue for Pinterest, so it's still early and we are evolving our ad platform quickly. You will see more in measurement, ad targeting, and formats through the remainder of the year. For those who haven't tried our platform, we encourage them to sign up and develop an organic presence on Pinterest. You will learn a lot about your customers and how they interact with your products and services. You can also generate meaningful business results. ### David Yuan is a General Partner at Technology Crossover Ventures (TCV). He is also an advisor to Pinterest. Founded in 1995, TCV is a leading provider of capital to growth-stage private and public companies in the technology industry. With over $10 billion in capital raised, TCV has invested in more than 200 technology companies over the last 20+ years. For a complete list of TCV investments, please visit www.tcv.com/portfolio-list.   [1] 2015 COGS per average DAU = $2.89.