Social media platforms make money from advertising, with varying degrees of success. For instance, Facebook (NASDAQ:FB) has grown revenue 341% over the past five years, while Twitter (NYSE:TWTR) revenue is up only 55% over the same period. Twitter has struggled to monetize its user base, while Facebook has grown more and more compelling to advertisers.
But even with Facebook’s success attracting marketers’ dollars, it might not be the best social media platform for advertisers. On the Oct. 23 edition of “The Wrap” on Motley Fool Live, host Jason Hall discussed with Motley Fool contributors Danny Vena and Daniel Sparks why Pinterest (NYSE:PINS) may be the social media platform advertisers will most want to spend money on going forward.
Jason Hall: Daniel Sparks, if you want to talk a little bit about the specifics of how Pinterest makes money, that’d be a handy thing to hear.
Daniel Sparks: It’s primarily from advertising. I think that they might have some merchant solutions and a couple of things like that, but it’s the bulk of it is advertising.
Jason Hall: Danny, do you have any comment on that?
Danny Vena: I don’t. Like you said, it’s primarily advertising. I haven’t really dug through their financials, but I think a lot of their business model follows what you’ve seen with most of the other social media companies; Facebook, Pinterest, Etsy, Twitter. Essentially, they make the majority of their money from digital advertising, advertising on their platform.
Jason Hall: One of the things I like. Go ahead, Daniel.
Daniel Sparks: All right. I’ll go first. I was just going to have that, if you just intuitively think about Pinterest, it’s really an advertiser’s dream, because people are there. Probably, I don’t know, my wife, at least, I see her using Pinterest, like getting ideas on shopping simultaneously. I think that a lot of people use it that way because you can literally click on it and then go buy it. It’s really an advertiser has a captive audience who’s ready to spend money. Because a lot of times, they come there to get ideas on how to decorate something or whatever. I just think that that’s interesting.
Jason Hall: You really took the words out of my mouth, Daniel. It’s a social media platform that’s not about people engaging with other people and fighting over politics or looking at their nephew’s birthday pictures. You’re going to look for ideas, and a lot of those things are ideas to attach to some eventual transaction. My wife and I use it for recipes a lot. I’ve used it for some carpentry projects to get some ideas. I actually bought plans to get me started on a bed that I built for my son. Then I was able to modify it from there, but it’s perfect for that.
If you think about Facebook, most of the ads that I get on Facebook, I view as annoying. I don’t view them as something that adds any value to my experience on Facebook. Besides understanding this is how Facebook pays the bills and I’m their product. I get that. That’s the model. But with Pinterest, the ads, they can add a lot of value and be a positive for the experience. I love it. I think it’s … understanding that I think is really, really helpful.
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