December 4, 2021

Remarkable Mate

Remarkable business & finance

Why PayPal Buying Pinterest Wasn’t Such A Bad Idea

After nearly a week of market rumors, PayPal released a short but sweet statement on Monday morning (Oct. 25) stating that it is not pursuing an acquisition of Pinterest “at this time.” PayPal didn’t deny its interest in Pinterest nor that a deal had been contemplated at one time. They also didn’t deny that they’d bailed because of some of the bad reactions, including by shareholders, to the proposed deal. And “at this time” left the door open that maybe, someday, they could revisit the idea.

The market rewarded PayPal’s statement by boosting its stock price. This is the same market that pummeled the stock last week on the rumored news. Investors thought the $45 billion price tag was too much.

But I think the markets and wags were much too quick to write this off as a bad idea.

That $45 billion investment in buying an online asset could lead to a PayPal-operated social commerce marketplace rivaling Instagram, Google and, maybe even as a stretch, Amazon.

Maybe the contemplated acquisition wasn’t so farfetched. It might be a good idea — or at least one worth discussing seriously, given the evolution of the connected economy, the number of digital ecosystems that are quietly taking shape, and the shift in consumer and merchant dynamics toward more efficient, contextual and digital ways to engage.

There are at least five reasons that I still think PayPal’s interest in Pinterest wasn’t such a bad idea — and why maybe they should be interested, even if they weren’t.

Reason #1: It turns a global consumer ad platform into a connected commerce platform – and vice versa.

Today, Pinterest reports more than 400 million monthly unique visitors globally, and 91 million monthly unique visitors in the U.S. These Pinners come to build their boards, look at what others have pinned and share ideas. According to Pinterest, 60% of its audience is female, and 45% of its U.S. audience has an annual income in excess of $100,000. In 2021, Pinterest reported an increase in both male and millennial users.

Today, Pinterest’s revenues come from advertising. Despite the presence of shoppable Pins, Pinterest makes it money by selling ads to brands, whose growth came from global advertisers looking for new eyeballs, the company’s CEO reported in Q2 2021. eCommerce revenue – which is, of course, PayPal’s sweet spot – has been elusive.

PayPal reported in Q2 2021 that its network has more than 32 million merchants in addition to those 400 million+ users. Its quarterly TPV of $311 billion in Q2 reflected a 40% increase year over year. More merchants means more consumers and more consumers means more merchants; both have fueled the acceleration of PayPal’s two-sided platform over the last several years – and the last 20 months in particular – as the world’s shopping behaviors have leaned sharply digital.

Adding Pinterest’s 400+ million global users into PayPal’s network could potentially rev that merchant and consumer flywheel even faster, driving more sales and bolstering the shopping cornerstone for PayPal’s “super app” ecosystem (more on that later).

It’s not such a crazy thought, particularly since Pinterest also reports that 80% of those who visit the network each week have discovered a new brand or product. Those buyers could use their PayPal credentials to close the loop and make a purchase, while introducing an ad network – and new revenue stream – into the PayPal ecosystem.

Reason #2: Amazon sellers – and their investors – seek new sales on new marketplaces.

Speaking of merchants, many are looking for new ways to find new customers, including many who sell today on Amazon.

According to Amazon, 58% of its sales come from third-party sellers. The average seller makes between $1,000 and $25,000 a month, the company says. Amazon invests heavily in supporting the small businesses that sell on its marketplace, and gives its buyers a diversity of choice.

And investors have built their businesses by helping Amazon’s top sellers find ways to break their dependence on Amazon for the bulk of their sales.

For these brands, and many others, omnichannel no longer entails a decision to move online from offline or vice versa – it means examining a portfolio of online channels through which brands can find new audiences. These brands also include huge CPGs that want more direct relationships with their customers, and better data about their preferences to help them align product/market fit.

Over the last 20 months, investors have raised nearly $4 billion to buy D2C brands, mostly the top sellers in specific categories on Amazon. They use their money to help these brands sharpen their product and marketing focus and streamline back-office operations, to deliver the experience that consumers get from Amazon. One of Amazon’s top sellers, Pharmapacks (aka Packable) will go public via SPAC with a valuation of $1.55 billion.

Both CPGs and small D2C sellers are assessing how different marketplaces and networks can deliver, providing an opportunity to be found by consumers in the context of their day-to-day engagement – including social networks like Instagram and Facebook, search engines such as Google, and marketplaces like Houzz and Etsy.

And potentially Pinterest. As part of the PayPal ecosystem, Pinterest could be a compelling alternative, as it could support an end-to-end shopping experience that converts eyeballs with payment credentials into buyers to boost their sales.

Reason #3: Payment platforms want to become commerce networks.

The ability to convert a browser into a buyer requires having the right product at the right price – but in a digital economy, it’s increasingly about offering payment choice to a consumer at checkout.

Throughout the decade of the 2010s, the landgrab online was to “be the buy button” – or one of them –on the merchant checkout page. PYMNTS’ latest Checkout Conversion Index reports that the top-performing merchants offer six to seven different payment options on their sites, increasing the odds that a consumer will buy if their favorite way to pay is available.

See also: The Checkout Conversion Index

This was also the value proposition in the very beginning of the pureplay buy now pay later solution providers. The merchant appeal was about offering consumers a different way to pay – a credit-like option offering predictable monthly payments to consumers making a purchase – and attracting a new customer who wanted to pay that way.

Today, that value proposition is the foundation of the shopping ecosystems that these pure-play providers now offer. In addition to building their own merchant networks with rewards and other perks, these buy now, pay later (BNPL) providers are expanding their payment offerings to include other ways to pay – debit cards for use at any Mastercard- or Visa-accepting merchant, and even credit options beyond paying in three or four installments. Their objective is to create a commerce network that gives consumers a one-stop-shop with a variety of payments options for making those purchases.

Square’s planned purchase of Afterpay is about taking that to another level, adding a global BNPL shopping network with millions of active consumers to its SMB merchant platform, to create a new omnichannel merchant/consumer commerce network. Square merchants can accept Afterpay and attract new customers and merchants. Afterpay can tap into Cash App consumers, giving more merchants an incentive to accept Afterpay and more consumers who will want to use it.

Also read: What the Square Afterpay Deal Means for BNPL, FinTech, BigTech and Banks

It’s likely not lost on players like Shopify, which operates a commerce-enablement merchant network, that adding a consumer network to their platform could turn Shop Pay into more of a consumer payments brand and could turn Shopify into an Amazon, Google and PayPal challenger.

Reason #4: The creator economy is growing and needs a way, at scale, to monetize its creations.

The creator economy is the $104 billion market of independent content creators, entrepreneurs, influencers and curators who use social platforms such as Instagram, TikTok and YouTube to share and monetize their passions. Not surprisingly, it’s been reported that three-quarters of kids ages six to 17 want to be You-Tubers, given the earnings potential that being a creator with a social following can generate (provided they’re lucky enough to catch a viral tailwind to make more than $23,500, which is the average full-time creator income).

One could say that Pinterest was about the creator economy before curating things online and having them go viral on a social network was given that moniker.

Pinterest was founded as a way for curators to share their collections with others and track the viral nature of their Pins. More recently, it has full-on embraced the creator economy, even adapting its home page to feature videos of creators sharing their favorite recipes, makeup tips and DIY masterclasses in an effort to engage its mobile audience. It sees an opportunity to help existing creators take the communities they have built, monetize their interests and bring new creators onto the platform.

To that point, Pinterest is setting aside $20 million to pay creators to post content, in addition to making it easier for creators to earn affiliate commissions from sales of the products they feature. According to its community guidelines, Pinterest also takes platform governance seriously, actively monitoring the platform for harmful, false or violent content and removing it if found.

PayPal is a payments network that makes it easier for consumers and merchants to pay for the things they want to buy. And although PayPal enables small and micro-businesses to be paid for the sales they make on other platforms, it’s not a social network. Trying to build one from scratch is a gamble, given the well-known “chicken and egg” problems: Even if successful, it could take a long time and cost a lot. A Pinterest acquisition could add a well-trafficked social network to its platform, an easier way for creators on Pinterest to get paid for what they sell, and to turn more than 400 million payment-enabled users into prospects for what they sell.

Reason #5: PayPal is committed to being a super app.  

PayPal has been talking about its super app ambitions publicly for more than a year. When I chatted with PayPal CEO Dan Schulman in April of 2021, he emphasized his vision for PayPal to create a safe, secure and robust ecosystem for consumers to spend, save, borrow and plan their money.

Dive deeper: PayPal’s Dan Schulman Settles Into His Role as Catalyst

PYMNTS’ research of a national sample of 15,000 U.S. consumers in June of 2021 supports such a connected economy vision. We found that consumers want a single ecosystem to aggregate and enable at least five of the activities that today are accomplished through a series of fragmented, separate apps.

Consumers want to consolidate the activities that they view as transactional – shopping at a retail store, a grocery store, a restaurant or a restaurant aggregator – into a single ecosystem with payments and payments choice as an integrated, invisible part of those transactional experiences. They also want an easy way to see what they can spend and where they can find the best deals for what they want to buy. Consumers would also like to integrate a social element into that ecosystem – keeping in touch with friends, family and others as they do today on other social networks.

See also: How Consumers Live in the Connected Economy

PayPal launched the first version of its super app at the end of September 2021 – so it’s still early days. In the PayPal super app ecosystem, consumers engage with the things that Dan told me back in April that he viewed as essential: Consumers can save, spend, plan and manage their money from the PayPal app.

The acquisition of Pinterest could take that super-app experience to a new level, using Pinterest as the digital front door to an ecosystem that could help consumers discover an entirely new portfolio of brands and new prospects.

Payments choice, including BNPL, could become an integrated part of that experience. So, too, could deals, promotions and ads. The potential of social commerce – a concept that the industry first started talking about in earnest in 2012 – could start to gain real traction. Payments and payments choice as an integrated part of this connected ecosystem could give it traction; viral sharing would help it ignite. Buy now, pay later could become a part of that mix – a choice, not a separate solution or app.

What’s Next

Despite my enthusiasm today for a Pinterest/PayPal combination,  I should admit that when Pinterest first launched, I didn’t really get it. I was never a scrapbooker in the physical world, so maybe that had a lot to do with it. And when I visited Pinterest, I found interesting things to look at, but clicking through to the sites where the Pin originated often brought me to a dead or unrelated link. In fact, just today when I visited the home page, the same thing happened. Other times, it brought me to a page that was out of date, so the featured products were unavailable.

For me, going to a place to look at stuff that I couldn’t act on felt like a waste of my time, and so I stopped going.

I also found – and still do – the user interface to be too cluttered and confusing to navigate (and appreciate) the creator collections. PayPal, or anyone, would have to take Pinterest to a new level to realize its full potential.

I also found it striking that founded just a year apart, Pinterest (2009) and Instagram (2010) both saw the value in pictures and viral sharing. Both banked on social sharing, with images as the key differentiator. Both were interested in attracting and building influencers (creators) and leveraging their networks to build their own.  Pinterest focused on sharing what people liked, and Instagram on sharing what people do – which turned out to be much more viral, as people used the platform to more or less communicate what they were doing, eating, wearing and buying, and who they were doing it with.

Both used advertising to drive revenue, and neither integrated payments and commerce until much later.

Pinterest’s monthly unique visitors today are about 40% of Instagram’s. Creators are attracted to Instagram, since that’s where the eyeballs are, and it’s where they can punch out to buy things they see in their feed. Speaking of the feed, it’s clean and uncluttered, and the stories and posts are increasingly shoppable.

There’s one more thing. We know today, right now, that there is no PayPal-Pinterest deal. But the fact that there was potential interest in the news cycle suggests more evidence that the connected economy is real – and is a strategic consideration for many of the biggest players across the digital economy.

And it suggests that more cross-platform consolidations, which will increase connectedness across those ecosystems, are the future.

And that’s not a rumor.

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NEW PYMNTS DATA: THE 2021 HOLIDAY SHOPPING OUTLOOK

About: It’s almost go time for the holiday shopping season, and nearly 90% of U.S. consumers plan to make at least some of their purchases online — 13% more than did in 2020. The 2021 Holiday Shopping Outlook, PYMNTS surveyed more than 3,600 consumers to learn what is driving online sales this holiday season and the impact of product availability and personalized rewards on merchant preference.

https://www.pymnts.com/connectedeconomy/2021/why-paypal-buying-pinterest-wasnt-such-a-bad-idea/