Pinterest Ads: Who Needs Them Most?

Pinterest has been growing steadily for the past year and some think of it as a possible competitor to Facebook’s social media turf. That means they do very well in the growth department.

Pinteresting Ads - source: Pinterest Blog
Pinteresting Ads – source: Pinterest Blog

Money isn’t a problem either (at least not for now), as Pinterest is slowly digging through $200 million in funding, but it still has to come up with a monetizing plan.

Pinterest growth rate decreasing in the US, increasing worldwide.
Pinterest growth rate decreasing in the US, increasing worldwide.

Last year’s try with Skimlinks probably looked great in a board meeting pitch but it caused quite a stir when word got out that Pinterest was changing it’s users’ links into Skimlinks affiliate leads. The company was accused of making money of its user generated content (which everyone understood, as … you know … servers cost money), without their consent or an explicit disclosure (which seemed to be not so easy to understand).

That was definitely a failed attempt at monetizing Pinterest’s growing userbase and they seemed to have learnt a lot from that. In the post announcing the new feature CEO Ben Silbermann promises ads will be:

  • Tasteful. No flashy banners or pop-up ads.
  • Transparent. We’ll always let you know if someone paid for what you see, or where you see it.
  • Relevant. These pins should be about stuff you’re actually interested in, like a delicious recipe, or a jacket that’s your style.
  • Improved based on your feedback. Keep letting us know what you think, and we’ll keep working to make things better.”

Pinterest Ads are great news for Ecommerce

pinterest-drives-ecommercePinterest is first of all popular. Not just in the US. All over the world. Users devote time into building, curating and browsing through handpicked photos of products, dreamy locations, fashion photos and many many others. Most things people collect and see pinned onto their boards do have one thing in common – they can be bought. And boy does it show:

  1. Pinterest drives 41% of ecommerce traffic, 4% more than Facebook
  2. Pinterest users are big spenders – at $80.54 average value per referred customer, Pinterest is doing better than Facebook ($71.26) and Twitter ($70.17)

All in all – Pinterest is the biggest social player when it comes driving relevant (and by that I mean paying) traffic to online stores.Yet not all industries are equal – some will benefit more than others when using Pinterest Ads.

Which are the categories that will benefit most from Pinterest ads, in terms of ecommerce sales?

You are probably guessing the leading industry but first here are the runners-up:

3. Travel

Travel pins account for only 2.5% off all pins but don’t let that small percent fool you. Pins get shared and in an industry where everything is judged by the numbers it helps improving your margin with a little thing called emotion.

Pinterest is great at instilling positive emotions and shifting purchase options towards recommended / shared locations. While it it was hardly worth the trouble to orchestrate a social media campaign that gets some kind of traffic rolling now everything will get easier with sponsored pins.

2. Home deco / home lifestyle

Home is the most popular category on Pinterest, with 17.2% of all pins categorized as home items. Not surprisingly either: 80% of all Pinterest users are women, more inclined to look into home lifestyle items and 50% of them have kids.

With an annual household income of over $100 000 or more for 28.1 % of Pinterest users, you can be sure that this is the place where you can market home related items. Brands such as Crane & Canopy actively engage Pinterest users and draw new products inspiration from the things they see trending on the social network.

1. Fashion

The big winner is of course Fashion, for both men and women. When it comes to style, beauty and clothing, 11.7% of all pins are pinned under Fashion and those pins usually come from popular users, influencers and fashion media outlets and bloggers.

Think the previous numbers are pinteresting? Well get this – Sephora’s Pinterest users spend 15 times more than their Facebook counterparts.

Sephora’s Julie Bernstein is unforgiving when it comes to Pinterest vs Facebook:

“The reality is that when you’re in the Pinterest mindset, you’re actually interested in acquiring items, which is not what people go to Facebook for,” Bornstein said. “Facebook continues to be just a great customer interaction tool that gives us the real-time ability to dialog with our customer; it’s a big customer-service venue for us.”

There’s no denying that Pinterest is here to stay when it comes to online retail. It probably helps to be pinning even if you’re not dealing into Fashion, Home or Travel as pinners are buyers. But if you are selling these products  then Pinterest Ads, a great addition to your Pinterest marketing policy, will probably bring a great deal of new customers to your business.

(II) Ogilvy to Zuckerberg: How did Amazon, Apple, Facebook and Google change consumer research and targeting ?

In my last post I talked about the shift in consumer targeting that happened once the Internet went mainstream. Several highlights were the short history in consumer targeting, information regarding Amazon’s personalized recommendations and Apple’s usage of consumer data to increase music and app sales.

Now we’ll have a look at how two of the largest and fastest growing technology companies use consumer data and behavior to deliver ads. As Facebook and Google’s business model heavily relies on advertising they have to make sure ads are delivered efficiently to increase revenue.

However, trying to increase ads relevance and user experience can sometimes lead to unexpected (?) outcomes. Both companies had had their fair share of legal troubles regarding users privacy. For example last year Facebook user tracking practices lead to a request by US congressmen for the Federal Trade Commission to investigate the company. Apparently Facebook would track users web traffic even after they logged out. By linking browsing history, location and time of visit  to account information (list of friends, preferences, browser) the company could potentially extend its user profiling to some very intimate data. Apparently the issue was corrected and now Facebook stopped linking browsing data to user profiles. Even so, the anonymized data can provide the company with some very good insights.

What are Google and Facebook’s revenues?

As stated above both companies rely heavily on advertising revenue. 96% of Google’s 2011 $37.9 billion revenue came from advertising. Industries that pumped most money in Google’s Adwords program were Finance and Insurance ($4 billion), Retail ($2.8 billion), Travel and Tourism ($2.4 billion) – source.

Meanwhile Facebook reported “only” $3.1 billion in advertising revenues last year. Even though the numbers are visibly lower than Google’s, Facebook advertising revenue increased 69% and topped Yahoo in 2011.

Just to give you a perspective on how big this figures are Publicis, the largest advertising group, a 86 year old company, operating in 104 countries reported a $7.7 billion revenue in 2011.

Having established that online targeting leads to generous revenues, let’s have a look at how Facebook and Google manage to efficiently target consumers using technology:

How does Facebook target users?

facebook logoFacebook increase in popularity coined the term “social media”. This term describes web and mobile platforms where organizations or individuals communicate through different types of media (text, image, video etc.). As more and more users started using Facebook the available content increased, social links improved as users added more and more friends.

Facebook recognized the opportunity in consumer targeting using social preferences (Ex. “Your friend likes X Brand. You should too.”). Interestingly Facebook managed to give user profiles a real – life feeling by encouraging people to bring their friends along. Of course few people could recognize nicknames such as “MickeyMouse1982” so users started adding their real names, than their birthday, location etc.

Soon enough Facebook had a few hundred million demographic profiles at hand. These profiles were interconnected so influence groups could easily be determined. In a genius move Facebook introduced the “Like” button and later “Share”.

By using the “Like” button users would essentially hand over to Facebook their personal preferences.

As publishers saw that articles posted on Facebook were more likely to become viral and increase traffic they adopted the Like/Share widgets and later the Facebook Connect signup system. As these widgets could track user behavior by transferring traffic data back to Facebook the social network now knew what users were interested outside the platform.

Combining this data Facebook launched and improved in time their Facebook Ads platform. With more than 20% of all web traffic plus data on web traffic outside its social network, the company could potentially target ad delivery better than most other media companies. Let’s review what kind of data Facebook has at its disposal to target users:

  • consumer demographics: users enter their demographic information during signup or later as they use the social network
  • social networks: Facebook knows who is a friend of who, who is more likely to have his or her posts liked, shared or commented on. Basically it knows who is most likely to influence their peers actions with a granularity almost impossibly to achieve by others
  • consumer preferences: every time a user clicks a like or share button, comments, posts a status, photo or video it basically signals Facebook on some of his or her preferences regarding a wide array of things (music, products, news) that could later be used to show relevant ads.
  • web traffic: by tracking user behavior through like, share or social widgets Facebook registers data that even anonymized can show insights on a scale that no other company can

These are the most important factors in Facebook efficient ad targeting. Weather advertisers choose to use classic ads, sponsored stories or promote several posts the company takes into account this data to maximize exposure and engagement.

How do Google ads become “contextual”?

google logoProbably the most disruptive technology company in the past two decades, Google relies on user data, behavior and semantics to deliver the contextually targeted ads.

To deliver ads, Google needs data. Where does it get it from?

Where does Google get data from?

  • indexed and ranked web pages: even though the number is not really known as Google is secretive about its data centers, it’s estimated that indexed data is stored in more than 30 data-centers. These data centers hold 35 to 50 billion pages at any given time. They are ranked according to an algorithm initially designed by Larry Page and Sergey Brin and improved in time.
  • web page analytics: Google Analytics is used by more than 10 million web sites. As Google hosts data regarding traffic and user behavior on these sites it can predict user behavior and ads most relevant to potential consumers.
  • email information: even though information is anonymized Google makes good use of mails hosted on it Gmail platform. With more than 350 million users in Jan 2012 the data flow through Google’s emailing platform is astonishing.
  • searches: Google responds to almost 3 billion searches every day. By analyzing searches and user paths Google can determine what are the most popular search results and how can this information be used to optimize ad targeting and delivery.
  • Google+ is the company’s response to Facebook’s rise in popularity. It already has more than 170 million registered users (mostly active). Having answered the need for information in social networking targeting Google further improved its advertising targeting capabilities.
  • Android is Google’s mobile operating system. Though buggy at start, Android is now on its way to world domination in terms of mobile operating system.

Basically Google knows a lot about a lot of potential consumers and uses these data to increase efficiency in ad targeting.

Having a look at how the likes of Amazon, Apple, Facebook and Google use research and targeting , we can surely say that conventional (old ?) knowledge on the matter is becoming increasingly obsolete. As technology replaces human input research and targeting becomes real-time.

Unfortunately some privacy issues arise when people become “users” or “consumers”. On this matter – soon.

From Ogilvy to Zuckerberg: How did Amazon, Apple, Facebook and Google change consumer research and targeting ?

Conventional (TV, print, radio) advertising often relies on research and targeting methods such as focus groups or demographic targeting to increase brand awareness and sales. These methods seem to be more and more outdated as targeting technology is already delivering better results.

A (very) short history of advertising research and targeting

In the past, as media was unidirectional (broadcaster to consumer), there were few ways retailers could efficiently target potential consumers. Advertisers would use consumer profiles and split purchasing options through demographic indicators (age group, location, education, sex etc.). By using statistic results they could outline marketing opportunities for certain demographic groups (Ex. “Women between 25 to 35 years, urban, having higher education are more likely to buy Product X”).

Having (theoretically) discovered a potential consumer profile they would then buy media in newspapers, radios or TV stations that would best appeal to that certain demographic group.

David Ogilvy
David Ogilvy

Of course this is just a skeletal description of the whole targeting process but it explains the process pretty well. Many companies have benefited greatly from this targeting and advertising system. Most of the brands we now know and buy were built this way. Even now, decades after the likes of David Ogilvy were setting up the rules on research-based advertising, the system is virtually unchanged.

“I notice increasing reluctance on the part of marketing executives to use judgment; they are coming to rely too much on research, and they use it as a drunkard uses a lamp post for support, rather than for illumination.” – David Ogilvy

How did the Internet change research and targeting?

Few could have predicted the impact Internet was to have on commerce and economy. Even less would have guessed how this initially “exotic” media would impact research and targeting.

20 years ago there was no marketing concept that could explain AdWords targeting and not be considered science-fiction.

Internet targeting and advertising renders most of conventional knowledge on research obsolete as technology has achieved what was once impossible. 30% of all human population is now in reach of all advertisers and they can now target more than just demographics.

Behavioral marketing is a concept that could not be possibly be achieved with conventional media. Using consumer behavior rather than demographics advertisers can target real time preferences and individuals rather than demographic groups. Say a user is known to have previously visited a car dealership website. He then browses websites in search of reviews on different car models. The car dealership could potentially target this exact user and serve him the most informative ads. Advertising ROI is sure to increase this way.

Some companies have become increasingly good at Internet research and targeting. One of them is now the most valuable company in the world in terms of market capitalization. Let’s have a look at how Apple, Amazon, Facebook and Google use large data to target and monetize consumer traffic.

How did Amazon, Apple, Facebook and Google changed consumer targeting ?

Amazon personalized recommendations

amazon logoAmazon is well known for its personalized products recommendations. How can it do this? Short answer: large data on consumer purchases and mathematics. Longer answer: Amazon holds a patent on its product recommendations which you can have a look at here (issued in sept. 2006). Although rather technical it focuses on certain key elements:

  • user profiling: Amazon holds valuable data on user demographics and previous purchases. Using this data it can map users in specific consumer groups. User profiling combines shopping cart contents, item ratings and recent purchases as purchase intents seem to change in time.
  • similar products information: say you bought three SF books. Similar products would be other books in that category. Some of these books would be more popular in terms of item ratings, reviews, views and purchases.
  • item affinity is the probability of some products to be purchased together. Say you are buying a Kindle on Amazon. You are very likely to buy a cover or case to protect your device. That means these products have a high affinity index
  • driver items are those products that are most likely to drive traffic to store. Again – the Kindle, Amazon’s best seller is not only a driver item but also a platform that insures further product purchases.
  • user path: the consumer will follow a certain path until it ads a product to the shopping cart or confirms a purchase. These paths are very important as they can be used to “guide” consumers to products they are most likely to purchase.

Using these information (and probably more) Amazon can first map users in consumer groups (1), extract popular, affinity and driver products (2), compile most profitable user paths based on previous history and other users actions (3) and than recommend the items most likely to increase basket size.

Recently Amazon announced the launch of its Kindle Fire product. This product is built on a Android platform and uses a proprietary web browser called Silk. The browser optimizes web traffic by routing it through Amazon’s servers. As Amazon already holds information on user profiles (users will have to login to synchronize their book collection) and now data on web traffic it can further improve its recommendations.

Apple Genius recommendations

apple logoAlthough Apple does not explicitly state it monitors iOS user actions it doesn’t deny it either. If it does, however, it might access a huge pool on users data such as web traffic, mobile purchases, locations, call history, social networking information (through access to contacts information, call history, SMS and iMessage history etc.). Basically everything there is to know on its customers profile.

For now the most visible way Apple uses data to increase sales is iTunes Genius, the music and video recommendation system. iTunes Genius uses purchase history and iPod activity to recommend potentially interesting songs, albums or videos.

Although iTunes Genius probably uses a system similar to Amazon’s it is not yet known to be as accurate. The performance issues are probably connected to the number in customers and items on sale. Amazon has a wider products inventory and a larger pool of potential customers. This leads to a larger database and increased accuracy.

Technology based companies have changed the way we think of consumer targeting and advertising. Innovation lead to profits and behavioral targeting will probably develop in the future. Tomorrow we’ll have a look at how two of the largest advertising – revenue based companies, Facebook and Google, use large data to improve consumer targeting. Stay tuned.

What is Shopkick?

Physical stores have a greater conversion rate than online stores. Conversion rate for in-store traffic is 20% in fashion, 50% in electronics and 95% in groceries. Physical stores are therefore superior to online stores in terms of conversion rates where a 5% conversion rate is considered very good. Even though classic retailers benefit from a high conversion rate the traffic is way lower than online.

Shopkick gets traffic to brick-and mortar stores

Shopkick is a company based on a mobile product that works on iOS and Android mobile devices. It uses different in-store incentives (discounts, freebies) to reward potential consumers that choose to check in using the app in the partner stores.

The check-in, incentive redeem technology is quite impressive. It does not use, as one might expect, GPS features as these are not accurate enough. Founder Cyriac Roeding, explains just how accurate GPS on smartphones is: “It is so inaccurate that you could check into a Starbucks two blocks away”.

Instead Shopkick uses sounds inaudible to the human ear to check you into stores. The technology is patented worldwide and Shopkick founder says they are doing great with over 7000 large retail stores.

What is Shopkick after all?

Simply put Shopkick is a mobile based company. But if we think about it – Shopkick is much more than that. It is the bridge between online and offline retail. Its incentives increase real traffic in stores, increase revenue and all with a simple mobile solution.

Shopkick is doing way better than Foursquare in terms of growth acceleration and revenue per user. After all it has real, tangible discounts. While Foursquare offers you electronic badges and peer recognition (“Look buddy, I am the mayor of this place”) Shopkick’s incentives engage users and marketers even more. The numbers are clear on this: with 3 million  monetize – able users Shopkick is here to stay.

Behavioral Economics and Social Media

Humans are not usually rational. The neoclassical economists were wrong. We don’t make the best economic choices given more information. We do not plan for the future. We care about what others think of us. We act on impulse. All these things are the basis for Behavioral Economics Theory.

This (rather) new economics theory has caught momentum and is now one of the hottest topics in theoretical economics. Well… as hot as an economics theory can be. It blends psychology and neoclassical economics (the thing we generally call economics) to help explain why we act the way we act and to help policy makers increase the likelihood of better economic decisions.

There are many variables and a lot of information on the subject but for a better understanding we can look at some principles outlined by The New Economics Foundation:

  1. Other people’s opinion matters: we take great interest in what others think or do. We don’t usually get informed on economic topics. We usually copy behavior and decisions. Why? First of all we are a social species. We want to be socially acceptable and we can do that easiest by mimicking. It’s also easier.
  2. We are creatures of habit: even if what we do is economically wrong we will continue doing it out of convenience or because we have a habit that forces us to do what we do.
  3. We want to do the right thing: we have an innate sense of justice that leads our behavior. Most of us pay our fines not because we might go to jail but because “it’s the right thing to do”. We help others because it makes us feel good, not because there is any financial incentive in it. Actually such incentives may actually be counter-productive as they take out the primarily motivation – doing the right thing.
  4. We act according to our self image: we care about our commitments and we like to stand up for what we believe in. We see ourselves in a certain way – that leads us to certain kind of behavior in order to avoid cognitive dissonance.
  5. We are more loss averse than gain interested: we hang on to what we believe is ours. We treasure our possessions more than we value what we could potentially gain.
  6. We are not very good with data: we don’t really understand numbers, we’re bad at calculating probabilities and we take decisions based on how information is presented to us.
  7. We need to feel empowered to take action: too much information can lead to the inability to act. Too many options make us feel helpless. People need to have a clear understanding on how their actions affect the world around them to fully commit to any activity.

Behavioral economics in social media

Feelings, sharing, likes, friends, fans are not words we usually hear in business economics. We do hear them pretty often these days in social media. Business are starting to understand the importance of customers behaving socially. Social behavior is what drives companies to success or into the ground. There are no formulas in financial economics that can describe the feelings people have toward one company or another.

Classic economic behavior can be described in numbers on a spreadsheet but is not the way real people act. It is a flawed economic model in an economy that results in debt and frustration. The first result can be seen in the financial models we’re currently looking at. The second one cannot.

There is a growing media that helps express and amplify the principles of behavioral economics. That is the Social Media. With the growth of such social networking companies such as Facebook or Twitter, people started acting more and more connected. We now have an way of observing behavior with the help of social media. As it turns out all the principles of behavioral economics can be seen in social media. Let’s have a look at them:

Behavioral economics principles at work in Social Media

  1. Other people’s opinion matters: we care what our (Facebook) friends think of us. That’s why we share interesting quotes, we “like” only certain brands and we are very careful before posting something online.
  2. We are creatures of habit: first of all have a look at your behavior today. You have probably checked your Facebook timeline or Twitter profile at least once today. Why? Because you are accustomed to Facebook. You can’t give up checking the news, the photos your friends posted or the new products your favorite brand advertised on Facebook. Increase in mobile internet popularity is only enhancing this behavior.
  3. We want to do the right thing: people are sharing more and more social causes through social media. With over almost 1 bn users, Facebook acts as a catalyst for social causes. Social causes spread fast and users are very likely to share social messages. But that’s not all. Individuals as well as organizations now know that anything wrong-doing can have a long term negative impact on their life. Here is a video of a police officer pepper spraying demonstrators that quickly lead to a large negative social media response. If you were to search Google for the phrase “Sgt. Pepper Spray” you will find no less than 213 000 pages that frown upon his behavior. Eventually his email address and home address leaked to the internet. You can imagine the outcome.
  4. We act according to our self image: People have a certain self image that translates into social media behavior. For example: Barack Obama’s “Hope” presidential campaign was not really about the soon to be president. It was about the people that he represented. People found in the campaign a positive message for change. They’ve seen that the presidential candidate expressed a need for better people to run the country. People such as themselves. A lot of Obama’s success story happened on the internet where people expressed their views on “Change”. The messages they’ve spread were positive expressions of self image. People were not “like”-ing Barack Obama. They were “like”-ing themselves and the way they wanted their friends to see them.
  5. We are more loss averse than gain interested: Think about how often you see messages like “don’t lose the opportunity”. Why? Because they work. Groupon cashed in on the feeling people have regarding limited time discounts. So did Woot. Using loss-aversion works really well in online retail.
  6. We are not very good with data: If neoclassic economics theory would be true and if we really were rational beings, Groupon would never had caught on. Buying a discounted sky dive or a night lamp when we have ten already does not make sense economically. However, people did buy those things. Why? Because social media goes hand in hand with presentation bias. Suppose we see a 70% discounted offer on blue handkerchiefs that were already bought by 300 people. We think – “oh my, I must buy that handkerchief now or they will go out of stock. Look – 300 people already bought it”. The information has been framed (70%) and enhanced by other people’s behavior. We do not think whether we need the handkerchief or not, whether it is an economically safe behavior. We see the deep discounted price, we see that other have already bought this (see point number 1.) and we “need” to buy the handkerchief. Now.
  7. We need to feel empowered to take action: there are millions of products on Amazon. Billions of web pages indexed by Google. If we were to browse rather than search we would probably get frustrated and quit. However – we still use Amazon and we still use Google. Why? Because of targeting. Both companies dig through millions of terabytes regarding other people’s behavior to serve us the products and results we are most likely to buy or open. That makes our choices easier and we feel empowered to act.

I believe behavioral economics are here to stay. The kind of human behavior they explain has always been here. Social media is just acting as a catalyst to this kind of behavior. If we are to look deeper into behavior economics we need to use social media data to better understand the way we act and how can we get to economic results. The internet economy is growing at a faster rate than any other sector because successful online entrepreneurs already know the seven principles outlined here even if they’ve never heard of behavioral economics.

UK – the heaviest Internet Economy in the world

Internet has changed many aspects of our lives and will continue to do so. As people shift their attention more and more toward the internet so does the economy.

UK leads the way towards this new economy with a £82bn ($128 billion) internet economy. About 16% of this ecosystem is accounted for by mobile connections. The overall traffic is expected to increase each year between 2010 and 2015 by 37%. What does that mean? Having an ever increasing interest for mobile connections and ecommerce we might see three trends in the future:

  1. Mobile networks will need better infrastructure to handle the growing traffic.
  2. Mobile internet will increase in popularity which leads us to…
  3. Mobile commerce will set new challenges to retailers as consumers get more informed, faster deliveries and better deals

Data regarding these numbers has been put together on a study commissioned by Vodafone UK to ATKerney. You can find the study here.

It’s interesting to see that the internet economy reacts to people needs and wants as is stated in the graph bellow:

 

As you can see the internet is expected to be the most commonly used media in Europe by 2013, with 50% of all media consumption.

The other media (radio, print, TV) is expected to continue to decrease in the following years.

With smartphone usage doubled between 2008 and 2010 it is expected that smartphone terminals will be a major player in the internet economy ecosystem. Data is already used more often than voice. Mobile operators will adjust their market accordingly and that will increase the internet consumption even more.

Online retail (both web and mobile) accounts for roughly £45bn ($70bn) – approximately 6% of GDP, leading the UK to the 1st place in G20 countries as internet economy share of GDP.