Should Shopify and Amazon Worry About Pinterest’s New CEO?

Important Implications

  • It brought in a new CEO, Bill Ready, with an impressive track record in e-commerce and payment processing like Pinterest, PayPal, and Google.
  • This appointment is expected to mean Pinterest is making some waves in the e-commerce market, monetizing its more than 400 million monthly users.
  • Existing online retailers such as Amazon and Shopify stores will likely not be adversely affected by Pinterest’s move, but individual creators on the platform may see their earning potential diminish.

Pinterest wants to be on the e-commerce pie. At least, that’s the takeaway from the company’s appointment of Bill Ready as CEO and his post announcing the new role at LinkedIn. He will replace Ben Silbermann, who has been co-founder and CEO for over 10 years, and transitions to a smoother role as executive chairman.

If Pinterest wants to take a step forward in the highly competitive e-commerce space, Bill Ready is the person in charge. Over the past decade, he has led big names in the world of payments and e-commerce, including as director of operations at PayPal and President of Commerce and Payments at Google. So yes, he knows what he’s doing.

Ready announced his appointment on LinkedIn and featured a line that was buzzing the e-commerce world: “In the next phase of our journey, we will help people engage more deeply with all the inspiring products and services they find on our platform.”

Given its history, it’s clear that ‘engaging more deeply’ means buying something. So what does this mean for more established e-commerce companies? Shopify is one example that has made headlines recently, for both its share spread and its lackluster Q1 earnings results. Is Pinterest more of a threat to their business or will it serve as a more direct route from social media to retail?

e-Commerce Landscape

It’s no surprise that online spending is demanding a more significant share of the total retail dollar. The trend has favored online retail over traditional retail for years, but the pandemic has pushed that into overdrive.

Being stuck at home and not being able to go to the shops has forced many previous in-person purchases to be made online. Consumers tried out new stores, ordered larger items they wouldn’t have thought of ordering online before, and had more time to advertise products on their devices.

Despite the huge Jeff Bezos-sized file in the room, the US e-commerce market is pretty fragmented outside of Amazon. Shopify stores come second on the list with a share of 10.30%. Other big names in the top ten include Walmart, eBay, Target and Best Buy.

Unlike Amazon, Shopify does not sell products in its own store. If you are not familiar with the company, they offer a website builder, which allows entrepreneurs to set up an online store. They can do this without needing to code, learn web design, or integrate payment processing themselves.

The stores on the Shopify platform are super-extensive with everything from t-shirts to pet food to specialty bobbleheads through different websites built in Shopify.

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What is Pinterest’s e-commerce game?

We don’t know yet, but right now the most obvious path for Pinterest seems to be to become a big store, similar to how affiliate marketing works. Affiliate marketing has been around for a long time and operates behind the scenes in almost every online industry.

An affiliate link is when a website, influencer, or someone else takes an outage to refer customers to a business. So when reading a review of the latest Macbook on a website like Gizmodo, they will have links to buy one. If you buy one after clicking the link, Apple will give Gizmodo a discount.

This is probably the best way for Pinterest to monetize their large traffic levels. Pinterest works because people love to share great products and tricks they find online. Whether you’re into gardening, barbecuing, soccer or kittens, you can find excellent items and guides on the web that users ‘pin’.

Currently, users of the platform will be sent to an external website where they can purchase products or services from Pinterest. These are usually affiliate links, but the individual creator gets the affiliate commission, not Pinterest.

And that means a lot of commissions coming out the door each month. Currently, Pinterest’s platform has more than 430 million monthly active users, making it the 14th largest social network in the world.

Potentially, it’s no different as we’ve seen Instagram aggressively enforce its in-app retail stores. Brands have been using paid and social ads on Instagram for a long time. But before the in-app shopping feature, businesses were running ads to lure customers from Instagram to retail websites. Not anymore.

You can now shop within the app, buy a new t-shirt or custom sneakers, and then get back to pictures of your cousin’s new dog. Instagram has gone from being a place to discover new brands to a place to shop directly from new brands.

Pinterest could do the same. With so many users dedicated to their favorite niche, customers are there and ready to buy. An emerging analogy is that Pinterest could be like an online mall that provides a place to browse, socialize, share and shop between common interests and hobbies.

Should Shopify and Amazon be worried?

Probably not. If Bill Ready’s plans look like the ones we’ve outlined above, this has the potential to drive more business to Shopify, Amazon, and thousands of other online retailers. Pinterest users will pin items for sale in Shopify stores and Amazon, which can help eliminate friction between users who want to buy items they find.

The final company selling the product won’t change, but they will likely have to pay some of their sales to Pinterest. Such commissions are common in online retail, so who loses?

It can be a Pinterest creator. While Pinterest provides a space for creators and influencers, it lags far behind other platforms like Instagram, YouTube, and even Twitter. Despite this, many people are making big money on the platform.

Affiliate marketing is a major source of this as it automatically pays the creator a commission when an item is purchased, with items added to the platform with a built-in affiliate link. There’s no way of knowing for sure right now, but if Pinterest focuses on monetization, this will likely be an area to come under pressure.

While e-commerce retailers will have no problem paying a commission on a sale, it’s unlikely they’ll be prepared to pay commissions to both Pinterest and the individual creator. These businesses often operate on relatively low margins and will not want to support it if the overall disruption is too large.

This does not mean that we should expect a smooth course for every e-commerce company. Shopify recently completed a 10-to-1 share split, but this year the price took a hard hit, dropping over 70%. Revenue and profit figures fell short of expectations, and despite the growth of e-commerce, there are concerns that this will slow as the pandemic moves away from living and working patterns.

Even the Amazon giant has faltered this year, with the stock dropping over 35%. A leaked memo also surfaced last week suggesting that new workers may run out for their warehouses as early as 2024.

As a result, we’re still not sure what normalcy looks like in the retail space, and it will likely take some time before we understand how the pandemic is impacting the long-term habits of shoppers.

E-commerce for investors

Online retailers have banked throughout the pandemic, but in 2022 it was a bit of a reality check. Stock prices have dropped and analysts are worried about what the future holds for them in an online-only world.

It has been a broad theme for technology in general. NASDAQ has been fragmented, including companies like Apple, Microsoft, and Meta, in addition to Shopify and Amazon. We think this is going a little too far, and big tech is starting to seem like a reasonable value.

That’s why we created the Tech Rally Kit. We designed the kit to take advantage of what we think is mispricing between the tech industry and large, traditional companies. We take a long position in the tech sector to make the trade work and a short position against the Dow 30 to hedge market risk.

Our AI rebalances this each week to find the optimal mix for trading. This type of trading is usually only for high-flying investment bank clients, but we offer it to everyone.

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