Another New Social Network Revenue Model" Affiliate Fees

Pinterest, the social networking site, has the typical problem any software or application provider often has: no immediate revenue model.

Traffic to the Pinterest website has grown by a factor of 10 over the past six months.  In January 2012, the number of visitors on Pinterest.com was almost a third of that on Twitter.com. That’s a lot of users.

"Pinterest's monetization strategy isn't in the oven and it's not even off the baking table," says Jeremy Levine, a board member of Pinterest and a venture capitalist at Bessemer Venture Partners. "We have one hundred ideas but no execution as of yet."

But Josh Davis  says that isn’t quite true. Highly unusually for a start-up social network, Pinterest does seem to have an existing revenue stream that is different from all the other monetization schemes other major social networks have developed.

Twitter has “promoted tweets.” Facebook has display ads. LinkedIn had the same “no revenue” problem years ago, but now makes money from subscriptions, advertising sales, and hiring solutions.

LinkedIn gets  25 percent of its revenue from premium subscriptions; 33 percent from text and display advertising and 42 percent from LinkedIn Jobs, a job-matching or automated headhunting service.

Pinterest apparently already has develooped an affiliate revenue stream. If you post a pin to Pinterest, and it links to an e-commerce site that happens to have an affiliate program, Pinterest modifies the link to add their own affiliate tracking code.

If a user clicks through the picture from Pinterest and makes a purchase, Pinterest gets paid. So add “affiliate links” to the list of possible revenue models for a “free to use” social network.

Pinterest apparently is using a service called SkimLinks. SkimLinks' software looks at links users post to websites, determines if there is an affiliate program to which they can be linked, and appends a code that ensures Pinterest gets credit for (and data from) the referral.

That is highly unusual for a young social network. But it tends to validate the notion that users are the “product” that underlies all social network revenue models, at the end of the day.

Some would argue that Pinterest already is driving truly massive traffic to retail sites, by some accounts more than YouTube, LinkedIn, and Google+ combined, and the affiliate links model should be meaningful.

Commissions on sales for affiliate links vary widely, but they average around five percent. After SkimLinks gets paid, Pinterest might be looking at 3.75 percent net revenue. That will not be enough, by itself, to keep Pinterest in business over the long term. But it is more revenue than virtually all the other big social networks had when they started.