Friday, June 22, 2012

How Yellow Journalism In Tech Publications Is Benefitting Pinterest.

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The Basics: Pinterest is being inflated as the new darling social site on the internet when its long-term prospects are virtually nonexistent.

[Note: In my day job, I am a blogged for a computer repair company. Before you think that’s awfully cool, it is worth noting that armed with my B.A. in English – Creative Writing, I make less money per hour than local Burger King workers who attended a local cooking program and received a certificate of participation! It’s a tough life and anyone who reads this and wants to offer me a better-paying writing gig with reliable income, I can be easily bought!

Anyway, as a blogger for a computer repair company’s website, I often find my talents tragically misused. Many times, I have ideas for great, powerful articles that the CEO of the company is not too keen on. Every now and then, I write one that I think will pass muster because it makes a compelling argument, but does not. Under those circumstances, I cannot legally utilize the fresh, innovative material I have written because it is company property. I absolutely understand that; I was paid for a service/product and if they do not choose to use it, I get paid the same regardless, it’s their property.

Earlier this week, I wrote an article like that and, in the process of fighting to try to get that article published, I realized there was potential for another article, one that proved my points even better. The article that will never see the light of day is one on why Facebook has a better long-term viability than Pinterest. It was an eloquent article and much of it hinged on a few choice statistics from Monetate, reported in an article from AllThingsD.

In the course of fighting with my CEO at my day job for the article, I realized that much of his stance was based in part on the hype surrounding Pinterest. In other words, aspects that are not, objectively, a big deal that have been painted by business and tech sector news sources as significant have been treated like gospel. No doubt, my boss is not the only one so duped. And thus, this article. If there is any ineloquence, please note that I used some great lines in the piece that inspired this that I cannot, for legal reasons, repeat in this one. Enjoy! - W.L. Swarts

The internet is home to many fads and fads have a way of rising and falling, sparking up and burning out. Almost without exception, fads are bolstered by media attention that helps reinforce the popularity of the trend and, if it is a significant-enough one, mark when the trend is dead. The thing is, where the tech sector is concerned, these trends are reinforced by bloggers, web-based magazines, business publications and traditional news sources as well. Because so much money is usually involved in companies that are fashionable on the internet, more often than not, the enthusiasm for the next significant trend is not vetted with the same discriminating quality that other news stories would be.

The media has, too often, had a free ride on this sort of thing. Individual investors, for example, utilize articles that declare the significance of the current trend or company as a way to guide how they invest their hard-earned dollars. The sensationalism and lack of careful judgment pertaining to many of these articles is more akin to yellow journalism – one of the most recent, best examples, of which found the U.S. embroiled in a war with no exit strategy – than legitimate news reporting.

Pinterest is currently the beneficiary of similar, lackadaisical reporting standards.

Pinterest has received an incredible amount of media attention over the course of the past year. In fact, it is hard to find a tech publication that not only mentions Pinterest, but does not sing its praises. The question is, is that praise really justified? I argue it is not. Why? Pinterest is a “social referring site,” a new category of social site that is not so much about interacting as it is telling everyone you know, “Hey! Look!” In fact, the weakness of the site is that it’s all about “Look! Look! Look!” like an annoying kid being brought to the mall for the first time. Pinterest does not offer any real product or service; it is a platform where users tell anyone who will look just what they found that they think is neat. And now, if you clickthrough those items, Pinterest takes a cut of any sale that is made. It’s all about referrals.

All that press has led to Pinterest being funded by investors to the tune of $100,000,000 in the last round of financing. Part of that investment came, no doubt, because Pinterest has been the darling of tech publications for almost a year now. That inflated status culminated in a report from Monetate that makes Pinterest, a middleman site whose revenues will ultimately be based upon converting “referrals” to “sales” on other sites, look like an incredible find.

The problem is, the most significant numbers in the report make Pinterest appear to be a success that, when placed in a measured, objective, context, it is not.

The statistic that is being most grossly misused, or presented without proper context, is that Pinterest’s referral traffic grew 2535% from the second Quarter of 2011 to the second Quarter of 2012. That seems like a huge number and it is a really big increase.

Here is why it is an utterly irrelevant measurement.

First and foremost, this percentage of growth is a measure of volume. Referrals are essentially clickthrough traffic and, it is essential to note, not page view or visitors or even registered users, this is simply a measure of clicks that took users from Pinterest to a site where the product or service is actually offered for sale. Basically, it means that for every 1 referral the site got in the second Quarter of 2011, the site had 2535 in the second Quarter of 2012. That still sounds pretty good, right? The problem is, a measure of volume increase has to have some context. If I were to tell you that I sold a sandwich (I am picking a purposely mundane item, because I find referrals similarly mundane), the feat is unlikely to impress you. However, the level of significance can be altered by providing more information. “I sold a sandwich to the very first person I spoke to” is vastly more impressive than “I sold a sandwich to one person at a sandwich convention after spending five days bugging one thousand people to buy the sandwich.” Without that added information, without the context, the sale itself is virtually meaningless.

At the time of the first measure, the second Quarter of 2011, Pinterest was still a comparatively small site. It was building up from having only 10,000 registered users and was still being run out of an apartment ! It was, a tiny start-up that was still in the process of starting up. And it did. Pinterest should be acknowledged for crossing the 10,000,000 registered users mark faster than any company on the internet, which it did in January of 2012. Now with over 11.7 million users, Pinterest is up and running. But the growth in volume is being compared to when it was very, very small. When there are 10,000 - 100,000 people generating one click and it is being compared to the 2535 clicks that 11,700,000 people are generating, it is hardly impressive. 2535% growth when your population increases 1170% (as Pinterest’s userbase did from the first Quarter 2011 to the second Quarter 2012) is basically a statistical adjustment. This is what happens when you add more people; there are more people to click. It’s not a proportion, it is a measure of volume.

In trying to sway others to my point of view on this, I like to use my Chilled Monkey Brains Analogy. If you are a waiter or waitress at a party with 10,000 guests, you could probably get one of them to try chilled monkey brains. Someone at that party will try it. If you cater a party with 11,700,000 people, you could reasonably get 2535 people to try chilled monkey brains. But, to say that chilled monkey brains are exploding in popularity because of the 2535% growth in consumption of chilled monkey brains is not at all accurate. The sample size was radically increased, which led to the radical increase in the volume of consumption.

The truly telling statistic for Pinterest is the growth in conversion rate. The conversion rate is the percentage of people who not only clickthrough, but once they click on a product, they actually buy it. In the second Quarter of 2011, the conversion rate for Pinterest was .29%. Monetate’s report puts the conversion rate for Pinterest near the end of the second Quarter of 2012 at .43%. The growth of 33% on the one thing that will make investors back their money came when Pinterest had a membership boom of 1170%. And still, the tech media hails Pinterest as a big deal.

One of my favorite moments in television history came from the show Once And Again. In the third season of the show, there is an episode where Grace Manning, a high school student, is complaining about her grade on an English assignment and for comparison, she complains about how a far worse writer received an “A” for a piece she wrote about how her grandmother died. Grace complains that it’s a ridiculous piece of writing, that grandmothers die, that’s what they do! internet start-ups explode. They go from having no product or service or way to monetize to suddenly having one (or all three). To compare the numbers from when the site is in a nascent stage to when it is bombarded by attention and visitors is ridiculous. There will be an explosion; it’s what internet start-ups do.

Pinterest is benefitting from the press not putting its early milestones in context and at some point, when Pinterest’s bubble pops, a lot of investors are going to wake up to realize they were holding onto stock in an idea that had no practical way to grow without losing that which made it different from the other websites that came before it. Until the second Quarter of 2013, when Pinterest’s traffic, referrals and conversion rates can be compared between more easily referenced growth patterns, the story of Pinterest is a pathetically old one: Pinterest’s numbers are spiking.

Given that a year ago, so little of the general populace had even heard of Pinterest, there is only one appropriate response to the reports of increases in traffic, users, and referral volume: of course the numbers are up. Duh.

© 2012 W.L. Swarts. May not be reprinted without permission.
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