Pinterest raised $100 million in additional capital today at a $1.5 billion valuation for the company, prompting Kevin Roose to remark that “Whether Pinterest can generate revenue remains to be seen.”
This relates to one of the points I make in my piece about Facebook and the decline of the IPO. One of the things big tech companies—Facebook, Apple, Google, Microsoft, Amazon—do is they invest resources (money, people’s time) in developing new features to add to their existing ecosystems. One way of investing resources to add features is to simply buy companies. And in many cases—of which Pinterest is possibly one—you have more value selling out to become a component of a larger ecosystem than you do trying to become a profitable standalone firm. Pinterest has some ideas and technology that obviously people like to use, that’s something that’s of value to plenty of existing companies that do have revenue. Obviously that kind of acquisition model can go awry. Yahoo’s acquisition of Flickr is an excellent example. But it can also work out well. By all accounts Apple will be rolling out new maps applications that aren’t powered by Google Maps in the very near future. Those apps will be built on a backbone of acquisitions the company made of small mapping firms. To look at those firms in their pre-acquisition days and ask if they could generate revenue would be the wrong way to look at it.