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The Financial Times reported on Wednesday that Microsoft has had discussions in recent months to acquire Pinterest. The talks, which are “currently inactive,” could have led to Microsoft’s largest acquisition to date, given that Pinterest is valued at over $ 51 billion.
There’s a good reason Microsoft would be considering a social network like Pinterest for its biggest purchase yet.
Some have suggested that Microsoft has considered purchasing high-profile online communities such as Pinterest and TikTok to attract customers to its Azure cloud platform. Pinterest uses the market leader Amazon Web Services as its cloud provider. Microsoft Azure follows AWS and Google Cloud is third.
I don’t buy that is the main reason Microsoft is interested. The switch from Pinterest from AWS to Azure would be the icing on the cake – it’s not the only reason to spend more than a quarter of Microsoft’s revenue on an acquisition. The reason also isn’t to strengthen Microsoft’s position in the digital advertising market, although that can’t hurt.
Just like in the case of TikTok, the cake here is the data.
Microsoft is a software company transforming into a cloud company in the hopes of becoming an AI company. To achieve this, it needs even more data.
Pinterest is a social network whose users upload a lot of data in the form of images with descriptive hashtags. In other words, not only Pinterest is full of data uploaded by users, but tagged data as well.
Microsoft would feed all of this tagged data to form machine learning models that help its AI systems improve. Of course, Microsoft already owns LinkedIn, but that social network is more for “professionals” than consumers, and it’s largely text rather than images. Pinterest offers a whole different set of data.
And it grows. In its fourth quarter 2020 earnings report, Pinterest last week said revenue of $ 706 million (up 76%) and 459 million monthly active users (up 37%) . In its fourth quarter letter to shareholders, Pinterest said product improvements had resulted in product search growth only “20 times since the start of 2020.”
Microsoft could use Pinterest data in a number of ways, especially to better understand consumers – a weakness for the software giant. He could then use that information to create superior products and services beyond Pinterest. Lessons learned from Pinterest’s data could shed light on everything from its Edge browser to its Surface products.
But more importantly, Microsoft would likely use Pinterest as a testing ground for mainstream AI services. Already, Pinterest considers itself “at its heart, a data and AI company,” according to CTO Vanja Josifovski. It leverages deep learning for personalization features that suggest diet-based or home decorating recipes for the user’s specific tastes. Microsoft would gain all of these understandings to use beyond Pinterest.
In the near future, however, a deal is unlikely. Pinterest’s stock is reaching all-time highs, in large part thanks to its windfall profits and now the report of acquisition negotiations. If Microsoft decides to start over, it won’t be anytime soon.
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