Paypal and Pinterest: Payterest? PinPal?
You may have heard that PayPal recently sought to acquire Pinterest. You may have also heard that the proposed deal fell apart just as quickly as the rumour surfaced.
Didn’t have time to process the strange ordeal? Don’t worry! Here’s our breakdown of the acquisition, what went wrong, and why this deal shouldn’t come as a surprise.
Let’s talk social commerce.
Social Commerce: The use of social media platforms and websites (e.g. Facebook, Instagram, Pinterest) to promote commercial products and services for consumers to buy.
What was PayPal thinking?!:
The reaction to one of the biggest fintech companies (a business that uses technology to enhance or automate financial services and processes) in the world pursuing a social media platform was a mix of confusion and apprehension – and understandably so.
What would PayPal have to gain from acquiring Pinterest for $45 billion, potentially making it the biggest deal in the company’s history…not to mention in the last decade of social commerce? Well, quite a lot, it turns out. This deal would have paved the next step in PayPal’s bold mission to create a financial ‘super-app’. The company’s chief executive, Dan Schulman, envisions PayPal becoming a one-stop shop where consumers can browse and make purchases, all in one space.
In other words, PayPal wants a taste of the growing industry of social commerce. With a predicted US market worth $36.62 billion in 2021, almost every company is turning to social media platforms to get a piece of the pie. And whilst this prediction may be impressive, China currently boasts an estimated $351.65 billion social commerce sales this year, with WeChat being the prime example of a perfect social commerce platform, allowing transactions and communication to all happen in one place. In the West, the likes of Facebook and Instagram probably grimace at these statistics – they might be ahead of the game, but no one has emerged a clear winner yet. First place in the social commerce industry in the West is still up for grabs.
OK, but why Pinterest?
With everyone racing to jump on the social commerce trend, Pinterest could actually be the missing piece to PayPal’s puzzle. Having recently introduced ‘buyable pins’ onto its platform, which allow consumers to purchase products shown in images with a simple click of a button, Pinterest provides a unique user experience that other platforms don’t.
How so? Pinterest users hop onto the platform to get furniture inspiration for their new apartment. Instagram users log on to watch reels of fluffy dogs. A significant amount, if not all of Pinterest’s content comprises of products and tangible items. It’s already perfectly designed for integration into the world of social commerce. With a few refinements to the tools that allow the purchasing of products, Pinterest has the potential to become a serious competitor to the likes of Instagram Shop and Facebook Marketplace as the go-to social commerce hub.
Some of you may be thinking, what would it matter how much potential Pinterest holds in its design if the company doesn’t have the as much influence as its social commerce competitors already have? A prediction such as this one begs a few important questions:
- How might this happen given that Pinterest does not have nearly as many users as Facebook or Instagram? Pinterest saw a boom in users during the pandemic, but now that everyone has had enough with DIY projects, the company has reported an unprecedented user decline.
- Do you think it is still possible that Pinterest could become a key player in the social commerce sphere? Is this a key point firms will consider in a negative light when valuing a company their client is looking to acquire?
PayPal: The Marvel of Fintech:
Ok, back to PayPal. If we take a look at its transaction history (see what we did there!), it is clear that this is not the first time the fintech giant has crossed sectoral boundaries to make its ‘super-app’ dreams come true. Below are a few examples:
- In 2019, PayPal acquired ‘Honey’, an online coupon company that gives users access to discounted items and the ability to purchase from different retailers in one sitting.
- PayPal also acquired ‘Happy Returns’ in May 2021, a return-service provider, and ‘Paidy’, a Japanese provider of instalment payment services that introduced PayPal to the “buy now, pay later” market.
- So, PayPal has clearly been surprising us over the years with unprecedented moves here and there that didn’t make much sense, until now. Sound familiar? Yeah, I’m looking at you, Marvel Universe. It looks like PayPal had the opportunity to gain access to valuable data on the shopping habits of consumers and is now ready to conclude this carefully constructed timeline by acquiring a social media platform.
You see, not all superheroes wear capes. Some buy social networks so that you can buy your Ikea table and Primark leggings at the same time…
Acquisition: where one company buys a majority interest in another, but both retain their separate identities. Acquisitions are typically time-consuming and incur significant legal expenses for the involved parties. Less than half of all initiated transactions are completed.
Heartbreak for Pinterest:
So, why didn’t this love story pan out like some hoped it would? It could be for a couple of reasons.
Firstly, the lawyers conducting their due diligence reports of Pinterest would have noticed that the social media giant is and has been facing a host of legal accusations. From copyright infringements to lawsuits concerning harassment and discrimination in the workplace, the company’s legal rut and existing challenges following the loss of co-founder, Evan Sharp, aren’t exactly great selling points.
Equally, the negative reaction investors expressed about the acquisition, and its subsequent reflection on PayPal’s shares contributed to the fintech behemoth denying the acquisition rumors. PayPal has yet to make money from its acquisition of Venmo, a mobile payment service, back in 2013, and many believe investors thought it was time for some tough love by pulling their shares. If PayPal couldn’t make money from this, how was another acquisition worth $45 billion going to? Despite denying the deal, PayPal did mention that they were not planning to go through with it “at this time”.
Maybe PinPal isn’t off the table just yet?
The Future = Social Commerce?
As the social commerce industry becomes the future for many social media platforms, there are several things to look out for. We can definitely expect more alliances in the name of social commerce down the line – heads up to all you aspiring lawyers wanting to make some sense of seemingly random acquisitions like this one in your applications! Klarna recently acquired APPRL, an influencer marketing software aimed at connecting e-commerce brands with content creators to better connect with consumers. Snapchat is also making bold moves by betting on augmented reality being the core of the social commerce industry and purchasing Vertebrae, a company that utilises augmented reality to allow retailers to create 3D virtual versions of their goods. The latter is a trend that poses a huge opportunity for firms that deal with businesses where tech plays a key role (*cough*) Bird & Bird (*cough*), and their media and entertainment sectors.
With great power comes great responsibility, and social commerce is no different: let’s talk platform regulation.
Law firms advising companies such as PayPal and Klarna that have no experience in dealing with the world of social media will increasingly be dealing with illegal and harmful content, and the dangerous realm of advertising law. Just this year, Pinterest had to ban weight loss ads that promote body shaming and make false claims of weight loss products. We will see social media platforms increasingly play the role of intermediaries in this way, where they become the middleman for consumers and retailers and facilitate agreements between the two parties. Responsibilities of an intermediary differ significantly from that of a consumer or retailer, especially in light of the new Online Safety Bill. The Bill states that intermediaries are now solely responsible for systematically and proactively extracting harmful online content which may be distributed through the services they provide. The increased duties placed on intermediaries is an issue that us budding lawyers may be advising on to ensure that clients avoid liability.
There will also be the issue of influencer marketing, as regulated by the Advertising Standards Authority (ASA) in the UK. Platforms that embrace the hybrid world of e-commerce and social media need to ensure influencers are aware of the stringent rules outlined in the ASA’s CAP code (the UK Code of Non-broadcast Advertising and Direct & Promotional Marketing) when advertising online, such as ensuring that consumers are aware that the product is part of an advert, and that ‘#AD’ is displayed in a clear and obvious manner to facilitate this knowledge.
Lawyers will also be heavily involved with many matters concerning the interesting (pun intended) area of commercial contracts. This will include brand service agreements, which is the main contract outlining the commercial and legal basis of any influencer marketing campaign. Such a contract generally sets out the respective obligations of the brand, agency and influencers that are involved. Another typical contractual issue lawyers may find themselves drawing up is ethical commitment agreements. These are short agreements in which influencers promise to follow ethical policies specific to the respective brand. Ultimately, most of these legal issues will concern consumer protection. New measures will need to be introduced, for everything from data protection to advertisement regulation to ensure social media users, who now become consumers, are well-protected from scams. A recent disclosure before the U.S. House Committee on Energy and Commerce revealed that Facebook took down 1.3 billion fake accounts over the span of 3 months to ensure that consumers were not manipulated into purchasing fake products and services. Regulation in this sector is going to require significant manpower and/or sophisticated tech (did someone say AI?) to sift through accounts, which companies looking to compete in the social commerce industry will have to invest in heavily.
What’s Next in the Social Commerce Arena?
PayPal’s acquisition of Pinterest may be off the cards for now, but in the ever-evolving world of social commerce, anything is possible…
Which companies will we see pursuing social commerce next? And more essentially… is it worth the hassle?
This article was written by Shreya Menon. Shreya is a second year Law LLB student at the London School of Economics.