Ms. Navarro.

Fast-growing social media startup Pinterest is making money already, it was revealed this week, albeit in a somewhat sneaky way. Pinterest uses a third-party service called Skimlinks that crawls through user-submitted links and checks whether a link points to a merchant (ex. Amazon). Then Skimlinks checks if Amazon or whoever offers an affiliate referral program through which the merchant kicks back a percentage to the referrer if the customer makes a purchase. If there's a referral program, Skimlinks will change the link so Pinterest gets credit for the referral.

Seems harmless enough—but one blogger found the practice smarmy:

One specific, problematic issue is that when individual online stores pin their own content, it is unlikely they would insert an affiliate code. But if the store has an affiliate program, it is highly likely that those links now will have an affiliate code in them that gives Pinterest a percentage of any sales. Not disclosing this modification is putting individual stores at a disadvantage when they and their customers are putting in the work of adding pins.

Actually, Skimlinks founder Alicia Navarro said, merchants are fine paying for affiliate links through Pinterest—because the site sends tons of traffic and it needs revenue to survive. "The news really was a non-issue, but I cannot complain too much," she told Betabeat. "In the end, it was great that people found out about what we do, and that it can help other similar companies."

She answered this and other questions from Betabeat by email.

What about the criticism that Skimlinks dilutes affiliate programs, by making ecommerce sites pay extra for links they were getting for free? (As in, links were sending paying users to Amazon from Pinterest before Pinterest started using Skimlinks, but now Amazon has to pay for it.)

Using this argument, should Google not charge e-commerce sites to be present on AdSense? Pinterest has been using Skimlinks from the beginning, it is the same as any other web site that uses affiliate marketing. They have just as much right to be rewarded for driving traffic to retailers as any other website using affiliate marketing. And merchants are not unhappy: many merchants have said that Pinterest is now the biggest referrer of traffic to their site, and if Pinterest didn't exist, they wouldn't have this traffic, and it is revenue that helped Pinterest get to where they are. Another way of putting this: retailers have never had this traffic for free, Pinterest has always used this form of monetization, and it is an incredibly valuable service that merchants should be delighted to pay for.

Why do you think are people upset about this? The original blog post that touched all this off described it as "weird" that there's no disclosure.

I think the only reason people are upset about this is that despite affiliate marketing being incredibly popular and ubiquitous as a form of monetization, it isn't as well-known as banner advertising and text ads like AdSense. Finding out that websites can get paid a commission for referring sales to a retailer can feel a bit 'weird' when you hear about it for the first time, but it has been around online for over a decade, and it powers a huge number of popular websites around the world.

Disclosure is very much encouraged, but guidelines around this are particularly aimed towards websites that actively endorse products for financial gain, ie. a price comparison site recommending a particular credit card company because it pays them the most. Pinterest has stated clearly in their terms of service that they can alter links posted by users, and that is more than most other publishers do. Sure, they could do more, but so could almost every website. It certainly did not warrant the outpouring of shock. I believe it is just because Pinterest is so big now that people were looking for something negative to say about them, and this was the first minor blip in their otherwise stellar ascent.

Do most companies that use Skimlinks disclose it somewhere?

They are certainly encouraged to do so, we have it in our Terms of Service. But it is up to the publisher how they choose to disclose, and in most cases, it is done discreetly. I always turn the tables back to the interviewer: do you think your site discloses every form of monetization it uses as publicly as you expect Pinterest to do?

What about the FTC regulations that say disclosure is necessary when there is a relationship between an advertiser and a blogger? Does Skimlinks fall under this rule?

The FTC says that when the content creator is being compensated for endorsing a product, adn this is influencing the content creation process, disclosure is required. By using Skimlinks, the publishers is separated from the monetization process, and can write freely without the process being tainted by commercial pressures. In Pinterest's case, the distance is even further: Pinterest is the platform, and the users are the content creators: in this case the content creators are not endorsing a product nor are they receiving commercial benefit.

Ms. Navarro.

Pinterest is making money with affiliate links, something the average Pinterest user cares about approximately not at all, and it's caused a small kerfuffle. Pinterest is using Skimlinks, a London-based third-party service that scans links and checks to see if the destination (most relevantly, sites like Etsy and Amazon) has an affiliate program that pays kickbacks for referrals, as explained by Pinterest pundit Josh Davis in a post that questioned the ethical implications of using the service without disclosing that fact to users.

But as Skimlinks CEO Alicia Navarro points out in a response on the Skimlinks blog, and as many comments on the story pointed out, the nondisclosure is practically a nonissue. Pinterest has broad language in its Terms of Service that allows it to exploit and monetize user content, as do most free social networks. If a users want to personally reap the gain from the traffic they drive, instead of handing it over to Pinterest, they can submit their own affiliate links; Pinterest won't mess with those. 

Further, there were no questions about ethics or disclosures when Skimlinks raised $4.5 million a few months ago with total transparency about its business model. "It’s not a secret. We do monetize social discovery, and it’s great," Ms. Navarro titled her response to the Pinterest story.

And they're not the only company that does this. "In the same ballpark as Vibrant Media, [Skimlinks] converts product-related text in web pages in to hyperlinks with affiliate links, so that publishers benefit from users’ outbound visits to merchants’ sites," wrote PaidContent when Skimlinks announced its raise.

Skimlinks and its ilk could be analogized to Google's Adsense network, which rotates in advertisements based on the content publishers are already putting on their sites. You could optimize your content for AdSense—many spammy entrepreneurs do—but most people just set it and forget it.

Skimlinks is "hoping to revolutionize the affiliate model by turning normal product links into affiliate links," wrote Leena Rao at TechCrunch in 2010. "Today, the startup is launching a nifty discovery tool for publishers to search for affiliate links by keyword."

"How they are doing it with no disclosure to users feels weird," Mr. Davis wrote about Pinterest's use of Skimlinks. But does it? The nondisclosure of the use of affiliate links, which don't impair the user experience or materially impact what content is shown, actually drew a number of "so whats?" The top comment on Hacker News: "I have absolutely no issues with this." Pinterest could silence its critics with one line in an FAQ: "How do ya'll make money?" Answer: We change the address of some links. "Oh, okay."

On the range of crimes against users (Pinterest has 10 million of them now), this one ranks pretty low. The greatest argument against Pinterest would be that it dilutes affiliate programs, with the potential to turn every redirection into a paid referral. Cool. As long as Amazon's paying.