On the way to $220M in funding, Instacart quietly changed its business model

In its early days, grocery store delivery startup Instacart made its money two ways: Through delivery fees and product markups. It charged customers more for individual groceries than their in-store price.

But in the last year, the company shifted its revenue strategy. It is allowing some grocery store partners to price their own goods on Instacart. In return, the grocers pay Instacart a fee to service their locations.  It explains why for some grocers the products cost the same on Instacart as they do in store, but for others the price is more (or, confusingly, less).

“We don’t want to be in the pricing game,” Instacart’s head of business Nilam Ganenthiran told me. “There’s exceptions, but that’s generally true. Retailers outsource their e-commerce to us for a fee.”

Although there’s variations in how each partnership is structured, Ganenthiran said the fee, charged to grocery store retailers, is now the company’s “primary model.”

Instacart never made any official announcements about its change in business strategy. I didn’t find out until questioning Ganenthiran about its profit margins. As a result, earlier this week when Instacart received its spate of news coverage over its $220 million funding and reported $2 billion valuation, some outlets misreported Instacart’s business model.

“There has been a perception of the markup model being our primary economic engine due to how we started 2.5 years ago,” Ganenthiran told me. “Our model actually has been evolving.”

Most publications didn’t realize that. The Wall Street Journal went so far as to write an additional story, separate from its funding brief, breaking down a potential Instacart profit on a typical grocery store transaction. The numbers didn’t look good, suggesting Instacart might make as low as $1.40 on an order of 15 basic items.

But since Instacart’s revenue isn’t primarily tied to product markups anymore, that may not be representative of its profit margins.

Instacart wouldn’t tell me whether its grocery store partner fee is calculated per item, per order, per customer, per month, or some other variant. It also wouldn’t disclose how much that fee is. Neither would Whole Foods when I reached out to them for comment, and Safeway didn’t respond. Without knowing what grocery stores are paying Instacart, it’s hard to deduce the company’s potential profit margins on each delivery. “There’s different strategies with different partners,” Ganenthiran explained.

In theory, it’s much smarter for Instacart to charge grocery stores a fee than for it to eke out profits on product markups. That kind of partnership makes grocery stores more amenable to improving Instacart’s efficiency (like offering the company its own personal checkout line). It also shields Instacart from the risk of variable food prices. Ganenthiran said, “Most grocers are past the tipping point where they understand consumers want this service.”

Will Pinterest prove its worth in 2015?

The next year will be the most important one of Pinterest’s life. Until now, the company has focused on its application and its audience, to the detriment of its coffers. It had the luxury to ignore money because it raised a nosebleed $764 million in venture funding to sustain itself. Like most adventurous startups, the money was raised on an unrealized, untested, uncertain premise: That advertising on a visual inspiration application would be highly lucrative.

Come New Year’s Day, that hypothesis will be put to the test for the first time on a large scale. After endless preparation, Pinterest’s year of reckoning has arrived.

In 2015, any brands will be able to do native advertising on Pinterest by paying to promote pins that appear alongside regular Pinterest content. Companies can use Pinterest’s reservation-based system, paying set prices to make sure their ads appear in people’s feeds. The auction-based system, where advertisers bid against each other, is still in beta.

Pinterest has been beta testing reservation-based promoted pins with a select group of partners since September 2013, moving slowly to make sure it nailed its advertising process and didn’t scare off users. According to Pinterest’s blog post about the wider-scale release, the beta test was hugely successful. Like regular pins, promoted pins are shared an average of 11 times, resulting in additional free impressions for advertisers (they only cough up money for the initial impression). These pins continue to be seen and shared after the advertiser stops paying to promote them.

The quiet social company decided to herald its big advertising news when the least amount of people would see it: Over the holiday break. It broke the story by publishing a blog post that ran at the same time as a New York Times feature on the news.

This is par for the course for Pinterest. The company regularly holds big parties at its office to celebrate the introduction of new product features, but when it comes to its revenue stream it prefers not to raise a fuss.

It’s possible that Pinterest is nervous about its reckoning moment and wants to experiment with advertising outside the prying eyes of the public. It’s hard to get to a $5 billion valuation in Silicon Valley without having brought in a cent of revenue. At this point, the stakes are high for Pinterest’s investors and the path is risky.

In the next twelve months, we’ll learn for the first time whether investors overvalued Pinterest or if the company is worth the war chest of funding it’s sitting on. If it’s the latter, [company]Google[/company] better look out. It has another rival creeping up to compete in the category of search.

Pinterest’s image-heavy application may give it a distinct advertising edge in the visual web.

Apple’s iOS Is the Big Revenue Bread-Winner

Apple’s iOS (software and devices) is responsible for about 75 percent of Apple’s profits as of last quarter, while OS X is responsible for only about 20 percent, according to a new report from market intelligence firm Asymco. Still, the Mac is doing better than ever.

Facebook Could Rack Up $1B in Profit This Year

As Goldman Sachs lines up investors for its Facebook fund, numbers are beginning to leak out about the social network’s finances. Based on the growth in revenue and in the bottom line, Facebook could stand to pull in close to $1 billion in profit this year.

Apple Makes at Least $200 Per iPad Sold: Report

A new report about production costs for the iPad reveals a wide profit margin on a per-device basis. The entry-level $499 model apparently generates $208 in profit, while the top of the line $829 model more than doubles that, raking in $446 per unit.

10 Ways to Get Paid What You Deserve

Once just the purview of cheesy late-night infomercials (“buy now and get this beautiful set of six steak knives at no extra charge”), free has taken on a life of its own in the new economy. Even the prestigious and pricey New York Times offers its stories online — yes, for free.

One area that seems to be a “free-for-all zone” is advice. I’ve listened in on a dozen complimentary teleclasses over the past year — all free — and most have been worth exactly what I paid for them. The vast majority were a thinly veiled promotion of the speaker’s services, with less than 10 percent content. Read More about 10 Ways to Get Paid What You Deserve

Apple Surpasses Nokia as Most Profitable Cell Phone Maker

iPhone3GS-2Despite controlling a much smaller share of the market, Apple (s aapl) is now much more profitable than Nokia (s nok), overtaking the handset maker as the most lucrative company in the business of selling cell phones. Apple also overtook Samsung during the last financial quarter, so it actually jumped from third to first place overall among global cell phone companies.

Research firm Strategy Analytics (via Reuters) points out that while Apple is now the most profitable company in the cell phone industry, both Nokia and Samsung both still beat the Cupertino company in terms of sheer size. That’s especially good news for Apple, which makes much more on a per-unit basis than any other mobile phone maker. It makes approximately $320 pure profit on each iPhone sold, according to Strategy Analytics. Read More about Apple Surpasses Nokia as Most Profitable Cell Phone Maker