Is Pinterest the next Facebook?

March 22, 2012, 9:00 AM UTC

An exclusive look inside CEO Ben Silbermann’s social media sensation.

FORTUNE — Ben Silbermann can’t stop staring at the refrigerators. The Pinterest co-founder and CEO and I are standing in the break room of his company’s garage-size Palo Alto office. He’s just flown back from Austin’s SXSW interactive festival, and a redesign of his website is two days away. It’s all a little overwhelming. But at this moment his full attention is focused on three glowing refrigerators. Sometime during his brief absence, a service has delivered them fully stocked and branded with the company logo. They’re wedged into the tiny backroom behind the foosball table that three employees — roughly 15% of his workforce — are using for a conference. “I’ve been gone for one day, and it’s so upscale,” he says. “We used to just run to Costco all the time.”

That was before. Before Mitt Romney’s wife, Ann, began organizing family photos on Pinterest. Before Reese Witherspoon gushed to Conan O’Brien that it was “a collection of the most amazing, wonderful craftiness on the earth!” Before the U.S. Army issued a guide for how to use it, and before Pinterest emerged as the fastest-growing website of all time. In March the site registered 17.8 million users, according to Comscore, a 52% jump in just one month — and it isn’t even open to everyone (would-be “pinners” must still request an invitation to join).

Pinterest, for the uninitiated, is a deceptively simple-sounding, insanely addictive social media site that lets users collect and share images on digital pinboards. Most social-networking sites have first become popular among tech’s early adopters along the country’s coasts. But Pinterest found its most passionate users among the Midwestern scrapbooking set — a mostly female group — who have turned to it to plan weddings, save recipes, and post ideas for kitchen renovations.

This growth has thrust Silbermann, 29, into the spotlight as investors and businesses alike try to figure out how they can get in on the action. Brands — from large companies like Gap (GPS) and West Elm to online boutiques — are tripping over themselves to establish a presence on it, and some are starting to reap the rewards of being “pinned,” a de facto referral that prompts followers to click on product pictures to learn more. In February Pinterest drove more traffic to websites than Twitter, Google+, LinkedIn (LNKD), and YouTube combined. Meanwhile, the same (mostly male) investors who initially passed on Pinterest are kicking themselves. The company in October raised $27 million from venture capital firm Andreessen Horowitz in a deal that valued Pinterest at a reported $200 million. Marc Andreessen himself readily admits he didn’t get it until a female researcher on staff urged him to reconsider. Says Andreessen: “Our industry historically … do we produce products initially aimed primarily at men or women? You’d have to say men.”

Amid all the noise, Silbermann must now build out a company that can keep up with Pinterest’s user explosion. This type of hypergrowth has been a challenge for companies to manage — remember the “fail whale” that signaled Twitter was suffering under the weight of its own popularity? In recent weeks Silbermann and his team have held a Monday meeting — usually in the form of a coffee run to Bistro Maxine — to figure out how to keep the site running on Thursday. (Writing a check to Amazon’s web service unit usually does the trick.) Oh, and Silbermann must figure out how to make money. To that end, Fortune has learned, Pinterest just hired Tim Kendall, who spent many years as Facebook’s director of monetization, to build out the business.

Silbermann seems to be maintaining an almost eerily level head about Pinterest’s success as well as the stress of running Silicon Valley’s current “it” company. He talks so quietly that during our conversation I felt compelled to drop my own volume to match his. His eye is always on the wall-mounted flat screen that displays real-time data about how pinners are using the service. He takes a regular turn at answering customer-support e-mails, a mundane task that, he says, helps him make Pinterest even better. And while Pinterest’s Palo Alto digs feature a poster with the words move fast and break things, a mantra at Facebook, Silbermann talks about Pinterest the way one talks about a fragile heirloom. “When you open Pinterest, it should feel like someone has hand-made a book for you,” he explains. “Every item should feel like it’s handpicked for you by a person you care about.”

A collection of pictures of Pinterest co-founder and CEO Silbermann

Silbermann took a somewhat circuitous path to Internet stardom. The son of doctors from West Des Moines, Iowa, he collected things — stamps, leaves, insects — as a child. His sisters became doctors, and he was premed at Yale and majored in political science. Upon his 2003 graduation, he moved to Washington, D.C., where he took a “cube job” running data for a consultancy. That was right around the birth of Web 2.0, and he became hooked on tech blogs. He remembers the first time he stumbled across TechCrunch. Something was happening in Silicon Valley. He wasn’t a coder, but he was a huge history buff, and he fell in love with the romantic notion that the Internet defined his generation. “It felt like this was the story of my time, and I just wanted to be close to it,” he says. He and his girlfriend (now his wife) moved across the country to Palo Alto, where she became a recruiter at Facebook and he got a job working in customer support and sales at Google (GOOG).

Silbermann credits Google with helping him dream big — here was a company that decided to take a photograph of every street in the world — but without an engineering degree, he was never going to gain credibility there. And everyone around him was trying to start a tech company. “This is a really strange place,” he explains of Silicon Valley. “They love technology here like people I grew up with love sports.” So in 2008, even as the economy crashed, Silbermann left Google and hooked up with a college buddy, Paul Sciarra, to try out some startup ideas. Silbermann had held on to his obsessive love for collecting things. So they looped in Evan Sharp, a designer friend who was studying at Columbia’s architecture school, to help create a site for people to build collections. Silbermann’s wife came up with the name over Thanksgiving dinner.

By January 2010, Silbermann and his co-founders were e-mailing friends and family to invite them to try the service. It was slow going. For one thing, they were hard up for cash, and no one wanted to invest in a startup with three nontechnical founders. (Upon graduation, Sharp took a job as a designer at Facebook, where he worked until last spring, to pay the bills.) What’s more, in 2008 most startups were focused on curating real-time information, particularly for mobile platforms. By contrast, Pinterest was all about helping people save things for later — and the bigger the screen, the better the experience. Also, none of the investors who reviewed Pinterest could understand why anyone would want to spend so much time collecting things. Four months in, Pinterest had just a few hundred users.

But then the site began to catch on among friends back in Iowa. Early on, Silbermann traveled to a Utah design conference, and that group began to use it. A home-schooling parent kept and shared boards of lesson-plan ideas. It was more than a game or some form of entertainment for his core audience. Says Silbermann: “I realized that people were using it for projects that were important in their real lives.” Once Pinterest began growing, it didn’t stop. Since inception, the site has added an estimated 40% to 50% more subscribers each month.

Last summer Omaha Steaks president Todd Simon and his wife were building a new home near Omaha. A friend recommended Pinterest. Soon they were pinning and “liking” decorating concepts. “For the previous year, we’d been flipping through design magazines, cutting pictures and pinning them to the wall,” he said. “This was the equivalent.”

Simon took the idea to work, only to discover that his marketing team was one step ahead of him. They’d been noticing customers pinning photographs of their mail-order steaks and other products to digital pinboards for months. In December Omaha Steaks built its own profile and began pinning photos of its delicacies on boards with names like “Delicious discoveries” and “Recipes we want to share.” While it’s too early to say, the company believes it’s having a direct and positive impact on sales.

Essentially, Pinterest excels at something that’s very hard to do on the web — help people discover new things. If you can name what you want, after all, Amazon (AMZN) and Google are pretty good tools for helping you find it. But what if you don’t know what you want? Social-networking sites have helped businesses influence people, but they are imperfect. People use Facebook and Twitter to talk to each other, not necessarily to discuss things they might want to buy. In contrast, Pinterest users are more often in a shopping mindset when they are using the service. If you’re keeping a pinboard called “Spring handbags I’m considering,” there’s a good chance you’ll click through and make a purchase.

Over time, Pinterest has the potential to translate more quickly to sales dollars than other social-networking sites. Katia Beauchamp, CEO of Birchbox, has already seen that. Pinterest is among the top 10 traffic drivers to the site, which sells beauty products as well as sample-sale subscriptions. It doesn’t yet drive as much traffic as, say, Facebook, Beauchamp says, but it results in more direct sales. At this point, businesses can’t spend money marketing on Pinterest even if they want to; Silbermann is not ready to talk about how he plans to make money off it. Targeted ads seem like a no-brainer, and new hire Kendall is sure to have some ideas for how to help companies better reach consumers on the site. But Pinterest also could become a platform for would-be entrepreneurs seeking to cash in on their hobbies, much the way eBay (EBAY) unleashed a new class of mom-and-pop vendors.

Pinterest’s rise hasn’t been all corporate love and celebrity mash letters. Lawyer and photographer Kristin Kowalski sparked a firestorm last month when she blogged about her concerns that Pinterest was letting its users publish other people’s content without explicit permission. The terms of service indemnify the company from its users’ copyright violations, but the service itself, critics say, encourages users to violate copyrights.

When Silbermann read Kowalski’s blogged concerns, he called her up. They spoke for more than an hour. The company will shortly update its terms of service, though Silbermann notes they follow the Digital Millennium Copyright Act. Pinterest also has introduced an opt-out code web publishers can embed in their sites — Yahoo’s Flickr (YHOO) has done so too — to prevent pinners from republishing material. Eventually publishers may decide to make more material available if the site becomes a major destination.

Silbermann’s handling of the potentially volatile situation shows how his good manners can be an asset. After Kowalski spoke to him, she wrote a lengthy follow-up praising the young CEO. “He didn’t yell at me. He didn’t accuse me of being a hater,” she wrote. “I also truly believe that he is going to work his young, brilliant little butt off to address [my concerns] and remedy the quirks to the best of his and his legal team’s ability.” She now calls herself a Pinterest cheerleader.

In mid-March Pinterest unveiled a redesigned profile page. During our visit Silbermann and co-founder Sharp walk me through the highlights. “The idea is to help you discover other people,” says Silbermann, pointing to a box that now shows the people and brands that pinners repin the most. Click on their handles to see who they follow, and you jump on an endless train of interesting images.

It’s clear from the new user page that the Facebook ethos has rubbed off on Pinterest. Each user can upload a profile photo, and there’s a stream of continually updating pinboards, not unlike the information on Facebook. Pinterest uses Facebook Connect to let Facebook members log on to Pinterest and opt to publish their activity to their Facebook newsfeed. But as Pinterest gains traction, it becomes a potential threat to the social media giant. Facebook has pretty much captured the U.S. market for subscribers, so its growth is likely to come from engagement — keeping users on the site longer. As more people spend more time pinning — and revealing to marketers the kinds of hobbies and objects they covet — it may cut into the time they have to spend on Facebook.

But this flash popularity does not guarantee success, not for today’s web upstarts. More people are connected — one-seventh of the world’s population has a Facebook profile — and most of them are mobile. And with such a low barrier to entry, new social services pop up all the time. Pinterest must continue to be better than its competitors if it’s going to thrive. Silbermann is already working on the next set of product improvements.

So what does it feel like to be a social site on the verge? “There should be a word for it,” says Sharp, shifting to face his co-founder.

Says Silbermann: “It’s the intersection of the Venn diagram of fear and joy.”

–Reporter associate: Alex Konrad

This story is from the April 9, 2012 issue of Fortune.