Influencer Marketing is Broken
But That Doesn't Mean It's Going Away
Are you a human being living on the planet Earth in the twenty-first century? Have you spent more than 20 minutes on the internet in your entire life? If the answer is yes, then you know what an influencer is. Of course, there is a big difference between knowing WHAT an influencer is and knowing WHO influencers are. An individual person’s combination of influencers they follow is generally varied and unique based on that person’s interest. For me, influencers are people like Ben Gilbert, NLU’s Big Randy, Brett McKay, and, of course, the Wonton Don. They intersect at a lot of my interests, like tech investing, golf, being a man, and making homemade wontons (something very aspirational for me). But it’s not just the combination of influencers that make them unique. They are also becoming increasingly more niche over time.
One of my favorite pieces of writing on the current status of influencers is Li Jin’s 100 True Fans, which is a follow-up to Kevin Kelly’s 1,000 True Fans. There’s a lot in there about how the creator economy actually works and what some of those implications are for various business models, but the set-up and punchline for both is that the internet allows for hyper-personalization of interests. Creators can make money from a very small subset of people because their ability to reach those people are enhanced.
So why does this all matter? One of the big reasons influencers are able to exist is the amount of marketing dollars that are poured into the space1. The reason this happen is because of two core marketing concepts: target audiences and attribution.
Target audiences are groups of people who have been identified by marketers as good possible buyers of a specific product or service. Target audiences include demographic information like location, age, gender, employment, income, as well at behavioral information like hobbies, interests, and how a person feels about a specific topic. A good example would be midwestern males, aged 25 - 40, who golf and watch college football. It’s important for marketers to put these groups together because they want to know who to target with ads and marketing campaigns while being as capital efficient as possible. Theoretically, the more a marketer narrows that target audience feature set, the more precise they can get, which means they have to spend less money because they are going after fewer folks with a higher success rate. This is because good target audience sets will convert at a higher rate and have higher purchase intention. As a result, you have to touch fewer people, it costs less to do so.
So it follows that influencers, who generally have narrow, similar groups of people who follow them for specific interests, would be a good feeding ground for marketing behavior. Who better to sell a [theoretical] special wonton spatula than the guy whose audience is expecting him to talk about wontons at every chance he gets. That is, hopefully, a high intent audience.
But it’s not just about intent - it’s also about measuring if ads worked. Did the wonton influencer actually sell any of the spatulas that are on advertised on his platform? Attribution allows marketers to identify the impact that various ads, marketing strategies, and other tools have on specific buying behaviors. Attribution is the act of looking at data and trying to determine how effective a marketing strategy was. This is helpful in determining what strategies to use moving forward and to help identify new marketing strategies to try and implement. Of course, marketing attribution isn’t super easy to calculate. If you think about traditional marketing strategies - TV, Print, and Radio Ads, direct-mail campaigns, or events - the question becomes how you assign data to that event? There are a lot of methodologies that have been used over time, but the problem is that they generally lack specificity.
The internet, however, has somewhat changed that. Nearly everything is capable of being tracked on the internet (hyperbole!), and so, understanding why someone buys something on the internet is somewhere between a little and a lot easier why someone buys something offline.
Target Audiences & Attribution are particularly important for influencer marketing because, theoretically, buying decisions made as the result of interacting with an influencer should be highly attributable. Influencers are who they are because they have a dedicated following and more-often-than-not, that following is showing up for a specific purpose. Maybe it’s to stay up-to-date on a beauty routine, or to learn tips & tricks for parenting, or to just appreciate some of the aesthetic values in our world. They specialize in niches that can often align with a marketer’s objectives. They also do a lot of their influencing online, with highly trackable behavior data from their followers. So theoretically, influencer marketing should be a gold-mine for marketing that has ushered in a new age of capital efficient marketing campaigns.
But that hasn’t happened.
That’s not to say that influencers marketing doesn’t work at all. But rather, the influencer marketing model has some deep flaws. That hasn’t stopped the influencer marketing industry from growing precipitously over the last several years.
By the Numbers:
The 2023 market size for influencer marketing is ~$21 billion, which is up from ~$1.7 billion in 2016.
63% of brands and marketing firms have a standalone budget for content marketing and 82% of respondents have a budget specifically for influencer marketing, with 67% intending to increasing their influencer marketing budget.
23% of marketers intend to spend more than 40% of their marketing budget on influencer marketing.
83% of brands and marketers believe that influencer marketing is an effective form of marketing. However, that is notably down from 90% in the prior year.
Interestingly, marketers prefer to work with nano (1K - 10K followers) and micro (10k - 100k) influencers over larger influencers.
Notably, only 25% of influencer marketing campaigns are measured on a basis of conversions / sales, which is remarkable when considering that marketers claim that 75% of brands track sales from influencer campaigns. More likely, 75% of brands ATTEMPT to track sales from influencer campaigns. Although marketers are split on using influencer marketing technology platforms - only 23% of those who do use these platforms use them to track conversion attribution. So, while everyone says that attribution is important, it appears that a lot of folks aren’t actually investing in it effectively.
The punchline here is that influencer marketing is important - marketers know inherently that it works, somehow. But they struggle when actually identifying how it works or when/where/why it works. Attribution is a major problem for influencer marketing. Most influencer marketing is focused on engagement and views which makes it exceptionally hard to track. Some averages for influencer marketing conversion don’t paint a great picture - just looking at Instagram and TikTok is not very compelling:
Generally speaking, Instagram micro-influencers (10K-100K followers) have a 1.1% conversion rate, macro-influencers (100K-1M followers) have 0.7%, and mega-influencers (1M+ followers) have 0.3%.
YouTube micro-influencers have a 0.5%, macro-influencers have 0.4%, and mega-influencers have 0.2%. TikTok micro-influencers have a 0.8%, macro-influencers have 0.6%, and mega-influencers have 0.4%.
To put this in perspective - direct mail campaigns tend to generate response rates in the 0.5% - 2% range! You can look here for more data around conversion rates, but the punchline is that influencer marketing conversion is maybe just as good as snail mail marketing, something that has been around for many, many decades.
Digging in a little more, when speaking to a couple of marketing / brand people, there were a couple of things that stuck out to me in particular. I summarized some of those key takeaways below:
Influencer Marketing is “broken”. Attribution is basically impossible at this stage unless it’s something extremely specific and within the realm of ecommerce. They even went as far to say that TV attribution is better than influencer attribution.
Most marketers view influencer marketing as something you need to do, but cannot quantify the why behind that need. One brand marketer specifically said that the only reason they do influencer marketing is because (a) they have been influenced online themselves and know intuitively that it works in some capacity and (b) everyone else is doing it.
Most marketers view influencer marketing as a brand affinity play. In other words “just get the logo in front of more eyeballs”.
One other problem with influencer marketing is that it can be tricky to ensure that the influencers are saying the right thing. This creates brand risk for the brand.
One influencer marketing person said that “if you find someone who can actually penetrate followers at a 20% level, you should invest in that. That’s incredibly powerful.”
In Summary, there are two key problems, based on the data and discussions with marketers who live in this space every day.
Most influencer marketing campaigns are judged based on views and impressions. Which is OKAY, but the opportunity to better track that data (again, this is almost all done on the internet anyway) seems boundless. Of course, this is not easy to do, but it seems deeply worthwhile. If we are going to live in a world where 9-year-old influencers are making $28 million on videos about decorating cupcakes and children ages 8 to 12 are three times as interested in being a YouTuber as they are in being an astronaut, then we should accept that influencers will be a part of our economy for a while and we should improve the experience accordingly.
Finding effective influencers to pair with different marketing campaigns can be tricky. The majority (61%) of marketers prefer to work with the same influencers across different campaigns - this is largely because finding a good influencer that works for a campaign can be very difficult. Not only that, but finding enough of the right influencers who have an adequate reach can be a big problem for larger brands. If you are selling billions of dollars worth of a product, getting enough nano-influencers (no matter how strong their conversion is) to post about your product is an impossible task.
Startups Trying to Solve These Problems
There are a lot of companies trying to solve some of these problems. There are big players, like LTK ($561M raised-to-date), Mavrck ($172M raised to-date), Grin ($148M), and CreatorIQ ($80M). There are a lot of upstarts as well, like Upfluence ($10M) and Traackr ($3M). You can check here for a neat resource to identify others. The through-line with almost all of the companies listed above is that they basically all do the same thing. Some are positioned slightly differently, but almost all have find, connect, manage, and measure features for their products. Theoretically, these features all solve the problems that are listed above. However, that doesn’t appear in the data. It might be too early in the life cycle of these tools for any remediation to have occurred just yet.
However, it’s very possible that the features listed on these companies’ marketing materials are only a small piece of the puzzle. There is a chance that the solution to these problems is non-obvious. For instance, a frequently used creator tool, LinkTree ($193M raised-to-date) could be a big player to keep an eye on. They have a tool that can track data from a creator’s perspective, which could provide significant value to partners if harnessed correctly. I expect the solution to these problems to be multi-various and more novel than what we have seen today.
Appendix
LTK ($561M raised-to-date) - Developer of a content monetization platform designed to maximize market potential. The company's platform measures and monetizes the influence of content on a global scale, across owned and social channels, enabling style influencers and brands to maximize the economic success of their content across the web, mobile, and social platforms.
LinkTree ($193M raised-to-date) - Developer of site-sharing platform designed to connect audiences to the entire online ecosystem. The company allows influencers to point the followers in the direction of their choosing, other social profiles, an e-commerce store, or content needed to be shared, enabling creators, brands, artists, publishers, agencies, and businesses of all sizes curate a place where they can share, sell and grow, and also connect followers and their products in an efficient manner.
Mavrck ($172M raised to-date) - Developer of an influencer marketing platform designed to identify and activate micro-influencers for enterprise brands. The company's platform assists consumer brands in finding and activating their influential customers on social networks to drive clicks, likes, leads, and sales through personalized end-to-end relationship management, workflow automation, incentive management, and performance measurement relationships, enabling enterprises to retain brand loyalty, increase sales, enhance multiple consumer touchpoints and marketing functions.
Grin ($148M) - Developer of an influencer marketing platform designed to help direct-to-consumer brands build and manage authentic relationships with content creators to drive brand awareness and sales. The company's platform offers a comprehensive suite of tools for influencer discovery, relationship management, campaign execution and performance measurement, enabling customers to identify the right creators, nurture meaningful partnerships, track campaign results and optimize their influencer marketing strategies for maximum impact.
CreatorIQ ($80M) - Developer of an enterprise marketing platform designed to manage and optimize influencer campaigns at scale. The company's platform finds the right talent for campaigns, manages creator relationships, and automatically monitors key metrics for every post in campaigns, enabling agencies, publishers, and brands to streamline end-to-end workflow, ensure brand safety, and drive meaningful measurement.
Upfluence ($10M) - Operator of an online cloud-based influencer marketing platform designed to guide companies in a content marketing effort. The company's platform offers influencer marketing tools to help businesses to select influencers, manage influencer campaigns at scale and analyze performance, enabling companies to leverage brand supporters through simplified and measurable interactions while improving return on investment on influencer campaigns.
Traackr ($3M) - Developer of an online influencer marketing platform intended to grow users' global network based on real influence. The company's platform offers a system of record to manage, expand, validate, and scale the global influencer market, enabling marketers to optimize investments, streamline campaigns and scale global programs.
Influencers are able to make money from a lot of different means than just ads. Online payments, starting brands, selling additional services, etc. etc. But the first one that really allowed for influencers to get started at all is marketing dollars. The internet’s original sin.