The influencer marketing sector is booming – but regulatory problems abound

Influencers on social media are presenting lucrative new advertising opportunities for brands, but as regulators scramble to catch up, the legal aspects of the industry remain unclear

Influencer marketing is a valuable tool for brands - but the industry is plagued by concerns over transparency, fake accounts and lack of regulation

Scroll through Instagram and, before you find an ordinary advertisement on your feed, you are likely to come across an artfully staged photo of a woman in her 20s or 30s.

She will be wearing something fashionable in front of a sparkling azure sea or on a winding Parisian street. She could also be in a neutral-toned bedroom under a fluffy white duvet, holding a cup of coffee and inexplicably laughing in her silk pyjamas.

Below the photo, the description might contain a personal story or a confession, or it may simply wax lyrical about the product displayed discreetly in the corner of the shot. Whether it’s a tub of face cream, a gold watch or a bottle of supplements, these brand-sponsored posts will all feature a common disclaimer: #ad.

Unlike conventional adverts, the posts of social media influencers are masked to resemble a photo any friend might post. These subtle ads, which are becoming ubiquitous on the app, are upending the advertising world.

Backed by loyal communities of thousands or even millions of followers, influencers aim to turn the harsh light of capitalism down a few notches with a human face and a personal touch.

The young market is booming; by 2020, it is expected to be worth between $5bn and $10bn. As it irons out a set of standards to appease regulators, however, the influencer industry is facing calls for transparency that are growing louder and more urgent.

Gaining influence
At its core, influencer marketing is nothing new. In the 1970s, word-of-mouth marketing strategies were pioneered as a powerful way to sway opinion. Next, celebrities took the mantle of influencing the masses. But as social media transformed and democratised the internet, its influence seeped deeper into the fabric of modern life.

Today, our smartphones are nearly always within reach. A 2018 survey by the Pew Research Centre found that 95 percent of teenagers in the US have a smartphone or access to one, a 22-percentage-point increase from the previous survey in 2015.

Even more notably, 45 percent of teens said they are online on a near-constant basis, up from 24 percent previously.


The number of Instagram influencer posts in 2017

The modern influencer took shape on YouTube in 2005, according to Lisa Targett, UK General Manager of influencer marketplace Tribe. Here, video bloggers, or ‘vloggers’, attracted like-minded viewers with engaging content about anything from make-up and books to video games, and used this to build their brands.

This June, Instagram reached one billion monthly active users. As it continues to grow, the photo-sharing platform has become a hive of activity for influencers. Data firm Klear found that the use of Instagram influencer marketing doubled in 2017 to 1.5 million posts.

Guy Avigdor, Founder and COO of Klear, told The New Economy that interest in influencer marketing is “soaring”, adding: “The demand is huge. It’s unbelievable.” So far, he said, this looks like it’s just the beginning.

Brands take notice
As the influencer industry grew throughout 2016 and 2017, big brands wasted no time in getting involved. Advertisers are expected to spend $1.6bn on Instagram influencer marketing this year and $2.38bn in 2019, according to marketing platform Mediakix.

This comes as the use of ad-blocking software grows. According to PageFair’s 2017 report, global use of browser add-on AdBlock jumped 30 percent in 2016. What’s more, the near-constant presence of ads online has resulted in a phenomenon called ad blindness.

“Even if you’re not using ad blockers, your eyes are so used to those flashing ads on the side they’re not even seeing them anymore,” Avigdor explained.

Influencers’ sponsored posts get around these blockers and, according to some reports, are said to generate a return on investment that is 11 times greater than traditional digital advertising.

In fact, around 40 percent of respondents to a 2016 study by Twitter and analytics firm Annalect said they had purchased an item online after seeing it used by an influencer.

Increasingly, it is micro-influencers, or those with between 3,000 and 100,000 followers, that brands are identifying as valuable partners. Along with being cheaper and easier to manage, micro-influencers on average achieve a 68 percent higher engagement rate for sponsored posts compared with influencers with one million followers or more, according to marketing firm CampaignDeus.

These micro-influencers tend to cultivate more engaged communities, conversing in a way that feels intimate, Targett said. But by advertising the fact that they received compensation for a recommendation, influencers walk a fine line between authenticity and being labelled a sell-out.

On average, posts involving a marketing campaign cause an influencer’s engagement to drop by 11 percent compared with organic content, CampaignDeus found.


The expected worth of the influencer industry by 2020

Micro-influencers understand that one bad deal could shatter their authority – and with it, their career – overnight, Targett said. She added: “For [micro-influencers] to lose 100 followers because they’ve done too many ads is a really big deal… The creators really do feel any negative impact.”

While their posts are made to look effortless, influencers must act as a one-person content agency, marketing firm, finance department and admin team, added Chelsea Carter, Head of Content at influencer marketing platform Whalar.

“It takes a lot of effort to get to the stage where you can call yourself an influencer,” Carter told The New Economy. “So the danger of the market becoming oversaturated is actually fairly minimal.”

A murky world
Like any fast-growing industry, regulators have been forced to play catch-up. In April 2017, the US Federal Trade Commission (FTC) cracked down on 90 big-name Instagram influencers, sending notices reminding them they are required to disclose whether they were paid for promotions on their accounts.

Similarly, the UK’s Advertising Standards Authority (ASA) launched a review this year into whether current guidelines on influencer content are fit for purpose. “People shouldn’t have to play the detective to work out if they’re being advertised to,” said ASA CEO Guy Parker in a 2018 blog post.

Elsewhere, the industry has been accused of “mob-like behaviour”. In an Instagram post in August, Emmy-Award-winning make-up artist and cosmetics developer Kevin James Bennett claimed a “top-level” beauty influencer’s management team had offered to post a negative review about a competitor’s product for a fee of $75,000 to $85,000.

“The demands and threats of ‘influencers’ and their management have GOT TO STOP. The lack of disclosure by top-level influencers is FRAUD,” Bennett wrote in an Instagram post, calling the FTC to step in.

The practice of buying fake followers is another challenge facing the industry. Influencers can purchase fake accounts to follow them in order to boost the appearance of their reach. Targett and Carter both said platforms like theirs were taking the issue seriously and have already begun to vet new influencers that join.

Firms including consumer goods giant Unilever have also issued calls for greater transparency. Unilever, which spends over €7bn ($8.19bn) on annual brand and marketing investments, demanded transparency from influencers, brands and platforms.

“At Unilever, we believe influencers are an important way to reach consumers and grow our brands,” said Chief Marketing Officer Keith Weed in an online post. “Their power comes from a deep, authentic and direct connection with people, but certain practices like buying followers can easily undermine these relationships… We need to take urgent action now to rebuild trust before it’s gone forever.”


The amount advertisers are expected to spend on Instagram influencer marketing in 2019

Jim Tobin, who has written multiple books on social media marketing, wrote in Forbes that brands and agencies had contributed to this problem: “In any financial model, if someone can buy something for $1 and sell it for $5, a certain percentage of people will look to game the system.

“While we should do everything we can to eliminate the cheaters, we also have to be sure that our systems don’t actively encourage that same cheating.” Any solution will take a combination of new technology, shifts in business models and human intervention, Tobin said.

This burgeoning industry has already proven it can transform the advertising world overnight, but now it will take the combined effort of influencers, brands and platforms to ensure it does not crumble under the weight of its own problematic practices.