Influencer fraud’s $1.3B price tag—and how marketers can respond

A new study says companies will waste big bucks on posers with fake followers and over-hyped promises, but industry insiders say it presents an opportunity for savvy pros.

How and why influencers are failing

Influencer marketing has emerged as an exciting tool for communicators looking to tap devoted audiences online—but a lack of regulation threatens to bring down the whole scheme.

That’s the problem being tackled at the first ever Influencer Fraudnomics Summit in New York City on Sept. 17. The event, sponsored by Sylo, is an attempt to bring the communications and marketing world together to solve what some see as an existential threat to digital marketing and influencer campaigns.

“It’s challenging that the industry that was built on trust is struggling with that trust,” says Erick Schwab, co-founder of Sylo, a third-party service that authenticates online audiences.  “It’s a very fine, delicate balancing act.”

 So how did the problem get so bad? 

Dr. Robert Cavazos, a professor of economics and statistics at the University of Baltimore, says the problem is to be expected with a nascent digital approach such as influencer marketing.

“Like with all new innovations, there are going to be some hitches to it,” he says. 

It’s his research that first showed the lost marketing outlay for influencers, a study estimating that roughly 15% of all dollars spent on influencer marketing in a calendar year were going to waste. However, he cautions that the figure could be much higher.

He says that “$1.3 billion is a conservative estimate. The 15% is an average. There will be some influencers that have 90% to 95% of their followers which are real followers. Some are going to have bought half of their followers.” That means that some sectors and industries will be more susceptible to fraud than others.

Some brands have struck back against the unregulated nature of influencer marketing. One company making headlines for its aggressive policing is Unilever, which has promised to avoid influencers who pay for followers.

“The scale and scope of influencer marketing is growing apace and holds increasing importance in the marketing mix as a way for brands to reach consumers, given influencers’ deep and direct connections with their audiences,” says Casey DePalma McCartney, director of PR and digital engagement for Unilever North America. “At the same time, bad practices or dishonest business models have the potential to erode trust in the whole ecosystem.”

Wide-reaching impact

There’s a potential cost beyond lost budget dollars. For campaign managers that have to show ROI, as well as protecting their clients and employers from damaging online backlash, relationships with influencer partners must be carefully monitored. 

“With just how much more aware consumers are of influencer marketing and ads, there’s potential misalignment,” says Schwab. He also warns against completely outsourcing the work of monitoring an influencer campaign.

“If it’s a marketplace,” he says, “consider the source.” 

Schwab, whose company offers third-party verification to help safeguard against influencer fraud, insists paying for someone to vet your influencer partner is a good investment.

He puts it this way: You can spend “a 15% to 25% tax, which is wasted” or you can pay a fee to eliminate the guessing. “You can pay a lower tax for the service and also be on the way to ROI,” he says. “You are also working with your business partners [and] influencers and collecting their data transparently.” 

A channel in peril

Fraud is nothing new for marketers. Cavazos worked on a prior study that analyzed the money misspent on traditional digital advertising; it found the sector sees an annual loss of $23 billion. Cavazos says marketers didn’t bat an eye.

“I think it is understood,” he says. “How often do you look at an ad that pops up on your phone or on your desktop? When you do click on it, it tends to be accidental right? It’s annoying, and it’s intrusive.”

His thesis: Traditional digital marketing is on the downhill path to oblivion. “There’s $23 billion of misspent money there, but no one got that excited, because people realize that’s a dying sector,” he says.

However, when he reported that $1.3 billion was lost to fraud in influencer marketing, the news made headlines. Why? Cavazos cites the incredible opportunities that influencer marketing offers communicators.

“Influencer marketing is huge because … we engage voluntarily with our influencers,” he says. “It’s not intrusive.” 

That’s why he and others argue that money is only the tip of the influencer fraud iceberg. 

“The money damages are smaller in influencer fraud than they are in the larger online advertising but are more significant because this is the great hope of online advertising,” Cavazos says. “It is growing. A lot of things are right with influencer marketing.”

Schwab says the problems caused by fraud, if not addressed, “ultimately could take down the whole thing. It’s like a crack in the foundation. We don’t have a foundation, so we better get one. We better get some standards.”

Protect yourself

What can communicators and PR pros do right away to address the depreciating public trust in the influencer/audience relationship? 

Many argue it’s time for the industry to adopt standards for influencer marketing to accurately measure its effectiveness and ensure its longevity. 

“Let’s make sure that we are collecting the right metrics,” says Schwab, who cites marketers’ growing concerns over data collection methods and how those methods can sway metrics. “For the most part, the way that data has been collected in influencer marketing has been done so without consent of the influencer,” he says. “It has been scraped.”

Schwab says that without better cooperation among influencer marketplaces, social media platforms, PR agencies and corporate clients, it’s going to be hard to get better measurement data.

“We now know that it looks like [data scraping] is coming to an end,” he says, “which presents a challenge, because now we need to bring influencers into that conversation around the standards, because we need their consent. We need social networks providing robust APIs that, with [influencer] consent, help … the influencer to service the marketer or the agency.”

Standards should also be supported by corporate marketers and communicators. Unilever shared some of the commitments it made in Cannes.

McCartney says Unilever committed to three areas:

  • Transparency from influencers: We want to make sure we’re working with influencers and creators who are committed to delivering authentic activity.  
  • Transparency from brands: We of course do not want our brands to engage in inauthentic activity.
  • Transparency from platforms: This is consistent in our efforts to work with partners committed to improving the digital ecosystem.

For Unilever, the only way to ensure credible relationships and campaigns is to reform the entire system.

However, she says the problem won’t be fixed overnight. For committed marketers and communicators, reforming the influencer marketplace will require a wide array of efforts and initiatives.

“From the work we’ve done, we know there is not a single solution that can 100% ensure that an influencer campaign will be free of any level of fraudulent activity,” she says. “And while we recognize some progress has been made to mitigate fraud, it is clear—based on our own findings and what we are seeing from industry reports—that there is more work to be done.”

What to measure

Part of creating new standards for influencer marketing is defining the important metrics that constitute effectiveness.

Cavazos says the debate about measurement is as old as the advertising industry.

“If you were to go into all the academic research from a century ago, it is very hard to find the definitive work on measuring ROI for advertising,” he says. “Whether you were back in the ’60s and ’70s selling TV, you were selling eyeballs, but more than that you were selling time.

“The best proxy of engagement we have right now is time.”

It matters that marketers know precisely how long an end user interacts with a piece of influencer content. How long are they watching a video? How long do they stay on the web page? Do they navigate to other content on the website, or do they click away, pushing up the bounce rate?

What doesn’t tell us much is the number of followers an influencer has.

“It’s one thing to say, ‘I have a million followers,’ and that becomes some informal proxy of the value of my endorsing something. But if … I say, ‘Yeah I have a million followers, and 100,000 of them spend an average of an hour a month looking at things I endorse or products that I consume,’ then you’ve really got something that is more translatable into some kind of ROI measure,” Cavazos says.

Can you measure authenticity and trust? Cavazos advises measuring that dynamic by looking at how many channels users adopt to connect with their favorite celebrities and personalities.

“What we teach in business schools,” he says, “is you have to have a dashboard. The dashboard has all these data points. You could have number of followers, active followers, average time of engagement, and followers who touch on different data points. … In this way, you get a proxy of the true value of the influencer.”

It’s important that brand managers make the case to the influencer/creator community that engagement matters more than follower counts. Schwab, whose background includes working with video creators, says marketers are to blame for the desperation that leads influencers to overvalue—and fraudulently report—followers. 

“What did you think was going to happen?” he jokes. “We created the environment with no regulation, no standards, and we are looking back now and saying, ‘Wow, look at all this fraud, and it’s still going.’” 

He scoffs, “Yeah, of course it’s still going.”

His answer is for communicators and their clients to educate influencers on media staples that they might have missed, including transparency and proper measurement.

“I don’t think that we as a community have done a good enough job on the business side communicating to the creator side that message, that brands will pay more for a loyal, dedicated audience than for a loose-looking, less-connected audience,” he says.

“It is much more impactful to have a smaller niche, more loyal, direct audience that you have influence over than a larger, vanity audience.” 

He notes that many influencers don’t have a media background, but he sees the lack of knowledge as an opportunity for education and dialogue.

How to get started

What can communicators do right away to start safeguarding clients and brands and improving the influencer ecosystem?

Schwab says a good starting point is pushing for third-party verification.

McCartney says: “Think holistically and long term; social influencers are just one piece of the influencer ecosystem. It’s important for brands to think about all their partners, advocates, etc., with ‘influence’ and how they work together as a strong and ongoing network of ambassadors for a brand.”

Cavazos points to finding an interested niche audience and giving them exactly what they want.

“About a thousand years ago, I did a study on television,” he says. “A research paper came out called ‘Why is this show so dumb?’ What we found in this research is that broad audience television shows were simpler. They had less-complicated plotlines. They deal with things in generalities, and this is the time when HBO is coming out and shows that are a little more niche, had much smaller ratings but had higher, more committed followers.” 

He summarizes: “People were willing to pay to subscribe; the same is true for any niche behavior.”

However, Cavazos says he sees a bright future for influencer marketing if the current challenges can be overcome.

“I want to emphasize that there are some issues with influencer marketing, but in reality, there are more opportunities with where we are with technology,” he says. “It’s only going to grow.” 

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