Influencer marketing spend hit $9.8B in 2020 – which seems like a lot, until you compare it to the $347B spent on digital ads. In other words, for every $1 businesses spend on influencers, they spend $35 on traditional ads.
Digital ads and influencers are two tools with the same core goal: increase sales. So why the 35x difference?
Let’s compare:
Digital ads are a 35x bigger industry because businesses believe they can spend 35x more and still achieve better return on ad spend (ROAS).
This is because:
Ads have superior metrics available for tracking conversions and ROAS, yet a third of influencer marketing respondents don’t even track ROI. The last decade of ad tech has largely been one of improving metrics. Moat made software to track whether an ad is visible on a webpage - that was worth a $850M Oracle acquisition in 2017.
Ad placement is a science, and ad sellers can track a customer’s journey from impression to purchase to tell businesses their ROI per click.
Contrast this to influencers – I asked a NYT bestselling author who paid thousands of dollars for influencers to post on Instagram about her book. How did she measure her ROAS? “My sales went up over the next two weeks, so it probably helped.”
Affiliate marketing via links and referral codes lets businesses track conversions and pay for results, but remains a relatively small source of influencer spending compared to brand deals for promoted posts.
It would be impossible to transact $347B (the GDP of Ukraine) if the marketplace for buying and selling ads weren’t superhumanly efficient.
Per Investopedia:
Market efficiency is the ability of markets to incorporate information that provides the maximum amount of opportunities to purchasers and sellers to effect transactions without increasing transaction costs.
When you visit a website, over the course of milliseconds it runs an auction among prospective ad buyers for your attention. Price signals are instant and competitive.
Compare this to influencers. Most creators struggle to decide how much to charge, then negotiate through personal agents, marketing agencies, businesses to strike a deal. Each layer of middlemen adds transaction costs.
Brands’ pricing signals are intentionally opaque, so influencers turn to services like F*** You Pay Me to share compensation data. Meanwhile 78% of businesses surveyed think finding influencers is somewhat-to-very difficult.
If you want to sell ads, it takes about 10 minutes to sign up with Google and paste their code into your website.
Want to get paid as an influencer? You’re in for a Kafkaesque hussle to land brand deals.
But how about the automated options?
YouTube: minimum of 1,000 channel subscribers and at least 4,000 watch hours in the past 12 months – for the privilege of YouTube taking a 45% cut of your revenue.
Instagram: You need a minimum of 5,000 Instagram followers and 308 sponsored posts a year to earn $100,000.
TikTok: Baseline of 10,000 followers and accrue at least 100,000 video views in the last 30 days
Amazon Affiliate: Have 10 posts, make 3 sales, and comply with every term of a 12,000 word agreement or get banned. Earn ~1-3% commission on most categories.
Even if you love a certain product and want to genuinely promote it within your social circle, you’re not going to get paid for that unless you put in some serious effort.
Businesses see great potential in influencer marketing because it drives 100x higher engagement through greater authenticity.
- 90% of businesses say influencer marketing is effective
- 72% of businesses say influencer attract higher quality customers
- Influencer marketing spend is up 571% since 2016.
The more influencer marketing becomes like digital advertising – through better metrics and automation – the more it will close the gap in market size. Recent M&A and investment activity is already honing in on companies that provide better attribution tracking and fraud detection.
Most mergers consist of big affiliate platforms gobbling up smaller competitors to increase their supply of influencers – but the real opportunity lies in growing the available supply to include casual influencers by lowering barriers to entry.
If the history of ad tech is any guide, influencer marketing is at the cusp of a transformative decade. Double Click Ad Exchange literally created an efficient market for ads in 2004 (before Google bought them.)
The first step to improving influencer market efficiency is opening the market to more potential influencers. If you're interested in running influencer campaigns with Google ad efficiency, check out Birb.
Survey source: Upfluence and Influencer Marketing Hub: https://influencermarketinghub.com/influencer-marketing-benchmark-report-2021/