The Influencer Marketing Bubble#

You might have noticed something lately: modern social media influencers are getting incredibly rich. It wasn’t always like this. Just 10 years ago, the top YouTubers were mostly filming from modest apartments, doing simple skits, and living lives pretty much like yours or mine. Most of them had regular day jobs and posted online because it was fun or maybe earned them a little extra side money.

Compare that to today. Some influencers have the same reach, fame, and income as top athletes, singers, and movie stars. As these new kinds of celebrities got wealthier, they started making even more elaborate content – showing off new mansions, giving away millions, or just spending way more on video production.

But this whole scene is built on what’s essentially a marketing gold rush. It’s a specific and tricky mix of things that made getting super rich like this possible. And that easy money situation? It’s looking like it will end faster than these folks might realize. So, let’s figure out how the money works, how the influencer bubble might burst, and what happens when it does.

How We Got Here: The Rise of Influencer Marketing#

Back in the late 2000s, companies had a puzzle. It was getting harder to target a key group for buying stuff: people between 18 and 35.

• The Problem: If you couldn’t figure out exactly what this group liked, marketing to them was really tough. To make things worse, younger people were watching less TV and listening to less radio. At that time, TV and radio were the main ways companies advertised.
• Why This Group Mattered: You might think, “Well, 18 to 35 year olds don’t have much money anyway, right?” But the thing is, even though they might have less income and stuff than older folks, they spend more of what they do have. And they spend it faster. They do this because most of them don’t yet have the financial weight of raising a family and are earning their own money for the first time. So, reaching this group was difficult, but it could be super profitable.

Fortunately for advertisers everywhere, a new type of sort-of-celebrity was popping up on microblogs and early video websites. These people were perfect for brands wanting to reach this tricky group of buyers.

• Why Brands Liked Influencers:
  • Audience Already Sorted: The advertisers’ job was simple. The audience was already split up by interests. Wanted to sell to young moms? Work with young mommy bloggers. Wanted to sell tools? Give a video mechanic some free tools to use on their cool new YouTube channel.
  • Easier Ad Placement: This got even easier when sites like YouTube added advertising tools. Advertisers could skip dealing directly with the creator and just pick from lots of settings to show their ads using things like Adsense.
  • It Was CHEAP: Internet influencer marketing cost way less. A big company could reach 100 million viewers for less than a hundred thousand dollars. Getting the same number of eyes on commercial TV would likely cost millions. Smaller companies could join in too. The internet wasn’t limited to just a few big TV channels or radio stations, so a small business could team up with a small influencer to promote their product on a tight budget.
  • The Biggest Selling Point: TRUST: All those other benefits were small compared to the main reason early influencer marketing was amazing: people trusted influencers. Think about a new parent reading a mommy blog for tips on getting their baby to stop crying. They’re already looking to that blogger for wisdom about raising a baby. If that blogger suggests a certain type of formula or stroller, that product has a huge advantage over others because someone the parents trust is recommending it. This same trust happened for influencers in any specific area they focused on. A 2016 study found that Twitter users trusted their favorite online influencers almost as much as their close personal friends. And that was Twitter! You can only imagine the trust level would be higher on a platform that isn’t such a mess of random thoughts.

So, on the surface, influencer marketing felt like a dream for companies. You could target specific people, it was cheap, and it worked. So why is this a bubble?

Why the Bubble is Popping: The Problems#

• Problem 1: It’s Not Cheap Anymore: As more companies rushed in to grab onto the promises of influencer marketing, there was more competition for influencers at all levels. Some YouTubers now ask for over half a million dollars just for one ad spot in a single video. That’s still a bit cheaper than commercial TV for similar views, but not by much. Early on, smaller, quick-moving businesses willing to try new advertising methods led the way. Today, huge companies and businesses with tons of investor money are taking over. Some businesses with enough investment cash don’t even care if they spend more on advertising than they make back, because their investors mainly want to see the business grow.
• Problem 2: Investor Money is Drying Up (for some): Think about the brands that sponsor your favorite online influencers. Most are newer companies with a lot of investor money behind them. They spend so much because this type of marketing can make a business huge practically overnight, but it’s also super risky. I work as an investment banker in Silicon Valley, so I get to see firsthand how the market works in the startup capital of the world. I can tell you straight up that investors are starting to be less interested in businesses that sell directly to consumers (D2C). The channel Modern MBA made a great video about these types of businesses, and I’ll leave a link to his video below if you want to learn more. If these D2C businesses can’t raise more money, they won’t exist to pay millions every month to influencers across the internet. It’s hard to say right now if or when this will happen, but with rising interest rates and a bunch of big business failures on investors’ minds, that “easy money” might not be so easy to find for the businesses that have been fueling the influencer bubble.

The cost of influencer marketing, though, is nothing compared to the bigger problem these online celebrities are now facing.

• Problem 3: The Biggest Issue - Erosion of Trust: People don’t trust them anymore. It should have been obvious from the start, but a lot of influencers don’t even care about or understand what they’re promoting. If a business can pay their price, they’ll get recommended. I’m a YouTuber now, and I can tell you from my own experience that the hardest part about working with sponsors is simply finding businesses I feel okay promoting. My good friend Richard over at The Plain Bagel was once offered $30,000 to do just one video on a cryptocurrency. Richard, of course, said no because it was clearly a scheme to pump up the price and then sell (a pump and dump). But many influencers wouldn’t turn that down. Richard’s channel has just over 500,000 subscribers, so you can only guess how much these shady operations are offering people with millions of younger, more easily influenced viewers.

There have been countless scandals involving influencers caught doing things like:

• Advertising to children without proper care.
• Promoting music festivals that totally failed (like Fyre Fest, though that’s a bit older, the principle stands).
• Pushing sketchy crypto projects over and over.

Young people aren’t stupid, and they can see when influencers are just saying something to make money without actually believing in what they’re promoting. Influencers who target very young children might get away with preying on their lack of experience for a little while longer, but those audiences need a parent to do the shopping, and parents are harder to fool.

In a beautifully ironic twist, the wealth that top influencers have gained is also wearing away the trust they once had with their audience. Ten years ago, when a top influencer talked about a product in their basic apartment, it felt like they were talking to a peer or even a friend. Now, when David Dobrik dances around his LA mansion talking about SeaGeek, he just comes across as a celebrity getting paid for an ad. People like this struggle to genuinely recommend products because they are so wealthy and famous they no longer need those products themselves. Do you really think David has to buy concert tickets on the resale market, or do you think he gets invited to these events before tickets even go on sale?

Some of the smarter influencers try hard to seem like they live a normal life. Maybe that’s because they genuinely don’t care about showing off their wealth, or maybe it’s because they know it helps them connect better with their audience. The clear line between an online friend and an online celebrity got even clearer during the early lockdowns. This [__] show, combined with the annoying “being #inthis together” messages, caused people to lose interest in influencer marketing fast.

Risk for Businesses Partnering with Influencers#

Now, it’s not just consumers losing trust in influencers; businesses are too. If a business uses an influencer as the face for their product, they become completely tied to that person’s reputation. This can be great if a brand wants to seem fun and youthful – working with fun, young influencers helps with that. But it can also go very wrong.

Online influencers are much riskier to link a brand to than traditional celebrities. Traditional celebrities usually only show up in very controlled situations where their managers make sure they don’t say anything wrong. And even if they do, it’s likely to be edited out before anyone sees it. Influencers, on the other hand, make a living by showing their whole lives online – the good, the bad, and the ugly. Eventually, something bad is likely to happen.

Businesses also take on big risks with influencers because of other businesses. If an influencer takes money from one brand that turns out to be fake or a scam, it makes people question all the other businesses they promote.

What the Future Holds#

So, what’s next for our multi-millionaire influencer bosses? Well, if the gold rush does stop, they’ll likely make a lot less money. But honestly, that’s probably a good thing. The days of just throwing money at online personalities and hoping for the best might end, but that doesn’t mean the idea of online promotion goes away entirely.

Instead, hopefully, it means online marketing can become something better than just a cheaper version of traditional celebrity ads on old media like TV. There’s nothing wrong with regular, relatable people giving advice they believe in about products they understand, and getting paid for it. And the numbers will soon show companies that this is what made internet marketing great in the first place.

My Own Experience (Optional Self-Correction)#

Now, if you want to see what a big fat hypocrite I am, go watch my video where I show how much money I made on this YouTube channel after getting 100,000 subscribers in less than a month.

Thanks again for making it possible to keep learning how money works.