Advertisers faced with $1.3 bn in losses in 2019 due to fake influencers: Report

Fake influencer marketing will cost advertisers $1.3 billion in 2019, warns a report by Cheq, an AI-driven cyber security company, and economist, Professor Roberto Cavazos at the University of Baltimore. The report further states that left unchecked, the problem will continue to grow as complexity and activity in the sector increases, costing the global economy $1.5 billion by 2020. There are significant further indirect costs – notably erosion of trust and potential brand impact. These could damage this nascent industry if not tackled by all players in this nascent ecosystem, the report added. 

With the rapid growth of influencer marketing and brands increasingly veering towards roping in social media influencers in order to boost brand engagement or awareness, there are also growing concerns about influencer fraud. 

To give an idea of the monies charged by celeb influencers, refer to some numbers released in the 2019 Instagram Rich List by Hopper, a UK-based company providing an Instagram planner & scheduling tool that posts for users. Topping the list is American celebrity Kylie Jenner, who has over 139 million followers, charges $1.266 million or a whopping Rs 8.70 crore per Instagram post. Priyanka Chopra and Virat Kohli are the only Indians in the top 100 list. Priyanka, who has over 43 million followers, gets $271,000 or Rs 1.87 crore per Instagram post. She is 19^th on the list. Virat, on the other hand, charges $196,000 or Rs 1.35 crore per Instagram post. He is placed 23^rd on the list and has over 36 million followers. 

Globally, influencer marketing spend is up to $8.5 billion in 2019 and the industry is forecast to hit up to $10 billion in 2020, according to research by Mediakix. The spend has grown up to 20-fold since 2015, when spend on social influencers globally was $500 million. Estimates of the industry may be larger still as investment and more players have streamed into a sector, which attracted more than $118 million in funding for influencer tech platforms alone helping to connect brands to influencers seamlessly. 

There are various estimates of the extent to which influencer marketing reaches followers who are simply fake. In one study, it was found that influencers hired by Ritz Carlton comprised 78 per cent fake followers, P&G’s Pampers (32 per cent) and L’Occitane (39 per cent). Sway Ops found that 50 per cent of engagements on sponsored content are fake. 

In the medium range, SocialChain, a metrics company, while auditing 10,000 influencers, found that 25 per cent of the followers are involved in some type of fraudulent activity. The Wall Street Journal cited a Points North Group study, which found that mid-level influencers – those with between 50,000 and 100,000 followers – often have about 20 per cent fake followers. 

In a survey of 800 marketing agencies, brands, and other sector professionals, almost two-thirds had experienced influencer fraud. Based on all available research and industry insiders’ insights across all social media influencer platforms, Cheq’s report argues that a 15 per cent composite rate of total ad spend lost to influencer fraud reflects the mix of lower end and higher end ad campaigns. 

Based on the spending of $8.5 billion on influencers in 2019, this creates a conservative economic loss of $1.3 billion. Left unchecked, this will rise to $1.5 billion in 2020. This is a direct cost borne by advertisers and it does not include the indirect costs associated with this fraud such as erosion of trust. 

The indirect costs 

Some indirect costs from fraudulent ads may include less trust among actors and thus less innovation. Advertiser clients may over time become less inclined to spend or buyers less willing to buy. 

Trust is the cornerstone of commerce in a global interconnected economy. Like ad-fraud, fake influencer marketing not only takes money for producing nothing, it erodes trust in advertising and removes the “influence” from influencer marketing. The indirect costs of fraud relating to the erosion of trust impact consumers, the industry and threatens greater enforcement and regulation. 

In the influencer marketing field, there have been notable instances of brands pulling out of advertising from influencers after some controversial content. The Walt Disney Company severed ties with YouTube’s biggest star PewDiePie after he posted a series of videos featuring anti-semitic comments. It has led to brands returning to first principles of authenticity. 

Platforms also face a damaging economic impact where trust is undermined. In the summer of 2018, Twitter began removing tens of millions of accounts in an effort to restore trust. In January 2018, a New York Times report found that one small Florida company sold fake followers to hundreds of thousands of people around the world. The political and business value of a widely followed Twitter account is the reason why so may seek to push up the number of followers on twitter and other platforms. 

The report concludes by stating that assessing global economic damage can sometimes appear nebulous. However, the harm and costs for companies navigating influencer fraud can be very real, painful and costly. 

Though there is no precise way of measuring the loss of consumer trust in influencer content, the report states that it is significant. Marketers lose receptive consumers and business marketing ROI diminishes. This highlights the report’s view that fraud and loss of trust extend beyond the affected business and that entire sectors and economies are adversely impacted. 

Clearly, momentum is with influencer marketing as 71 per cent of brand marketers rate this channel as highly strategic, while 55 per cent plan to spend more on this strategy next year. For spending more than $250,000 on influencer marketing, the percentage of brands increasing their spend jumps to 67 per cent. 

With consumers continuing to mistrust companies or executives, the role of influencers assumes a significant role in bringing a rare authenticity to online marketing. Nevertheless, the problem of fraud must be tackled to ensure that this nascent channel is not severely undermined.