LORE #3: Turning Social Media Influencers Into Stocks

How much should influencers be worth? The stock market can teach us a few things.

It is 2019; the digital age where you can do anything from a piece of glass in your hand. YouTube, Instagram, Facebook, and Snapchat are where you, me, and your grandmother all turn to for almost every waking moment of distraction. As we all scroll, simple subconscious thoughts start rolling into our heads.

A bunch of local famous influencers went to a private tasting party last night and the dishes look exquisite. All of these people take stunning photos and eat out almost every night, so they probably know what they’re talking about.

A famous YouTuber with 10M followers likes that latest eyeliner. More people than the population of Switzerland follows her, so she’s probably someone I can trust the next time I buy cosmetics.

These influencers are just like you and me. Same age or ethnicity or area but a role-model that we can turn to for advice, and if we’re lucky, they are like friends who will notice us too.

Literally anyone can start going out and posting photos on Instagram of last night’s dinner. The hope is that committing to posting a collection of fancy meals will lead to fame and fortune.

Background Research

YouTube capitalized on this effect in 2005 by incorporating a business model surrounding personalized ad revenue based on content created by independent creators, or in other words, any video that anyone can upload. As YouTube superceded traditional television as the most prominent source of advertising viewability and audibility, so has the status of new content creators over the ad-men of old.

YouTube was one of the first to fully implement a partner program that monetized views. This changed the world by giving content creators real power over word-of-mouth recommendations on the internet. On the surface, YouTube content creators would be able to fund bigger projects and build content as a sustainable lifestyle. Behind the scenes, YouTube content creators became creative professionals and entrepreneurs, who inspired a new generation of passionate hobbyists in hopes of achieving fortune through fame. And thus, the influencer marketing industry was born.

As YouTube became the gold standard of content creation platforms, other forms of media catered to other forms of content. Instagram served photographers and designers in a very similar way with photo-posts as the conduit for influence. Facebook served networkers with groups and community-based actions to raise interest in cultures or products. Snapchat served casual teens and lifestyle bloggers with short videos of their day-to-day activities.

For every platform out there, there are people who want to be famous on it and businesses who want a piece of the fame.

2According to Upfluence, a very rough estimate of how many influencers are available in the world is 1.1M. Read more: https://www.quora.com/How-many-social-media-influencers-are-there-in-the-world

Almost 15 years later, with an estimated 1.1M influencers globally, influencer marketing is now one of the hottest billion-dollar industries. Communities of fans for popular niches such as sneakers, food, scenic photography, travel, cosmetics, and children’s toys have now been proven to have substantial effects on the sales of companies. The opinions of the every day consumer with a smartphone and people to talk to now have the power to make or break a business.

But getting paid is another story.

Problems with the Influencer Marketing Industry

The following are the issues that are not yet solved within the influencer marketing industry. These are the reasons why the industry might have a long way to go before being developed and standardized.

Influencer Pay Structures

Nobody can fully justify how much to pay influencers. Not everyone makes YouTube videos, and not everyone on YouTube can be monetized, despite the potential available value that they can contribute to businesses.

For every other platform that does not have a justified pay-per-view system, influencers and businesses are locked into negotiations based solely on both parties’ willingness to pay.

Everything is varied — different platforms, different standards of quality for content, different engagement values, different conversions.

Imagine bartering with a tech entrepreneur exchanging loaves of bread for telling 500 of his friends about how good your bread as your employee for an hour.

Vanity Metric Structures

As with anything technology-based, social media platforms are subject to fraud in the form of engagement bots which inflate a user’s likes, comments, and views. Simple vanity metrics such as total followers, total likes, total subscribers, or total views do not fully describe whether a popular social media account has a genuine influence.

Back in the good days of 2016, Instagress was the most powerful tool for enhancing engagement. The bot inspected areas of niche communities and performed programmed patterns of activity to mimic user activity. Imagine hiring a second you to be in your discussion class without the real you needing to be there.

Local vs Global Influences

Regionalization and localization are difficult to account for. The most effective influences are known to be locally-based; relatability is maximized when an influencer is in the same area with a similar cultural background or language. This point is most important with regards to local influencers, which are focused on a specific area. In this case, their following is limited by the population demographic of their city or state, which means that the number of followers or subscribers on their accounts are much smaller than world-wide influencers. For a local marketing firm, this is a challenge to assess because the local influencer offers more value to brands for targeted advertising than larger-scaled influencers who expect to be paid more.

Five minutes before you’re off work, you find yourself scrambling to decide the best place to find a decent meal to treat your date to your anniversary. Your best advice will come from a Yelp review or Instagram post of a nearby restaurant in your area. Anything that is not food or is not within your area is ineffective, regardless of how many followers the influencer would have.

Perspectives of the Influencer Marketing Industry

The three main parties in any influencer marketing strategy are the brands, the influencers, and the marketing agencies.

This chart, created with the use of MIcrosoft Visio, outlines the basic relationships that form influencer marketing strategy. Influencers grow with more branded content with social media audiences. Brands grow with more customers. Marketing agencies grow with more connections between brands and influencers.

The Brand Side

Brands are in charge of controlling payment based on their advertising budget, providing support to influencers, and upholding their brand reputation.

Small companies who do not have the budget for outbound marketing look for influencer marketing as a way to get the word out to a local community cheaply.

Large companies who want to attack a competitive niche try influencer marketing as a strategy to relate to their customers as an alternative to employing models.

The Influencer Side

Influencers have full control over the messages and portrayals of brands they advertise, regardless of the nature of the lawful contracts they sign. Serious influencers grow professionally similar to marketing firms by using branded collaborations with smaller companies to showcase potential for partnering with larger companies.

Non-social media aspects of an influencer’s performance are equally important to vanity metrics, but are more difficult to obtain.

The Marketing Agency Side

Marketing agencies are a middleman business, supporting brands by facilitating connections with influencers and negotiating contracts.

Marketing agencies can also offer educational support, exposure, community events, newsletters and influencer features to grow local communities.

The Exchange Between Sides

The idea is that influencers, which are independent third party operators of social media accounts, are paid through cash, products, and/or exposure in exchange for personalized advertisement products such as Instagram posts, photo reels, YouTube videos, recommendations on rating sites like Yelp, and/or group event planning.

Defining The Future Market Exchange of the Influencer Industry

As of 2019, exactly how influencers are valued is up in the air. There are no accurate benchmarks to describe what a standard exchange in value is between a brand, agency, and influencer. There are no standardized contracts across industries based on scales or scopes of work. There are no structured models to define an influencer’s positions relative to others within a niche and location.

The power is all in the models that are to come in the future if we want the social media influencer market to develop.

The following are proposed guidelines for regulating the market, based on the perspectives of each party involved.

  • Per agency, streamlined processes of assessing influencers, showcasing and developing influencer skills, and arranging brand partnership contracts with clients can be made to determine the network of services arranged.
  • Per brand and budget, a scoring model to describe the standard for an ideal influencer can be made to determine an exchange of “number of additional projected sales” for “additional followers engaged”.
  • Per influencer, a formatted brand portfolio that justifies areas of expertise, quality of work, professionalism, and work experience can be made to determine value offered to a brand. Influencers should be able to disclose the services that they are able to offer and the time or effort required for a payoff.

When considering regulating influencer marketing, all perspectives of the businesses, influencers, and agencies should be considered. As such, the clearer the terms of the agreements, the clearer the expectations, the stronger the trust, the more justified the returns on investment.

Sound familiar to an investment analyst? If we treat the brands, influencers, and marketing agencies as different players in a market, there are parallels to the stock market that could be helpful in developing the industry.

This chart, created with the use of MIcrosoft Visio, presents a parallel structure between the basic influencer marketing structure and the basic financial investment structure. Based on the prevalence of both industries, similar models and analyses could be used to predict value and growth of all players in the market.
  • Banks on the sellside create, promote, and sell stocks, bonds, foreign exchange, and other financial instruments to institutional clients. Their significant power allows them to determine the network of services arranged through added value to investors and companies distributing stock.

Similarly, the role of marketing agencies is to invest time and resources into influencers they work with while facilitating collaborations with brands. In a similar way, structured research into regional demographics would allow for better returns on investment.

  • Institutions on the buyside purchase large portions of securities for money-management purposes. Analysts create financial models to predict an exchange of “number of stocks bought” for “additional value added”.

Similarly, the role of brands is to sell their product. If each influencer is treated as an investment, the value added would be measured in the additional advertising exposure that the influencer would offer through their branded content. Portfolios of investments can be compared to portfolios of influencers that would support a company’s specific line of products.

  • Corporations are groups of owned assets which offer services and functions, and own shares that can be purchased by banks or investors and traded on markets.

Similarly, influencers can be treated as entities that own social media accounts and produce content that can be used as advertising material. The services and content that an influencer as a corporation provides is marketable and investable to partner businesses, which mutually benefit.

Ideas for Valuing an Influencer as a Stock

What we are now missing in terms of regulation are the data-backed systems to quantify and justify all the variables… or are we?

Socialblade in the very near future can be the foundation for the Bloomberg Terminals that analysts use for valuing stocks and predicting trends on the stock market.

Many popular platforms such as Socialblade are used to present vanity metrics and even make future projections for growth. As Socialblade and other data platforms evolve, a dollar-value number for marketing influence that could be provided by specific accounts based on quantitative and qualitative variables could be used.

What is truly missing now is a solid idea of economic-equivalent predictors and rigorous models by analysts that would allow companies to better invest their marketing budgets into influencers.

The Moral of the Story

We live in an exciting time where the social media influencer marketing industry has yet to develop. More people are beginning to recognize the power of influencers in marketing, and more influencers are beginning to see the possibility of realistic professional trajectories.

Brands and agencies have yet to treat influencers with the seriousness of businesses as banks and funds, but in the near future, as the value of influencer marketing as a whole grows, this parallel will serve to teach us about proper business practice.

Many thanks to Tangoo, supporters of @foodyensation, Loopp Media, and other independent businesses who have shared your perspective along my professional career as a marketer.

My perspectives and opinions were formed from my roles as influencer, marketer, brand manager, and private consultant over the past three years.

For those interested, I have created a model in place that draws upon the concepts described in this blogpost that could be of use to investment companies or marketing agencies alike.

For more in-depth information or queries, feel free to comment below or email me (aaronjyen@gmail.com).

Independent financial analyst with a background in Statistics and Neuroscience. Currently researching market sectors for prospective clients and firms

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