Social Media Influencer Economics
How you manage your influence today will totally affect your ability to influence tomorrow.
In 1997, the musician David Bowie created an entirely new category of financial security. To buy out other owners of his recordings, Bowie sold “Bowie Bonds,” bonds that securitized the royalties from the 25 albums he released before 1990.
Before Bowie Bonds, securities usually were backed by a tangible asset like a company or a house. Bowie Bonds were a breakthrough financial product because they used intellectual property as the basis for a security. Prudential Financial bought Bowie Bonds for a whopping US$55 million!
If you’re reading this, you probably are wondering what Bowie Bonds have to do with social media. The connection is economics. Like musicians, social media influencers create assets. So, why think about influencers in terms of economic assets? To generate, in a word, value. Maybe not as much as David Bowie and his Bowie Bonds, but value, nonetheless.
Social media influencers who rely on one or two high-paying publishers for their content may earn more for a few months, but at the expense of fans and engagement.
Economics has important lessons for social media influencers who want to increase the value of their activity. Net Present Value, or NPV, is one method economists use to calculate value. The nerds out there can learn the details of NPV here. Suffice it to say, NPV serves as a useful construct to estimate and increase influencer value.
NPV teaches two things. First, an asset (like a social media fanbase) is more valuable the more it earns per paycheck. Second, an asset is more valuable the longer it earns paychecks. That may seem obvious, but it has important implications for how social media influencers generate value.
To increase future paychecks, influencers typically grow their audiences and increase audience engagement. This enhances their value to partners willing to pay for audience access. They also can improve the efficiency with which they realize value from their audience.
With a content service like Contempo, for instance, influencers share articles on social media that not only increase fan engagement but also provide revenue-sharing income from the traffic generated to publishers. Even better, a growing base of increasingly engaged fans can open up valuable opportunities for paid sponsorships and brand collaborations.
To increase the predictability of each future paycheck, influencers must remove luck from the equation. An asset with regular, predictable earnings is worth more than an asset with irregular, unpredictable earnings. That’s why earning $12,000 during one random month in a year is less valuable than earning $1,000 every month during the same year. A social media influencer who has mastered the art of repeatable audience monetization has more value than an influencer who gambles on a lucky, one-off deal.
Perhaps the trickiest part of increasing an influencer’s NPV is extending earnings as far into the future as possible. The entertainment business uses the term “one hit wonder” to describe an artist who has a smash hit and then vanishes from the scene. The advantage of a one hit wonder is that the NPV is quick to calculate because there are no future payments in the equation. The disadvantage is that there are no future payments in the equation.
The social media equivalent of the one hit wonder is the social media influencer who flames out after exploiting his or her audience. The flame-outs fail to engage, inform, and entertain their audience with an authentic voice and high-quality content that respects the user experience. Posting one enticing cat video after another from an off-brand publisher who pays sky high traffic revenue (earned from invasive, malware-infested advertising) might enhance engagement and revenue for a few weeks or months, but it’s a bubble bound to burst. Click-bait will work until it doesn’t anymore, or until the social media platform decides you’re making things worse for its users. So one day comes when either the influencer’s fans decide they don’t want more cat videos or the platform decides to step in to protect its users, killing that influencer’s audience reach for good.
What are best practices to extend the life of a social media influencer? It’s a good time to introduce another helpful economic concept: diversification, also known as not putting all of your eggs in one basket. Investors use diversification to mitigate risk in a portfolio. If you own ten stocks and one goes belly up, you don’t lose all your money. On the other hand, if another of the stocks goes to the moon, you get only one tenth of the moon. With a diversified portfolio, an investor comes out somewhere in the middle, but lasts longer.
Social media influencers who rely on one or two high-paying publishers for their content may earn more for a few months, but at the expense of fans and engagement – and ultimately of their ongoing ability to generate more value. Fans who see essentially the same content from the same publisher over and over tune out. Platforms like Facebook know this. They step in to kill the reach and engagement of low-quality content before users get disillusioned and spend less time on their platform. Recently, Facebook has been deleting social media influencer pages that use low-quality content and fail to meet Facebook’s guidelines. That’s the best way to immediately zero out an influencer’s NPV. That’s it. Done. No more cat videos.
With the variety of high-quality publishers available on Contempo, we’ve measured affinities between publishers and influencers. We know these affinities shift over time. A publisher whose content works well with an influencer’s audience one week may not the next. Content from another publisher that had performed poorly at first may improve its performance over time. For an influencer who relies on one or two publishers for a paycheck, there is no viable alternative when publisher affinity shifts away and reach drops.
The social media influencer long game is content diversification. Like an investor with a diversified stock portfolio, a social media influencer who uses a mix of content will come out somewhere in the middle and last longer. Diversified content also plays nicer with the platform, aligning with the network’s goals for user engagement and experience.
The economic lessons for social media influencers? Influencers who want to increase their value should post high-quality and engaging content, use above-board and sustainable methods of monetization to build predictable revenue streams, and diversify their content sources. That’s what we’ve seen with George Takei and other influencers who use Contempo daily.
You might have been wondering what Prudential was thinking when it bought Bowie Bonds. Were they smoking something? Why would Prudential pay so much? Largely, it turns out, because Bowie was a high quality creative asset with a great track record. Bowie achieved a high NPV. Now you can, too.
