The Creator Economy: Why Attention Is the New Currency
Being an influencer seems like a new career option, but the economic principles behind being a social media guru have existed since the dawn of consumer media itself. The industry is advertising, and influencing is the latest evolution. From posters and newspaper spots to radio ads to TV commercials to Internet pop-up boxes, products have long been advertised to the masses. Every time a new form of mass media emerged, advertising quickly joined it. Over the past two decades, social media has emerged and rapidly come to dominate Internet use - roughly 60 percent of the globe uses social media, averaging more than two hours per day on those platforms.
Influencers are individuals who are paid to promote products and influence their viewers to purchase them. Unlike traditional advertising, influencers typically promote the products as trusted users rather than paid promoters, claiming that they use and enjoy the products themselves. Viewers who aspire to be like the influencers, many of whom create curated (selected and designed) content to epitomize a certain lifestyle, are likely to purchase the promoted products to help achieve said lifestyle. Thus, influencing is often seen as more organic than traditional advertising.
Who Are Influencers?
Not surprisingly, most influencers are young people who enjoy using and posting on social media platforms, especially video-centric platforms like Tik Tok, YouTube, and Instagram. A strong majority - about 70 percent - are female. They are mostly common in high-income, English speaking countries: the United States, Canada, Britain, and Australia. Roughly 80 percent of international company influencer spending was directed at the United States, meaning American content creators dominate the influencing market.
Most influencers are nano-influencers with less than 10,000 followers. These influencers, although less widely-known, tend to have more devoted followers due to their ability to engage directly by responding to comments and messages. Thus, many influencers tend to be local rather than national figures. Because influencers are common, over 90 percent of all men and women follow at least one influencer, who may be a personal friend or colleague.
History of Social Media Influencing
Influencing itself has been around for over a century, with celebrities endorsing products through traditional media of the day. The emergence of social media in the early 2000s spawned modern influencing, with Mommy Bloggers perhaps becoming the first wave of influencers. These women became highly popular among other current and expectant mothers for their blog, Facebook, and Instagram posts, along with Tweets and Pinterest pins. Around 2010, thanks to the proliferation of smartphones, mommy bloggers became ripe for influencing due to improved ability to post pictures and video clips.
Since 2016, the world has fully moved to short video clips as a social media medium of its own, thanks to Tik Tok and Instagram Reels. These videos were intended to be more natural and less curated than YouTube, helping create a feeling of authenticity that benefited budding influencers. Perhaps controversially, both popular video platforms track user data to build algorithms that show users more of what they watched, as well as target specific advertisements toward users that are deemed most likely to be responsive to them. Thus, today’s influencers may be directed at social media users who have purchased products promoted by similar influencers in the recent past.
Economics of Influencing
Low Cost Advertising for Firms
The influencing market is worth approaching $25 billion and growing steadily, with just over half of all marketers and brands working with influencers in some capacity. A strong majority of these users of influencers report being satisfied with their outcomes in generating additional sales. For as little as twenty dollars, companies and brands can get nano-influencers to post videos praising their products, meaning a million-dollar influencing campaign can result in thousands of Tik Tok or Instagram videos. This may be more cost effective, especially in terms of time, than trying to purchase individual ads across the country on traditional media.
Social Proof: Appearing Authentic Helps Increase Sales
In addition to being cost-effective, influencing helps boost sales through the psychological principle of social proof. Similar to the bandwagon effect, social proof means that people like to do what they see others doing. This can be comforting, as it is easy to rationalize that the crowd must know what it is doing. Or, if not, that the costs of the mistake are spread among many. If comfort at being part of the crowd is insufficient, peer pressure may be enough to lock in conformity. Influencers, who usually portray themselves as normal - if desirable and aspirational - people, can make their followers believe that the promoted product is already being used by many savvy, knowledgeable consumers.
Relatively Inelastic Demand Means Consumers More Willing to Try New rands
Influencers are most often used to help promote high volume, low cost consumable goods like clothing, cosmetics, fitness supplements and drinks, food, and household items. Consumers are likely more comfortable taking a chance on a popular influencer’s choice of energy drink or mascara than, say, automobile or laptop. Because items promoted by influencers tend to have relatively inelastic demand, and be consumed regularly, consumers are more likely to try a different brand that they see promoted - they can quickly switch back to their usual brand if they are dissatisfied.
Monetizing Views on Social Media
If you’ve got a lot of followers on social media, you can try to monetize (make money from) your videos by getting a share of the social media platform’s ad revenue, creating affiliate marketing posts that directly promote a product for a business and provide the website through which viewers can purchase, or influence viewers by using a company’s product. The YouTube Partner Program (YPP), for instance, allows users to join once they reach 1,000 followers and have 4,000 hours of content viewed within the past year. If viewers watch the ads attached to YPP creators’ content, the creator gets a little money. For creators with tens of thousands of viewers, this quickly adds up to considerable monthly income.
Affiliate marketers, by contrast, get paid commission per sale that is generated from viewers clicking on their attached link. It is easier to become an affiliate marketer, but your posts have to be directly related to the product. For artistic content creators, too much affiliate marketing may harm their reputation or brand - excessive supply of affiliate marketing content may reduce the value consumers’ place on the creators’ content; seeing it as “selling out.” Influencing is more subtle than affiliate marketing, and tends to involve more product awareness than appeals to make a direct purchase. This means that influencers tend to have far larger followings than affiliate marketers.
Labor Market Implications
It seems that most young people dream of being content creators who can monetize their social media videos and posts. Some wonder if this will lead to Gen Z being hopelessly online and not embarking on traditional careers. Thanks to the principles of supply and demand, this is unlikely. Already, there is an oversaturation of influencers, affiliate marketers, and attention-obsessed streamers of all varieties. This has caused a decrease in the amount that companies and brands are willing to pay for online promotions: a rapid increase in the supply of influencers has correspondingly reduced the market value. If one popular influencer balks at an offered price for a thirty-second promotional video, the company can easily find another media-savvy Gen Zer willing to perform.
AI Substitutes for Human Content Creators
Aside from excessive human competition, content creators also face an economic challenge from the rise of AI substitutes. These digital humans can be designed to epitomize whatever type of product is being promoted: attractive young women for fashion, wise-looking mothers for household cleaners, mature and hardworking fathers for automotive and garage appliances. Although these artificial creations may currently lack the “human touch” needed to replace influencers, improvements are occurring rapidly.
