It seemed like a marketer’s perfect plan to get products into the hands of their target audience: pay an internet icon or local influencer to promote them to their loyal fans.
And for the better part of the last two decades, it worked like a charm.
But these days, the industry of influencer marketing is completely off the rails. According to analysts and experts who spoke to Business Insider, influencer brand deals and advertisements are rife with unethical business practices thanks in part to limited regulation of a practice that is rapidly growing year over year.
Since 2016, the dollars driving the influencer marketing industry have ballooned from $1.6 billion a year to an estimated $21.1 billion in 2023, according to Influencer Marketing Hub. The outlet estimates the industry will reach an estimated $24 billion by the end of 2024.
Researcher Emily Hund, author of the book, “The Influencer Industry: The Quest for Authenticity on Social Media,” in a recent article for Harvard Business Review, made the case for new regulatory guardrails to be applied to the industry, arguing marketers and regulators often turn a blind eye to bad behavior from brands and influencers alike, which can range from discrimination and unfair business practices to outright fraud.
“While the industry has developed into a sophisticated, albeit chaotic, space, it has done so largely outside the confines of regulatory or professional oversight,” Hund wrote. “Its lack of boundaries opens the door for multidirectional exploitation. Marketers, brands, influencers, and platform companies all have opportunities to exploit one another to varying degrees of harm.”
It’s rough for brands
David Camp, the cofounder of the marketing company Metaforce, told Business Insider that while there’s nothing new about influencer marketing — it’s just a revamped version of the classic celebrity endorsement, shrunk down for small-time personalities with niche audiences — the industry faces more than its fair share of fraud, misrepresentation, and just plain unreliability.
Fake influencers can defraud brands by purchasing followers or manipulating their metrics to give the appearance of more engagement than they actually receive, driving up their asking price for partnerships and ad deals. The practice costs businesses about 15% of their ad spending, totaling more than $1.3 billion in 2019, CBS News reported.
“Those kinds of negative impacts are more likely in this domain because most of these online influencers do their own thing, and they’re basically hustlers,” Camp said. “They’re trying to build an audience so that they can monetize it, and they’re not typically represented by very polished spokespeople and agents that rep them to marketers and agencies, whereas in the traditional celebrity-influencer space, there’s a whole coterie of people who are associated with evaluating potential spokespeople and influencers and vetting them and then negotiating with them.”
In a traditional celebrity endorsement, the people promoting brands’ products are well-known, well-represented, and deliver a predictable result for the businesses who hire them — the audience of loyal followers shells out big bucks for the products that’ve been endorsed. Think Michael Jordan for Nike, George Foreman for the Salton Electric Grill, or Brooke Shields for Calvin Klein. With influencer marketing, that isn’t always the case.
For brands, this means their investment in influencers can end up wasted — or, worse, the social media personalities could use an inopportune moment like the California wildfires in 2018 to promote themselves or a brand, potentially damaging reputations all around.
It’s not great for consumers
Despite the money flying around, the FTC only provides basic guidelines about disclosure requirements for influencer marketing to protect consumers of their content.
But only the biggest names seem to get caught when they mislead their audiences — and generally only when they run afoul of rules on disclosing their paid partnerships, which Camp noted is the only rule he’s aware of regulating digital media sponsorships and paid advertisements.
In 2022, the SEC settled with Kim Kardashian for $1.25 million after she failed to disclose a $250,000 payment she received to promote EthereumMax crypto tokens on her Instagram.
Similarly, influencer Chiara Ferragni was fined $1 million in January following what Italian officials described as a misleading charity campaign in which she encouraged her followers to purchase a cake, with the proceeds going to a hospital donation, but never fulfilled the promise.
Lindsay Lohan, DJ Khaled, and Naomi Campbell have all also been subject to federal investigations for failing to disclose paid partnerships, Hund noted in her HBR article. The celebrities received warning letters from the FTC, requiring them to provide the agency with information about their relationships with the brands they stealthily promoted, according to the nonprofit Consumer Reports.
“Because she is one of the highest-profile celebrities in the world, Kardashian was an easy ‘get’ for regulators,” Hund wrote. “But far too much sponsored content and far too many influencers exist for government agencies to effectively oversee them all.”
Not to mention instances of influencers tricking their audiences into buying branded products with overly positive reviews of companies they’re paid by, despite quality issues or even labor abuses.
It’s inconsistent for influencers
It’s not all easy for the influencers, either. Black and Hispanic content creators face a 35% pay gap compared to white creators, per NBC News, There are also reports of fake talent-management firms requesting $299 “deposits” as part of a scam to fool wannabe influencers.
“Creators bear the brunt of the industry’s pervasive uncertainty: They must spend a significant amount of time navigating changing content norms, new platforms and tools, uneven contracts, high expectations for audience engagement, and the blowback that can come with being a public figure with few professional protections,” Hund wrote for HBR.
Some influencers faced racial discrimination during an in-person brand-sponsored trip, Business Insider previously reported. And Dylan Mulvaney, an influencer who partnered with brands like Nike and Bud Light, faced a barrage of anti-trans hate and harassment after she posted sponsored content for the companies on her social media pages.
Her partnership with the brands became the reason right-wing figures like Ben Shapiro and Donald Trump Jr. called for a boycott of Bud Light, and she said the resulting threats were so bad she traveled out of the country to escape the backlash.
No end to the mess in sight
Despite the industry’s known problems, Camp noted that in some cases, influencer marketing is still perceived to be more desirable because there’s a level of authenticity when someone you follow and trust is pitching a product versus just an anonymous ad.
While the FTC’s guidelines on disclosures offer some guardrails for the industry, regulators have not focused much attention on the issue.
And there are no signs of slowing the ethical conflicts, especially in the digital marketing and advertising world, where Camp says “there’s lots of smoke and mirrors, and it’s hard to sometimes understand what you’re actually looking at.”
“Obviously, some influencers are more high-minded about the brands that they choose to associate with, but for those that are looking to just make money off of their eyeballs, they usually are hustling any which way they can,” Camp told BI. “Anyone with an internet connection and an idea can write about their idea and aggregate eyeballs, so there’s a lot of shit floating around in that space because there’s really no filter, there’s no barrier — so there’s a very small percentage of cream that rises to that top.”
