Speaker 1: This is not sustainable. You might have noticed a trend amongst modern social media influencers. They are getting incredibly rich. Just 10 years ago the very top youtubers on the platform were mostly filming out of their modest apartments, doing average skits, and living lives pretty similar to you or I. Almost all of them had regular day jobs and posted to the internet because they found it fun or at the very most because it could earn them a little extra side money. Contrast that with today, where some influencers have the same reach, notoriety, and income as top athletes, singers, and movie stars. As this new breed of celebrity has grown even wealthier, they have been able to broadcast even more elaborate content, whether it be showing off their new mansion, giving away millions of dollars to strangers, or simply spending more money on the production of their videos. But this whole ecosystem is predicated on something of a marketing gold rush. It is a unique and delicate blend of circumstances that made houses like this possible and that easy money situation is coming to an end faster than these people might expect. So it's time to learn how money works to find out how the influence bubble will pop and what it will mean once it does. In the late 2000's companies had a problem. A key demographic for consumer goods, people between the ages of 18 and 35, were becoming harder to place into neat little marketing buckets. If you can't pin down the specific preferences of a group, they are very hard to market towards. And to make matters worse, younger people were watching less television and listening to less radio, which were, at that point, the foundation of consumer advertising. You might think, oh well, 18-35 year olds don't have any money anyway, so what's the problem? Well, the problem is that while this group may have less income and wealth than older generations, they spend more of what they have, and they spend it more compulsively. They do this because most of them are not yet burdened with financial responsibilities of raising a family of their own and are making their own money for the first time in their lives. So, accessing this demographic was hard, but potentially very lucrative. Fortunately for the marketers around the world, a new group of pseudo-celebrity was being formed on microblogs and the early video sharing sites of the internet. These people were perfect for brands who wanted to tap into this difficult market of consumers. The marketeers' job was easy. Their consumer base was already compartmentalized by interest. If you wanted to appeal to young mothers, work with young mommy bloggers. If you wanted to sell tools, give a video mechanic a set for free to use on their new fancy YouTube channel. This all got even easier when companies like YouTube introduced advertising features that allowed marketers to bypass a direct relationship with the creator entirely, and instead choose from a wide variety of parameters to show their ads using AdSense and other similar offerings. Early influencer marketing was also really cheap. A large company could reach out to 100 million viewers for less than $100,000. The same kind of exposure on commercial television would likely cost millions. Smaller companies could also get in on the action too. The internet was not limited to a few large TV channels or radio stations, so a small business could work with a small influencer to promote their product on a modest budget. But all of these other benefits were insignificant compared to the greatest selling point of early influencer marketing, people trusted influencers. If a first time parent is reading a mommy blog about how to get their children to stop crying, they are already looking to that blogger for their wisdom on the subject of raising a baby. If the blogger recommends a certain type of formula or stroller, it is going to have a huge advantage over the competition because it is being recommended by someone that the parents trust. The same trust extends to all influencers in any other specific niche. A 2016 study found that Twitter users trusted their favorite online influencers nearly as much as their close personal friends. And that was Twitter. One can only reasonably imagine that the level of trust would be higher on a platform that is not a cesspool of people's brain farts. So on the surface, influencer marketing is a dream to companies, it can be tailored to target specific audiences, it is cheap and it is effective. So why is this a bubble? The first problem is that it's not that cheap anymore. As more businesses rushed in to capitalize on the promises that influencer marketing offered, the more competition there was for influencers at all levels. Some YouTubers now charge over half a million dollars for an ad placement on a single video. That is still slightly cheaper than commercial television for a similar number of views, but not by much. Early on, influencer marketing was dominated by small agile businesses that were willing to take the risk on a new form of advertising. Today, large companies and businesses backed by endless amounts of capital dominate the space. Some businesses with enough investment backing don't even care if they spend more on advertising than they gain in revenue, because their investors are primarily concerned with seeing business growth. Think about the brands who sponsor your favorite online influencer. Most of them are new companies with a lot of investor money backing them up. The reason they spend so much money is because this marketing strategy can launch huge businesses practically overnight, but it can also be incredibly risky. I work as an investment banker in Silicon Valley, so I am fortunate enough to have the direct exposure to market dynamics in the startup capital of the world. Let me tell you first hand that the investment appetite for direct to consumer businesses is starting to wane. The channel Modern MBA did a great video on these businesses so I will leave a link to his video below for anybody who is interested in learning more. If these businesses fail to raise fundraising then they won't exist to pay millions of dollars every month to influencers across the internet. For now it's hard to say if or when this will happen, but with increasing interest rates and a slew of high profile business failures weighing on investors minds, easy money might not be as easy to come by for the businesses which have been propping up the influencer bubble. The cost of influencer marketing is insignificant compared to the bigger problem that these online celebrities are now facing. People don't trust them anymore. It should have been obvious from the start, but a lot of influencers do not even care or understand what they are promoting. If businesses can pay their fee they will get their recommendation. I am now a YouTuber and I can tell you from experience that the hardest part about working with sponsors is simply finding businesses that I feel comfortable promoting. My good friend Richard over at The Plain Bagel was once offered $30,000 to do just one video on a cryptocurrency. Richard obviously declined that offer because it was an obvious pump and dump scheme, but many influencers wouldn't. Richard's channel has just over 500,000 subscribers, so one can only imagine how much these shady operations are offering people with audiences of millions of younger, more impressionable viewers. There have been countless scandals surrounding influencers that have been caught advertising to children, promoting failed music festivals, and pumping and dumping crypto projects over and over and over again. Young people are not dumb, and they can see through influencers who are just saying something to make money without believing what they are promoting. Influencers that target young children can prey on the naivety of their audience for a little bit longer, but audiences this young are going to need a parent to do their shopping and they are going to be harder to fool. In a beautifully ironic twist, the wealth that has been accumulated by top influencers over their careers is also eroding the trust that they once had with their audience. Ten years ago, when a top influencer was talking about a product in their basic apartment, it felt like they were talking to a peer or maybe even a friend. Now, as David Dobrik dances around his LA mansion talking about SeatGeek, he just comes across as a celebrity sponsor. People like this struggle to genuinely recommend products because they are so wealthy and famous that they no longer need them. Do you think David needs to get his concert tickets on the resale market or do you think that he gets invited to these events before tickets even go on sale? Some of the savvier influencers will try very hard to convey an image of a normal lifestyle and maybe that's because they don't care for an ostentatious display of material wealth or maybe that's because they know that it helps them better to connect with their audience. The clear divide between an online friend and an online celebrity was only accelerated during early lockdowns. This shitshow, coupled with the distasteful messaging of being hashtag in this together, saw a rapid decline in the public's interest in influencer marketing. Now not only are consumers losing trust in influencers, but so are businesses. If a business uses an influencer as a spokesperson for their product, they become inextricably linked to that person's reputation. This can be a good thing. If a brand wants to position itself as a fun-loving product for young people, it would do well by working with fun-loving young influencers, but it can also go very wrong as well. Online influencers are far riskier to align with a brand than traditional celebrities. Traditional celebrities only really appear in carefully curated settings where their managers get to make sure they don't say anything out of line, and even if they do, it is likely to get cut out before being released to the public. Influencers on the other hand, make their living by broadcasting their entire lives on the internet, the good, the bad, and the ugly. Eventually something bad is bound to happen. Businesses also take on significant risk with influencers because of other businesses. If an influencer takes on sponsorship from one brand that turns out to be fraudulent, then logical questions will be raised as to the legitimacy of all other businesses they promote. So what does the future hold for our multi-millionaire influencer overlords? Well if the gold rush does come to an end, they are all likely going to make a lot less money, but that's probably a good thing. The days of throwing money at online personalities and hoping for the best may come to an end, but it doesn't mean that the practice is going away entirely. Instead it will hopefully mean that online marketing can become something better than a cheaper alternative to traditional celebrity endorsements on traditional media platforms. There is nothing wrong with relatable people giving advice that they believe in about products that they understand and getting paid for it, and the metrics will soon make companies realize that this is what made internet marketing great in the first place. Now if you want to see what a big fat hypocrite I am, go and watch my video where I reveal how much money I made on this YouTube channel after gaining 100,000 subscribers in less than a month. Thanks again for making it possible to keep on learning how money works.