The Wild West is Ending – Influencer Marketing Regulations are Coming

Like any booming industry, regulators have no choice but to play catch-up with Influencer Marketing. This is especially true considering that influencer marketing today is less than a white-hat industry, where almost all standard regulations go ignored.

Undisclosed partnerships and affiliations are commonplace. The widespread use of fake followers makes ROI calculation impossible. There are even reports of paid-for negative reviews, which is forbidden by existing regulations and even some state laws.

The only questions remaining is who will keep the industry in check, and when will the eventual crackdown happen?

This article offers an overview of the current issues of influencer market, recent industry reactions and possible solutions.

If you wanna know more about what the industry says about how the future of Influencer Marketing looks like, be sure to check out our 2019 Influencer Marketing Predictions!
Let’s first take a look at where the market is standing today, and what challenges face it at the moment.

Influencer Marketing Today

Let’s first take a look at where the market is standing today, and what challenges face it at the moment.

Price Gouging & Retaliation

The influencer marketing industry today has by many issues.

But an especially controversial one made waves when exposed last year by Marlena Stell, owner of Make Up Geek and a veteran Influencer. It all began on Aug 27 with her video “My truth regarding the beauty community”. She tells her experience attempting to promote Geek Cosmetics with the help of influencers.

The first interesting piece of information was the payments that influencers demand. But even more interesting, what they may do when you refuse to pay.

Influencers today, she claims, price themselves at as much as 20,000$ for a post and a 60,000$ for a video. She says this is a sum that small companies, like Make Up Geek, cannot afford. Furthermore, she says that refusing to pay may result in retaliation. This ranges from categorically ignoring her products or even posting faux negative reviews to hurt her image.

That last detail is critical. Posting disingenuine negative reviews is against FTC & ASA regulations, and in some cases, against state law.

Paid-For Negative Reviews

A day after Marlena’s video was posted, her claims were confirmed by another veteran of the beauty industry. Award-winning make-up artist and blogger Kevin James Bennett has posted the following tweet:

View this post on Instagram

I'd like to thank @marlenastell for having the courage to publish a YouTube video exposing what's going on behind the scenes in the cosmetic industry. I've attempted to shed light on the mobster-like behavior of top-level beauty influencers and their management… and I've been accused of jealousy, called a liar and hater. FACT: A brand I consulted with asked me to inquire about working with a top-level beauty influencer. The influencer's management offered me these options: 1) $25K – product mention in a multi-branded product review. 2) $50K-$60K – dedicated product review (price determined by length of video). 3) $75K-$85K – dedicated negative review of a competitor's product (price determined by length of video). 4) A minimum 10% affiliate link or code to use on IG and YT. Yes, option #3 is legit – payment to damage the competition's business. I told you it was mob-like behavior. The demands and threats of "influencers" and their management have GOT TO STOP. The lack of disclosure by top-level influencers is FRAUD and it's time for the Federal Trade Commission (FTC) to step in, start charging fines and shut this bullsh*t down. To the followers/subs who STILL refuse to believe their idols are thugs – pull your head out of your favorite beauty influencer's ass and SEE what's actually going on in this industry. #beautyinfluencers #fraud #FTC #makeup #makeupeducation

A post shared by Kevin James Bennett (@kjbennettbeauty) on

Kevin James Bennett’s Instagram post

Confirming sums of around 20,000$ and 60,000$ being offered by brands, he also ramped-up allegations of (de-facto) deceptive advertising. He alleges that brands offer apayment for negative reviews – willing to pay 75,000$ – 85,000$ for the service.

The main difference between the claims here is that brands know the current regulations on advertising. No brand has mistakenly or innocently paid for a negative review. If true, such actions show intent and willingness to exploit a young market by overlooking regulations.

These practices would easily be considered to be de jure deceptive advertising in any other industry. That’s a recurring motive that you may notice in the Influencer Industry. Some very basic rules and standards seem to go completely ignored.

Instagram Bot & Fakes

As the industry grew, social media followers have become a vital indicator of people’s influence, credibility and earning potential. But now this is somewhat changing due to several factors.

First would be bot apps for growing followers, such as InstarocketProX and Boostio. They charge $10 to $45 per month and often claim not to violate Instagram’s policies, although they do. With brand-sponsored micro influencers on the rise, investing tens of dollars for a possible return of thousands is tempting.

The purchase of fake followers by influencers renders that calculation of ROI impossible for companies. The possibility of fake followers means fake engagement, which means a waste of money. Brands can’t have even the slightest idea of how many eyes are seeing their message.

In fact, The New York Times this year found that many well-known, mainstream celebrities had stooped to buying fake Twitter followers from a company called Devumi. This can serve as only further evidence on how skewed the numbers really are on social media.

A Lack of Disclosure

The third major issue with influencer marketing, going back to government regulations, is simply the typical lack of disclosure.

Federal regulators require social media personalities to alert their viewers to promotional payments for any products they’re promoting. An analysis by Princeton University researchers shows that such disclosures are rare.

According to the study, disclosures were present in around 10 percent of affiliate marketing content on YouTube. They fall into one of three categories:

  • Affiliate Link” disclosures
    • For example: “These are affiliate links”
  • Channel Support” disclosures
    • For example: “Shop using these links to support the channel.”
  • Explanation” disclosures
    • For example: “I am an affiliate with Amazon, which means I get a commission when you buy through my links”

The first type of disclosure was the most common. Funnily enough, that is exactly what the FTC says people shouldn’t be using. Their meaning is not always clear and not all users are aware of what affiliate links are.

The researchers claim that the FTC has not exercised its authority to prosecute violations, issuing only warnings in the past. They call for broader regulation, suggesting that social media platforms should make it easier to disclose marketing relationships in a standardized way.

Industry Reaction

For every action there is a reaction. Naturally, the problems discussed above have caused worry about the future of influencer marketing. Most agree that some reform is required for it to survive.

Today we can see the first real attempts to standardize the industry. But these are coming from brands and influencers rather than official regulators.

Business of Influencers board (BOI)

The Business of Influencers(BOI) board is a UK based organization founded recently by Ian Shepherd, CEO at The Social Store and former Disney Business Development Director. It includes five other industry leaders and has the goal of “establishing a clear set of principles and guidelines for campaigns, and building a sustainable future for the influencer marketing industry”.

“It’s important to ensure these major decisions are made by smart people who are knowledgeable about Influencer Marketing and the industry in which it operates,” said Shepherd, “Having already established the BOI community, the board will serve as an advisory committee to agencies, brands, start-ups and influencers. As this exciting industry develops at pace, it will be crucial for us to maintain a collective voice.”

The ASA, UK’s regulator of advertising, agrees. They commented on the appointments: “We welcome initiatives designed to bring together industry groups, with the intention of promoting and ensuring responsible advertising for the benefit of consumers and marketers alike.”

This is a good first step towards a stardanization of the industry. The support of the ASA is promising as well.

But the BOI aren’t the only ones driving towards a market reform.

Steven Bartlett’s Social Chain is tackling influencer fraud

Steven Bartlett, founder of Social Chain social media marketing agency, has set his sights on tackling influencer fraud. He recently said he considers it to be “one of the most widespread scams in the history of marketing”.

Social Chain dedicated six months to building an AI tool, Like-Wise, which identifies accounts that buy followers.

“In simple terms, the tool collects data from all of the largest bot farms and builds a database of tens of millions of fake profiles,” Bartlett explains. “Then simultaneously scans hundreds of thousand so influencers to see which influencers are getting engagement from these apps.”
Bartlett outlined a case whereby a fashion influencer, with over 230,000 followers and as much as 22 company partnerships this year, was only registered as having 4% organic engagement.

Steven Bartlett’s Social Chain is working on “Like-Wise”, a service designed to detect fake engagement.

Bartlett outlined a case whereby a fashion influencer, with over 230,000 followers and as much as 22 company partnerships this year, was only registered as having 4% organic engagement.

She reportedly worked with industry giants like Unilever, who paid large sums of money for only 4% potential reach. Bartlett concludes: “It’s time to clean up the industry”.

Speaking of Unilever, they and others seem to agree with Bartlett.

Unilever’s & Kellogg’s New Standards

It looks like Unilever wants to clean up the industry too. They aim to do so by setting a standard in the form of committing themselves to strict guidelines. “We need to take urgent action now to rebuild trust before it’s gone forever.” said Chief Marketing Officer Keith Weed in a recent blog post.

In the same blog post, three new Unilever ‘commitments’ were announced:

  • Transparency from Influencers:
    • We will not work with influencers who buy followers.
  • Transparency from Brands:
    • Our brands will never buy followers.
  • Transparency from Platforms:
    • We will prioritise partners who increase transparency and help eradicate bad practices throughout the whole ecosystem.

It’s worth mentioning that Kellogg’s have also taken steps towards combating fake engagement.

“We don’t buy social media ads based on reach anymore because it can be easily faked,” said Joseph Harper, social media lead at Kellogg’s. “We’re trying to move away from being solely reliant on vanity metrics and take into account the sentiment of posts as well as the different types of conversations happening around them.”

Back to Unilever, Luis Di Como (EVP/global media), has also commented on the need for benchmarking: “There is an obsession that the only KPIs out there are ‘reach’ or ‘number of followers […] We need to talk about what the real impact is on brand equity – the real impact on the values of the brand.”

A solution to this is in fact being attempted today, in the form of the “True Reach” benchmark.

The “True Reach” Benchmark

One of the critical aspects of the standardization of any industry is a standard KPIs(Key Performance Indicators). Having a market-wide benchmark that companies can follow. It is effectively the best metric that to determine if your campaign was successful and to what extent.

Without benchmarking influencer marketing campaigns, brands can’t really know if their money is spent effectively. They can’t, for example, know which people have fake followers and which are influential in their niche and target audience. Today, brands can tell how influencer expenses stack up against the rest of their budgets. But they can’t compare it to other companies looking to reach a similar audience.

To offer a solution, Buzzoole has recently teamed up with Nielsen to launch a “True Reach” calculator. The calculator aims to show how many people were actually exposed to an influencer’s message.

Buzzoole data can be combined with the user’s data as well as Nielsen’s. This will allow to benchmark campaigns against industry averages for a particular product or service within a target audience.Currently the UK regulator, the ASA(Advertising Standards Authority), has posted a guide for influencers, written in in collaboration with the CMA(Competition and Markets Authority).

Platform & Government Regulations

Currently the UK regulator, the ASA(Advertising Standards Authority), has posted a guide for influencers, written in in collaboration with the CMA(Competition and Markets Authority).

So far the USA regulator, the FTC Creator accounts will most likely become standard as Social Media and e-Commerce becomes more and more intertwined. Sooner or later, most likely, government regulators will require a distinction between private and business accounts. Regardless, the introduction of creator accounts is at the very least a significant step towards standardization.
(Federal Trade Commission), have only issued some guidelines on their website.

Instagram begins to test out “creator accounts” with more privileges, somewhat similarly to what Twitter does today. This comes after several purges of fake accounts, with a warning issued to those who use bot apps.Even if Social Chain, Unilever & Kellogg’s succeed in their anti-fraud initiatives, and even if the BOI works with the UK regulator to set standards for governments around the world, there’s still a question remaining. The elephant in the room is this:

Creator accounts will most likely become standard as Social Media and e-Commerce becomes more and more intertwined. Sooner or later, most likely, government regulators will require a distinction between private and business accounts. Regardless, the introduction of creator accounts is at the very least a significant step towards standardization.

The Future of Influencer Marketing

The only question remaining is, what 2019 has in store for influencer marketing?

It seems that Influencers, agencies and brands are waking up to the state of the industry, each for their own reasons. As of now it’s them, not the government, who are taking the reins when it comes to eliminating fraud and setting industry standards.

But what happens if those efforts are in fact successful? Regardless, we will most likely see significant change in the influencer industry, and in how consumers relate to it.

A New Standard

Even if Social Chain, Unilever & Kellogg’s succeed in their anti-fraud initiatives, and even if the BOI works with the UK regulator to set standards for governments around the world, there’s still a question remaining. The elephant in the room is this:

If the influencer industry becomes fully regulated, standardized and transparent, what distinguishes it from traditional advertising on legacy media?

This year, we can expect to see authenticity hurt across the board. When all marketing relations are fully transparent, people may take the opinions of influencers less as personal advice; less as opinion and more as the paid promotion that it is. If for example creator accounts automatically inform the users that a post is sponsored, they may skip it altogether.

Already savvy consumers are about to learn a lot more about the behind-the-scenes of influencer marketing. In fact, the moment that sponsored accounts will be tagged on social media, is the moment that an “adblock” for influencers becomes a realistic (if not likely) possibility.

If influencer marketing wants to survive influencers will have to find a way to give brands real added value. Just having an existing fan base will not be enough anymore. Practically, influencers will need to be able to pursue users to consume their content even if they know it’s sponsored.
For some influencers the transition will be seamless. Some can simply say something along the lines of “I only sponsor products I like regardless of whatever I may earn”, and their audience will accept it easily. It all comes down to how much the fanbase trusts the influencer.

The Micro/Nano Predictions Are (Probably) True

For some influencers the transition will be seamless. Some can simply say something along the lines of “I only sponsor products I like regardless of whatever I may earn”, and their audience will accept it easily. It all comes down to how much the fanbase trusts the influencer.

But a certain group has a huge advantage when it comes to trust. You guessed it – micro and nano influencers will most likely only benefit from a regulated market. As we said, fans of smaller creators and influencers already trust that they make make recommendation based on honest opinion. And if the content is sponsored by someone, they will see it as a personal, genuine endorsement.

This trust is not misplaced. It seems that micro influencers actually believe in the things they promote. “37% of micro influencers recommend products on a daily basis, even if they have not paid for it, which is common for them.” reports a recent study. In fact, 99% report that they believe in the products that they are promoting, regardless of sponsorship.

Secondly, micro and nano influencers usually more readily comply with disclosure agreements. It’s only natural for smaller accounts to be straightforward about financial realities. It’s common to see something like “Please use the links in the description to keep this channel alive”. This alone gets them a bit closer to the required disclosure. What’s more, ‘help me provide you with more content’ is not a bad deal for an invested fanbase.

What About Agencies?

The rise of micro influencers may also put in question the role of agencies in the market. You could say that the transition to a micro influencer based market is already happening. But not for the same exact reasons.

The other reason to prefer smaller influencers is how much control the brands have. Beyond the budget question, macro influencers often communicate with brands through agencies and not personally. This raises fees and generally complicates things.

Agencies disappearing altogether is unlikely. But it is possible that we will see a sort of a consolidation with just a few agencies left operating. Looking at the examples above, like BOI, this all may happen by cooperation between big agencies. It all depends on how much regulation can hurt mega influencers, and how far can the market go towards prioritizing micro influencers.

But it’s most likely that we will simply see a new kind of agency spreading. It will be mainly for micro and nano influencers, with a different set of goals and necessities.