Why Being an Influencer Wasn’t Worth the Risk: A Reality Check
Recognizing the death spiral implicit in social media ad spend
Last April, I was in a financial position to take a risk, and it crossed my mind: “Could I just make skiing content and turn it into a career?” I had already spent years as an Ambassador for an outerwear brand, had a network in the industry, and was even encouraged to produce more content by professionals in the ski industry. However, after one quick economic study, I realized that this influencer world was an economic bubble that I could not rely on. It had me rethink my digital life and consider the broader economic implications.
In 2016, I moved back to Colorado from San Francisco, hell-bent on living my childhood dreams in the mountains. The Last Lecture confirmed this was the right choice. I was a washed-up competitive mogul skier who quit competing (and skiing seriously) to get into college, go to college, and start an ambitious career. My main objective was to get into backcountry skiing. While getting into this skiing variant, I accidentally became an Ambassador for a dream soft goods brand: I went into the store to ask for a discount and walked out as an Ambassador. It happened so casually that it took me a while to realize I had checked the childhood dream of becoming a sponsored skier. It was unimaginable!
This was not entirely accidental. It was a byproduct of hundreds of hours of work a year for a few years, immersing myself back into the level of skiing I did in high school. More specifically, it resulted from seizing a small, unprofitable market opportunity to introduce resort skiers to backcountry skiing with the most basic information. Another byproduct of this immersion was getting a voice among the professionals in the industry by writing little notes on equipment. These notes were published as copy on brands’ websites, used in presentations to owners, provided feedback to reps, etc. My dynamic writing style, body awareness, and understanding of ski techniques highlighted the features of different skis. This voice was where I was encouraged to look into creating content more professionally.
My question was not, “What will make me successful at this?” My first question was, “If I took this risk, would it even be worth it?” For it to be “worth it,” I would need to be able to live the same lifestyle as when I had a traditional day job (for the sake of argument, startup founder was my traditional day job). This meant looking at the economics of being an influencer.
Several sources, from marketing professionals to professional influencers, informed me that YouTube was the best economic model to study. This made sense because I already knew that my current value as an Ambassador hardly came from my Instagram posts in my contract. I sold more jackets at the dog park and Whole Foods than from any post (and unlike social media posts, this was more trackable to the store that supported me).
The math and game theory
At the time (July 2023), YouTube paid between $0.01 and $0.03 per ad view. Most people would use these numbers to consider how audience size correlated with income (the correct calculation if you want to be an influencer). However, I was more concerned with “How sustainable would this be as a career?” Would these economic numbers survive any economic shock?
So I took the complementary approach and asked, “What would people give up to give me the $0.003 per second viewing content?” The $0.003 per second viewing content came from taking YouTube’s stated compensation rates, optimizing video length against ad time, and assuming that my target demographic of skiers was among the most lucrative to market to, making for a higher ad rate. Countless blog posts guided me through making this calculation. In the best-case scenario, I would earn $0.003 per second by viewing the content I created.
Then, I created two different content viewers. A full-time equivalent viewer (FTE), where annual income was divided by 2000 working hours in a year, and a waking-hour viewer (WHE), where annual income was divided by all waking hours in a year (4140 hours). The goal was to compare this rate that I earned ($0.003) to the value of people’s time: annual income over the time they worked or the time they could possibly work (as we all give up potential earnings for free time).
That’s where the analysis became depressing. It became immediately clear that the FTE and WHE viewers would generate more revenue for me than a large portion of the population earned in annual income. The FTE viewer was worth $25,000 a year and the WHE viewer was worth $50,000 a year to the content creator; it’s how much YouTube would pay the content creator. 20-40% of the US population could provide me more economic value by watching my content than what they could earn for themselves! It was a classic death spiral.
Progressing through the game theory that people have to earn income to buy products marketed through ads on the Internet, it becomes very clear that any ad for a discretionary good or service can only afford to target people earning over $100k a year. If we’re being really honest, it’s just the top income bracket. This ad compensation implied that the new, low-cost, environmentally-conscious alternative to an incumbent luxury good, democratizing access to a better way of life, didn’t democratize anything but a good origin story. Financially, it still competed for the same customers’ attention with the high-priced, high-margin incumbent. It caps the growth potential of new entrants on these social media platforms.
Confirming the analysis
Since this analysis, I interviewed anyone I knew in a consumer startup success story. The story was always the same: once the company reached scale and saturated its target market, it could not grow because customer acquisition costs (CAC) went through the roof! The reality is that once a product or service saturates the upper income of social media viewers, the only people left to market cannot afford the product. The only companies that grow from this are the ad platforms.
What compounds this problem is that this high-earning demographic is moving away from social media, not towards it. At least anecdotally, this is what I witnessed among my friends. As my friends have become increasingly successful professionally and personally, I have seen them move away from social media. The friends, stagnant or in a rut, flock toward it. Beyond being busy, I found it too mentally and emotionally taxing. A friend who spent a year as a vegan travel influencer told me, “I just got tired of making people feel inadequate because the most successful posts make people feel inadequate.” People who are successful in real life don’t want to feel inadequate in their digital lives. This further decreases the potential for cost-effective growth.
The big picture
The limitations of cost-effective growth on digital platforms drive the broader economic implications. New companies rely on digital ads for growth, and it is effective. The question is whether these new companies unlock new pockets of demand to create a category far bigger than anyone expects. This paid dividends when the Internet was new. Years after we all got too immersed in the Internet due to a global pandemic, this market potential seems less shocking. I am sure marketers, entrepreneurs, and other stakeholders would say, “That’s where AI comes in.” These AI jeans and pickaxes will improve efficacy, but I am increasingly skeptical that a content creation gold rush exists. The analysis showed me that my fear that the content creation “dream job” was more likely to become a complex, cutthroat grind than what I wanted to do.
While I did not become an influencer from this analysis, I did find a new purpose. The analysis further confirmed my suspicions that the venture-backed business cases from 2014 will not apply in the future: the Internet is too known and saturated for endless 100x Black Swan returns on venture investments. The strategy of having one investment asset to return a portfolio will become less dependable. Requiring a new way to manage risk to optimize returns for investments in new ventures. It’s not why I started Parachute, but it contributes to the thesis.