Do Influencers Produce Results?

It is springtime in 2019 and Instagram influencers are still all over the place and the financials and ethics are still murky. I’ve been trying to understand the financials a bit more lately and learn the real value of a post. The group I am especially curious about is the average self-proclaimed “influencer.” Let’s say this group typically has an Instagram following of somewhere between 25k and 100k. It’s no secret that some portion of their audience is not true followers but some combination of purchased followers (more on that below), bots, and other influencer accounts trying to grow their audience. So how much does a post by this influencer really move the needle for the sponsor? Let’s look at an example below.

Nathan Latkas’ new book, How to Be a Capitalist Without Any Capital, has a section where he shared a few of his bigger wins as an Instagram influencer. For example, I think he had a few free nights in the penthouse room at a luxury hotel in exchange for making a few Instagram posts while he was on the property. He also agreed to provide five-star reviews. At the time of writing this, his personal Instagram has around 25k followers and his travel social media account has 159k followers. To obtain all those follows Nathan shares his trick. Buying existing social media accounts. Buying accounts is a gray area, to workaround this he instead recommends buying “the company” that owns the account which is really just a wrapper around the account. Next, we will look at the numbers a bit…

Let’s say Nathan’s post reached 50,000 people and even 75% of them are real, this means roughly 37k saw the post. Another way we can estimate reach is to say roughly x% of people that see a post like it, so take the numbers of likes/average like percentage = approximate views. The real question is out of the 37k people that saw the post how many will this influence? Specifically how many are likely to then go plan a trip to Bali and stay at this hotel because they saw a selfie or two from someone at the property? My guess, effectively zero. The logistics behind this seem too complicated. However, maybe the hotel has a high vacancy rate and this is a cheap way to cast a wide net.
Although the example above does not scream ROI, I do think Instagram influencers can generate a positive ROI for the companies buying their posts. To do so requires excellent execution, the company, and influencer to have overlapping audiences, and accessibility – the product or service should be widely available and easy to purchase before the post has left the viewers head.

Reviewing Old Business Ideas

While I was cleaning out my Google Drive, I discovered an old Google Doc of mine from 2014 called “Business Ideas.” The doc contained some business idea brainstorming I had in note form. Most of the ideas were too generic and likely wouldn’t have gone anywhere. However, I did seem to identify a few trends that would continue to grow – too bad I didn’t find a better way to capitalize on them!

Here are two screenshots from the doc:

The trends I think I got right were the continued growth in YouTube & live streaming (ex. Twitch, gamers). Patreon is probably the biggest software that has been created to support streamers. In hindsight, there were many ways to capitalize on the growth of YouTubers and streamers. GOOGL (owns YouTube) was trading around $550/share at the time my doc was created and has more than doubled to about $1,200. I’m not sure what public companies are most tied to some of the equipment that streamers use but Sony and Best Buy come to mind – SNE has gone from around $18 to $46 and BBY from $22 to $74 (although a big reason for BBY’s success is Geek Squad). For comparison, the S&P 500 went from about $1,900 to $2,800 and the Nasdaq from $4,200 to $7,900 during the same timeframe. Even with the recent pullbacks Sony and Best Buy have experienced they both drastically outperformed the S&P and Nasdaq.

Graph comparing Nasdaq, S&P 500, Google, Best Buy, and Sony

I think it’s time to start another Google Doc and put a little capital behind any new trends I feel
strongly about.