Convincing humans to buy products is a massive business called marketing, and few areas of marketing are growing as fast as influencer marketing. Influencers on platforms like Instagram, Pinterest, and YouTube can command prodigious fees based on their audience size and engagement: some data suggests that a single video on YouTube by a top influencer can command as much as $300,000.
While top influencers often have direct partnerships with product companies, others with smaller audiences often take advantage of affiliate networks to build their revenues. These networks allow an influencer to take a small cut of any sales that are generated through their unique affiliate link, and their flexibility means that influencers can prioritize products that they believe best match their audience.
This industry is regulated by the Federal Trade Commission, which has set out a series of rules requiring paid affiliate links to be disclosed to users. There’s just one problem according to a new analysis by Princeton researchers: very little content on sites like YouTube and Pinterest with affiliate links actually disclose their monetization.
Computer scientists Arunesh Mathur, Arvind Narayanan, and Marshini Chetty compiled a random sample of hundreds of thousands of videos on YouTube and millions of pins on Pinterest. They then used text extraction and frequency analysis to investigate URLs located in the descriptions of these items to determine whether the URL or any redirects behind it connected to an affiliate network.
For all the growth in affiliate marketing, the researchers found that less than 1% of videos and pins in their random sample had affiliate links attached to them. Some categories had a significantly higher percentage of affiliate links though, such as science and technology videos on YouTube which averaged 3.61% and women’s fashion on Pinterest, which had a rate of 4.62%.
What’s more interesting is that content with affiliate links was statistically more engaging than videos without affiliate links. The researchers found that affiliated videos had longer run times as well as more likes and view counts, and a similar pattern was seen on Pinterest. The incentives around affiliate marketing then are clearly working.
The researchers next investigated the text of content with affiliate links and analyzed whether they made any disclosures about their economics to users. Among content that had affiliate links, 10.49% of YouTube videos and 7.03% of pins on Pinterest had disclosures. Worse, the disclosure language recommended by the FTC was only included on roughly 2% of affiliated content across the two platforms.
Given the NLP and basic machine learning methodology of the paper, these numbers should be perceived as a lower bound on disclosures. The researchers also didn’t evaluate audio or video to see if an influencer disclosed affiliations in the content itself rather than in the text. Nonetheless, it is clear that much of the influence economy that exists on these platforms remain cloaked from everyday users, despite being in clear violation of FTC guidelines and rules.
These results raise a series of challenging product and policy questions for startup companies with user-generated content. In the wake of the 2016 election where fake news factories built viral content and generated serious advertising revenues, social networks like Facebook have had to confront the tradeoff between a maniacal focus on quantitative engagement like page views and time on site and the quality of that engagement. If affiliated content does have higher engagement statistically as this study showed, that poses a dilemma for companies looking to boost revenue while also improving engagement quality at the expense of quantity.
For instance, the authors of the study suggest that products like YouTube should have better native features to disclose affiliate sponsors. Placing disclosures though could dampen enthusiasm for some clearly high-engagement content. How then can companies build a framework for building ethical policies that follow FTC requirements while also ensuring their products reach the right metrics?
Finally — and much harder to measure — is evaluating the effect of disclosures on affiliate revenue. Do people click on links less if they know they were placed there because of marketing economics? If proper disclosures dampen the influencer industry, that could put a brake on its breakneck growth.
Such policy and product challenges aren’t simple to answer, but the intensity of the problem is only going to increase with more and more money flowing into the influencer economy. This research clearly shows that there is a wide gap between what the government requires, and what affiliate marketers actually do that needs to be rectified.