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The Rise of Influencer Marketing

03/02/2023

The past decade has seen a complete transformation of the marketing space. In the past few years alone, we’ve seen digital marketing surge to new heights, thanks to the widespread effects of the Internet, smartphones, and rising consumption across digital platforms. Consumers are increasingly making purchasing decisions based on their social media feeds rather than from their own research or traditional advertising.

In 2022, influencer marketing was a $16.4 billion industry, and now it is projected to reach $84.89 billion by 2028.

It should come as no surprise that influencer marketing platforms are catching the attention of private equity investors. Mavrck, a leading influencer marketing platform, recently closed a $120 million investment from global growth equity firm Summit Partners.

As demand for influencer marketing continues to grow, it’s crucial to understand how influencer marketing is reshaping the digital marketing landscape.

 

The State of Influencer Marketing in 2023

Today, we’re living in the age of the influencer. As daily social media usage continues to grow, influencers play an increasingly dynamic role in the evolution of digital marketing. The right voices can influence everything from what consumers buy to the brands they trust.

In 2023, the power of influencer marketing is all about authenticity, community, and trust. Influencers have built a following based on strong ties to their niche audience. This connection inspires the kind of trust that can influence purchasing decisions, as an estimated 84% of shoppers say they’ve made a purchase based on an influencer’s recommendation.

This power doesn’t just extend to influencers with massive audiences. Micro-influencers ranging between 1,000 and 20,000 followers have just as much potential — if not more — to reach their audiences. Smaller influencers can connect with more niche audiences, including those not as swayed by traditional marketing efforts. As a result, their engagement rates are much higher. In 2021, micro-influencers had an average engagement rate of 4.6% — more than triple the rate of influencers with over 20,000 followers.

Social media platforms are also evolving, creating new opportunities for creators and brands alike. As online shopping continues its meteoric growth, platforms like Instagram and TikTok have launched e-commerce integrations making it easier for users to shop in the app. To help creators monetize their work, TikTok rolled out virtual tipping, and YouTube launched the Shorts Fund.

 

How Brands Are Leveraging Influencer Marketing

It’s safe to say that we’ve hit an inflection point, and influencers are now essential to digital marketing. Brands of all sizes are making influencers a core part of their marketing strategies. An estimated 93% of marketers have used influencer marketing in their campaigns, and the total influencer marketing spend is expected to cross the $6 billion mark in 2023.

When influencer marketing first emerged, most brands collaborated with creators only to boost their sales. While this remains a key benefit, it’s not the only reason brands work with influencers. Building relationships with influencers can help grow brand recognition, create user-generated content, and reach an untapped audience on social media.

This is especially critical in today’s oversaturated digital world. Only 19% of people said they felt social media advertisements were trustworthy. Influencer marketing offers a way to cut through the noise — delivering advertisements in a natural, engaging content format. Influencer content comes across as fresh, genuine, and entertaining compared to traditional social media ads. It drives brand messages while still maintaining a personal touch that naturally resonates with followers.

When done right, brands can see significant results from influencer marketing. Campaigns can deliver a much higher return on investment — 11x the ROI compared to other forms of digital marketing.

 

The Metaverse and Influencer Marketing

Described as the future of the Internet, what’s known as “the metaverse” is poised to be the next big tech phenomenon.

The metaverse is a combination of the Internet and augmented reality. It’s an interactive network of shared virtual worlds viewed through real-time 3D software. In the metaverse, people won’t consume content anymore — they’ll be active participants right in the middle of the action.

As the concept of the metaverse is continuing to develop, it is hard to accurately predict all the avenues the technology will find product-market-fit. But despite the ambiguity surrounding the metaverse, plenty of big-name brands like Coca-Cola and Gucci are already exploring the metaverse’s potential for a new digital marketing era. Recent predictions say it has the potential to generate up to $5 trillion in value by 2030. However, the unpredictability of the success of the metaverse makes it a riskier investment.

For influencer marketing, a successful metaverse holds great potential. It could take influencer marketing to a whole new level. Here are a few examples of how the metaverse could transform the world of influencer marketing in the near future.

  1. Interactive Partnerships

With the metaverse, influencer partnerships don’t have to start and end with a social media post. Influencers can explore a more engaging and immersive medium to interact with their followers.

An influencer can turn a brand collaboration into an interactive 3D experience within the metaverse. For example, fashion influencers can take their followers on a virtual wardrobe tour, or a fitness creator can host an interactive workout to get followers on their feet. The brand can overtly host these events or feature a more subtle incorporation of branded clothes or other products.

This kind of experience brings the audience deeper into the brand collaboration. Unlike a photo or video that can be easily scrolled past, this format guarantees higher engagement from an influencer’s most active following.

  1. Non-Fungible Tokens (NFTs)

Within the metaverse, creators can use non-fungible tokens (NFTs) to enhance how they engage with their audience. Influencers can offer benefits for their audience but make them only accessible through unique NFTs. From exclusive content to unique branded products, the applications for NFTs in the metaverse will have profound impacts on the future of influencer marketing.

It is important to note that brands don’t just generate revenue through NFTs. They can use the NFTs to cultivate a strong brand image while making followers feel like they’ve gained access to a more exclusive community of fans.

  1. Virtual Influencers

There’s no question that the metaverse will change how brands and influencers collaborate. But it may also change the nature of influencer marketing by creating a new virtual influencer.

Virtual influencers are digital avatars built through computer-generated imagery. While they’re fictional characters, virtual influencers are designed to have life-like features and characteristics that imitate those of a human influencer. Each one has a unique appearance, personality, and values. Brands can partner with independent digital influencers or even create their own avatars in the metaverse.

This strategy does more than just attract attention from curious followers. With a virtual influencer, businesses have full control over how their avatar represents the brand. Everything from how they look to how they talk with followers can be carefully crafted to generate the best marketing results.

 

Private Equity Activity in Influencer Marketing

While most of the attention falls on the influencer, the companies empowering these creators have the most power in the influencer marketing space. Influencer marketing platforms — which help connect brands and influencers, streamline campaigns, and monitor analytics — are catching the attention of strategic investors as they continue to grow. Funding for creator-focused companies reached $3.7 billion in 2021.

In the early stages, influencer marketing platforms were primarily the focus of venture capital investment. Now that these companies have grown, however, they’re drawing the attention of more buyers, including private equity investors.

The massive growth of influencer marketing offers excellent opportunities for investors, but it comes with challenges too. For both companies and their investors, the field has become highly competitive. With no shortage of influencer marketing companies fighting over a pool of successful influencers, each company can fight to attract and retain the best creators on their platform.

Another challenge that companies and investors are faced with is the influencers themselves. While influencers can connect with their audience on a level that brands often can’t, this can come with a level of risk. Even with strict guidelines, it’s impossible to fully control the words and actions of an independent content creator. When an influencer becomes controversial, their partnering brand can face the consequences.

A recent example is Spotify’s hosting of Joe Rogan’s podcast “The Joe Rogan Experience,” which came under fire for alleged misinformation. In light of the controversy, Spotify faced a wave of public and financial backlash that ended with celebrities like Neil Young and Ava DuVernay cutting ties with the platform.

 

What’s Next for Influencer Marketing?

The competition may be heated, but the influencer marketing space holds a promising future for platforms and investors. As it continues to match — and exceed — growth projections, it’s clear that influencer marketing is transforming the digital marketing space for the better. From NFTs to virtual creators, adopting the metaverse will only drive influencer marketing innovation even further into the future.

*One of DCA’s guiding principles is that we will communicate with our investors and prospective investors as candidly as possible because we believe investors and prospective investors benefit from understanding our investment philosophy and approach. Our views and opinions regarding the prospects of investments and/or the economy are forward looking statements as defined under the U.S. federal securities laws, which may or may not be accurate and may be materially different over future periods. Generally, the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “project,” “will,” “may,” “should,” “plan,” or the negative of such terms and similar expressions identify forward looking statements. Forward looking statements are subject to certain risks and uncertainties that could cause actual results to materially differ from an investor’s historical experience and current expectations or projections indicated in any forward looking statements. These risks include, but are not limited to, equity securities risk, corporate bonds risk, credit risk, interest rate risk, leverage and borrowing risk, additional risks of certain investments, management risk, and other risks. We disclaim any obligation to update or alter any forward looking statements, whether as a result of new information, future events, or otherwise. You should not place undue reliance on forward looking statements, which speak only as of the date they are made.

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