Influencer marketing is on a growth tear. Not only is it the fastest growing online customer acquisition method, but it’s also the most cost effective on average, earning marketers $6.50 worth of promotional activity for every dollar they spend. However, the relative immaturity of the influencer-marketing ecosystem has caused headaches for influencers and marketers alike, leading us to explore this new and at times fraught relationship between social media superstars and advertisers.

For the uninitiated, influencer marketing is the use of social media personalities (think Pewdiepie or Michelle Phan) to use, endorse, or otherwise plug products and services. It’s the social Internet’s answer to celebrity endorsements, but with a millennial-focused emphasis on authenticity and subject-matter expertise. The problem is that a multi-billion dollar industry exists to support the needs of traditional celebrities, while a support system for influencers is only just now emerging.

To explore this “Wild West” of the media world, we turned to Karl House, founder and CEO of Tandem-backed influencer monetization platform FanBread. Below, Karl offers up an insider’s perspective on both the current state of influencer marketing and its rather uncertain future.

Please take a moment to introduce FanBread to our readers who may not be familiar with the company.

FanBread was built on the premise that, thanks to the success of social platforms like Facebook, YouTube, and Instagram, individuals are now well-positioned to establish their own media brands. Traditional media companies like Time and Hearst had to pursue many years of slow, organic growth to become behemoths. Now that social media has disrupted the old guard, individuals can amass an audience and build their own media business more rapidly than even large corporations could before.

Unfortunately, individuals are just not as capable of creating the massive amount of content that is required to continuously engage a large social following. At the same time, freelance content creators need more outlets to distribute and monetize their creative work. FanBread offers a marketplace to connect popular influencers and content creators, bridging this capability gap.

The influencer trend is relatively new in the world of marketing. Is it just a fad?

It could be, but influencer marketing has proven to be generally effective. A recent study showed an 81% satisfaction rate for brands working with influencers, and influencer marketing is now picking up around 5% of ad budgets. Unfortunately, these statistics don’t necessarily equate to staying power. Influencer marketing has limitations. For one, it doesn’t work nearly as well for large corporate suppliers like IBM as it does for a retailer like Taco Bell.

Second, it isn’t very scalable. It’s human-reliant and, more often than not, individual-reliant. It takes time for brands to identify the right influencer fit for a campaign. On top of that, brands need to work closely with any individual influencer to specify campaign expectations and make sure they are met. The dual costs of due diligence and handholding make influencer marketing very resource intensive.

If the trend does turn out to be a fad, it will be because of these dual limitations of reach and scalability. While everyone, including FanBread, is doing their best to solve these challenges, there is currently no industry-wide solution.

FanBread is seeing particular success with Facebook, which isn’t as well known for influencer marketing as YouTube or even Instagram. What advice would you give to influencers looking to establish a significant presence on Facebook?

Influencers would do well to remember that Facebook is not necessarily a Wild West of creativity. It’s a proprietary platform with its own needs that may conflict with your own. Facebook makes the rules; influencers and brands follow them.

Just look at its relationship with publishers through Instant Articles. Facebook has imposed ad type and volume limitations on those publishers using Instant Articles. If the platform only allows ¼ as many ads as a publisher would normally display, you would need >4x the views or CPM to make Instant Articles worthwhile. I’m not sure publishers are seeing that kind of take-up on the platform versus their original shared links, which could indicate a drop-off in ad revenue due to Facebook platform control.

A more extreme case is evidenced be tsu.co. Tsu.co is a small, invite-only social network that incentivizes its users to share content on large platforms like Facebook by giving them a slice of the ad revenue. These incentives are against Facebook’s TOS. They can result in spam-like content on the platform, which the company takes very seriously as it could potentially drive users away. To protect against this in tsu.co’s case, Facebook began to block not only the sharing of tsu.co content, but also any link or mention of the site — even in Facebook Messenger. (See Wired’s Facebook is Blocking an Upstart Rival — But It’s Complicated)

In a nutshell, don’t forget you’re borrowing Facebook’s platform and definitely play by its rules.

How has Facebook’s recent investment in video affected influencer marketing on the platform?

While Facebook’s focus on video is certainly helping influencers, the site is still developing its long-term strategy. Its current offering is early and not that competitive against some other social platforms in terms of video monetization. At least not yet.

YouTube is the only player monetizing well enough to really incentivize content creators with meaningful revenue opportunities in video. YouTube uses a 55%/45% creator/platform split in rev share on pre-roll ads, which have proven effective. Facebook meanwhile is still in the early days of how it will deploy its own video monetization.

Currently, when you watch a video on a Facebook video partner channel there will be a number of related videos shown under the main player. One of these related videos could be an advertisement that, if clicked, generates revenue to be shared among all the related videos offered up. While this approach is less intrusive than pre-roll, monetization is likely not as strong. Facebook is currently under-leveraging its monetization opportunity and will almost certainly need to move toward a strong revenue sharing model in the future if it decides to really compete for influencer talent.

Adding to this, Facebook has built in limited reach to its platform. Its algorithm only delivers your content to a subset of your fans, requiring paid boosting of content to go beyond this subset. This is not true of most other social platforms.

What’s needed for influencer marketing to live up to its promise?

Consolidation and formalization.

On consolidation, there are just too many influencer marketing players in the space, causing problems for brands. Now that everyone wants to be an influencer, brands have to commit ever more resources to effectively discover who is the right influencer for their campaign. A shakeout in the space would significantly reduce the strain on brands, making influencer marketing more efficient while benefiting the ecosystem overall.

On formalization, there is a near total lack of accountability when it comes to influencer marketing contracts. MPN (formerly ‘MCN’) content developers should technically be exclusive to their MPN, but there is no reasonable way to police this. Either MPNs take money out of the breaching influencer’s pockets, risking their departure, or they allow it to happen, eroding their own value proposition. As of right now, most influencers are essentially free agents wandering the world with no organization.

This combination of disorganization and informality poses, in no uncertain terms, an existential risk to influencer marketing. If it is to live up to its potential, consolidation and formalization are vital.

This article is cross-published on Medium. Head there to recommend and comment.

Featured image courtesy of Incase via Flickr.