‘Influencers’ Are Costing Companies Billions in Fraud

Roberto CavazosRoberto Cavazos, Executive in Residence at the University of Baltimore’s Merrick School of Business and a veteran economic analyst with extensive experience in financial, data and health care fraud, says the growing “influencer” sector of marketing and promotion is an exciting development with great potential—but fraud is a serious problem that is costing companies billions, with no end in sight.

Cavazos, who has been speaking out in recent months about the problems of veracity in many forms of advertising and marketing, particularly in the digital space, made his comments as part of his ongoing work with CHEQ, a Tel Aviv-based cybersecurity company specializing in risk management for online advertising. CHEQ’s global reporting with Cavazos estimates that marketers are expected to lose $1.3 billion this year in online ad spending because of fake influencers and followers. These are direct global economic costs, the report notes—and that number is conservative.

“Indirect costs, through erosion of trust and impact on brands, are likely to bring longer-term economic losses,” the report finds.

“Influencer marketing is an exciting and fast-growing sector, but the amount of fraud and potential for harm in the sector is already highly significant,” Prof. Cavazos says. “In any transaction across the economy, efficiency and profits are underpinned by trust. While many initiatives are being put in place, with a strong recognition of the dangers of a few bad actors, trust must continue to be embedded, otherwise longer term we could see a decrease in revenues, falling consumer engagement or brands choosing not to run campaigns.”

According to a variety of media reports, influencers can violate the trust of their followers by claiming to use products they know nothing about, or endorsing events that are fraudulent or highly exaggerated. The notorious Fyre music festival is one of many examples of influencers being pulled into and, in turn, advancing a major scam. More recently, an Instagram influencer admitted that she used Photoshopped images and fictionalized stories to claim that she attended Coachella.

Cavazos and CHEQ founder and CEO Guy Tytunovich agree that the digital space is rife with these problems, and that it’s up to users to sort them out and be wary of virtually everything that crosses their screens.

“In every aspect of digital marketing, there has always been a way for people to buy or fake the numbers,” Tytunovich says. “This has been the case with other more advanced deceptions—such as ad fraud which costs marketers at least 20 times the costs of fake influencer marketing. It is important at this early stage, when best practices are being formed, that everyone in the online influencer marketing ecosystem, including influencers, technology providers, platforms, and brands, seek to mitigate the early problems and deliver the authenticity and trust we all want to see.”

Read Cavazos’s report, “The Economic Cost of Bad Actors on the Internet: Fake Influencer Marketing in 2019,” for CHEQ.

Read about the report in Campaign US.

Learn more about Prof. Cavazos.

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