Would you believe that a social media creator sold more than a billion dollar’s worth of beauty products online in just 12 hours? It may be surprising to most of us but for Li Jiaqi, a Chinese celebrity known for running marathon live streams, it was just a piece of cake. Can Indian influencers achieve the same feat?
As per our estimate and based on discussions with several industry participants, India has 4.5M creators (1000+ followers) on platforms like Instagram, Youtube, Josh, Sharechat, and this base grew 100% last year. These are individuals with a passion to create and desire to monetize their content. Today, these creators monetize via brand sponsorships, ad-revenue sharing by the platform, subscription services, gifts/ tipping and IP creation.
Despite all their efforts, only top 150K influences are able to earn enough to follow this as their full time profession. Also known as Mega and Macro creators, they are individuals with 50K+ following on social media. Majority of these creators rely on brand sponsorships to earn their living. Within this vast creator universe, the remaining 1.3M micro (5K-50K followers) and 3M nano (1K-5K followers) creators struggle to generate meaningful income for all the hard work they do.
This begs the question, can creator-commerce (ecommerce enabled by creators) democratise the revenue potential of each influencer by making it performance based? Can creator-commerce increase the available pie and make marketing spends on creators a win-win for both brands and creators?
The micro and nano creators struggle with monetization primarily due to their smaller follower base and brand’s inability to judge the ROI of spend on them. Most of them consequently end up working with brands in a barter model. Our research shows that when it comes to driving sales, micro and nano influencers prove to be more effective with a 2-5x engagement rate as compared to mega-influencers. One of the creators said,
“I was scouting for brand deals and didn’t monetise until I hit 200K followers. I saw constant growth while working with my current agency, seeing monthly income grow from a few thousands to a few lakhs now over the last two years. I even have a manager now who understands which brands I like to work with”.
Every micro and nano influencer who treats creation as her full time profession, aspires to reach these scales.
If you talk to D2C brand owners, skyrocketing paid marketing costs have led them to turn to influencer marketing in search for the next unlock. Challenge with influencer marketing is around attribution and accurate ROI estimation of the spends. For brand owners, the ultimate holy grail would be a perfect pay-for-performance model, one where they can directly attribute sales to specific creators.
The next question to answer is, are consumers willing to buy products based on creator recommendations? With increasing propensity to buy on social media platforms led by growth in video content consumption and affinity to “favourite influencers”, we believe that the consumer is indeed ready.
There are a variety of creator-commerce models that are emerging to solve the challenges faced by brands, creators, and consumers. The first business model is “creator-powered consumer applications” where consumers can shop for products recommended by their favourite creators. One of the recent members to the unicorn club is LTK, a leading influencer shopping app. With over 150K creators, LTK has paved the way for micro and nano-influencers to start making money commensurate with the sales they generate while working for the brands they love. Such a model is likely to be a winner-take-all business, driven by strong network effects. When we spoke to creators, one of them said,
“I will be happy to work with such players as I can choose the brands that go well with my fans and have a greater control on the money I can make by posting stories on Instagram”. The creator we spoke to even said, “I always wanted to showcase my style through my own store”.
Another variation of this model can be seen at Shop My Shelf, a platform enabling creators to curate and share links of their personalized stores on social media with their fans.
The second business model targets “creator-owned brands”, enabling creators to become entrepreneurs. These platforms offer services like manufacturing to supply chain to warehousing to fulfilment. Such businesses will gain from economies of scale and backend synergies. Spring, one such venture in the US, has 450K creators and is operating profitably in product categories such as apparel, accessories, digital lifestyle, etc. Similarly, Pietra is another US-based player which started with jewellery and now operates in product categories such as apparel, cosmetics, swimsuits and more.
The third model is a “B2B marketplace of creators” designed for brands looking to find the right set of creators. These solutions help brands with data-based discovery of creators and access to right tools for ROI measurement at scale. One of the brands we spoke to shared,
“We rely on agencies only to collaborate with mega-influencers but have our in-house team to find and collaborate with others, as agencies don’t often meet the ROI promise”.
This model is equally instrumental for creators as they get higher visibility and hassle-free payments. Brands traditionally partner with agencies to execute their influencer marketing efforts. A marketplace solution will help accelerate creator-led marketing and commerce, especially for brands poised for growth-led influencer partnerships. One such promising example is Grin, a US-based platform-solution generating $75M in revenue and differentiating itself by letting brands own direct relationships with creators.
The fourth model is a card player that is empowering nano-creators with a prepaid card to let them purchase products from brands they love and share their reviews on social media. Brands get scalable user-generated-content and creators receive a cash-back depending on content performance which can be pegged to impressions or engagement rate. Players like Kale and Bounty are experimenting with this model in the US.
As consumers, the current shopping experience through creators is broken right from discovery to purchase. There is no seamless way to buy a product found on Instagram or search for a product showcased by favourite influencers. This calls for social media platforms to integrate commerce with content created by creators.
Towards this, recently YouTube has partnered with Shopify to allow brands to seamlessly pin products to their videos, making it seamlessly shoppable. TikTok also launched TikTok Shop earlier this year, allowing brands and small businesses to sell products via creators directly on its platform. One of the early adopters and Indonesian creator, Fredi Lugina Priadi has been using TikTok to showcase his handmade pet clothing. He garnered millions of views on TikTok, sold the products on Shopee and now on TikTok Shop. Such merging of entertainment and shopping will propel the adoption of aforementioned emerging business models.
We strongly believe that in the next decade, a variety of business models will emerge in the creator-led commerce segment transforming consumers’ shopping experience, brands’ channel mix and creators’ monetization potential.
About the authors:
Smriti Agrawal is an MBA student at Harvard Business School. Rahul Chowdhri is part of the investment team at Stellaris Venture Partners, an early-stage venture capital fund where he focuses on Commerce, Consumer Internet, Consumer Brands and Creator Economy.