Businesses are turning to influencer marketing as a more effective and authentic channel for audience perception.
However, at least 15 percent of an influencer's followers are fake -- defrauding businesses that pay influencers for their followers.
Left unchecked the level of fraud in campaigns is expected to reach $1.5 billion by 2020.
The report finds that the direct global economic costs of fake followers in influencer marketing are conservatively placed at $1.3 billion.
Indirect costs, through erosion of trust and impact on brands, are likely to bring longer-term economic losses.
The study carried out an in-depth economic analysis of the full scale of internet harm.
Using this economic analysis, coupled with statistical and data analysis, it is possible to measure the global economic price paid by businesses and society due to problems including ad fraud, online bullying, and fake news.
Businesses use influencers to educate, build awareness, and drive sales among their target demographic. A focus on numbers of followers for measurement is a way to demonstrate a positive ROI.
Research shows that influencers with more followers are perceived to be more attractive, extraverted, trustworthy, approachable, and possessing other socially desirable characteristics.
Influencers, therefore, need to demonstrate their reach to a large audience -- and some turn to fraud to get extra followers. Click farm clients pay an average of $49 for every 1,000 YouTube followers, $34 for the same number for Facebook, $16 for Instagram, and $15 for Twitter.
Paying influencers in line with the number of followers they have could have serious implications when working with a macro influencer who has up to one million followers. Each post could cost businesses $25,000, with a loss to fraud per post of $3,750.
Even real followers can be problematic when audience inactivity on many networks is considered. Sometimes 30% of some social media accounts have been claimed to be inactive
In one study, influencers hired by Ritz Carlton comprised 78% fake followers, P&G's Pampers (32%), and L'Occitane (39%). A Points North Group study found that midlevel influencers -- those with between 50,000 and 100,000 followers -- often have about 20% of fake followers.
Professor Roberto Cavazos, Merrick School of Business at the University of Baltimore, said:
"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. 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."