Since 2022, the digital advertising economy has become about as valuable as the U.S. Defense industry. Today, creator-economy activity and tools account for about 1/3 of that money. By 2027, its projected that half of all digital advertising spend will be a direct result of the content produced by social media creators. It’s a staggering sum of money when you consider that the industry only reached its first billion in the last decade.

The majority of this spend is a combination of glossy influencer partnerships, sponsored content, paid media campaigns, and the tools used to power them from global brands like Target or American Express; we're inundated with these ads daily. Digital marketing teams at these brands live in an entirely pay-for-play world, where day-to-day business decisions go something like this…

• “Hey Big Ad Agency, do you know this girl @soandso? She keeps popping up on my For You page. I feel like she’d be perfect to promote that product launch we have coming up.”

• “Yeah! She has 1M followers… if we could just capture 1% of her audience or close to that, that’d be a huge win. I reached out to her manager; they want $40K per post.”

• “Oof, that’s steep. But this is our biggest launch of the quarter, so management might think it’s worth it. Let’s give it a shot and see if it'll go viral."

• After negotiating, sponsored content is up within a few weeks…

• "Damn, our promo is one of her worst performing videos this month. The Growth team said they saw a little spike in our site traffic, though.”

• “Don't worry, we won't hire her again. But I know this other creator whose vibe might fit our target audience a little better… so I’ll call her manager!”

The creator economy is a nascent internet casino: lots of dice rolling, hand waving, testing your luck, and reporting metrics on the bright side. But… there are very few ways for brands to pack up and leave the table. 

This might seem innocuous, and perhaps it is. But digital advertising is the defining (and most pervasive) business in the history of the internet. And in a world where almost half of teenagers admittedly want to be a creator, misaligned incentives and opaque ad performance actually threaten the long-term sustainability of the entire ecosystem, which could materially threaten how accessible the internet is (more on that later). There are nearly 50 million creators today earning a meaningful income (at least $1k / month) from producing content for a handful of social media platforms... so long as brands are willing to pay them.

Mainstream culture embraced the creator economy as a democratizing force— it’s never been easier for people to share content on the internet and make a livelihood from that. There’s something undeniably freeing about knowing that anybody make a living out of being themselves online. The emergence of creators has inarguably been a positive development for the internet on the whole. 

But it’s dangerous to conflate the righteousness of the creator economy with the assumption that this economy is somehow immune to the same market forces and competitive pressures that shape every other industry.

On the whole, consumers don’t care about ads, and are completely blind to how those ads perform. That’s… probably fine? But behind the scenes, brands are still being coerced into paying endless sums of money on only a few different ad platforms, who act as a cartel for social media distribution. 

Mat Baxter, ex-CEO of Huge, has been running ad campaigns for brands like Verizon, Nike, McDonald’s, M&M's, and Google. He put it quite succinctly…

“There are lots of brands in the world with 95% brand awareness who can’t make their sales numbers. Is Coca-Cola happy with the amount of Coke Red it’s selling right now across the world? No, they’re fucking not.”

The tone has changed markedly in the past decade. In 2011, The Atlantic published  “Why Good Advertising Works (Even When You Think It Doesn’t)”. In it, Nigel Hollis makes the case that “the best advertisements are ingenious at leaving impressions”. US companies, Hollis reminds us, “would not invest $70 billion (yes, that's the size of TV's ad market) in something they thought didn’t work.” 

The thinking goes that enough impressions subconsciously drives our affinity for the product until we make a purchase. Modern day advertising still hinges on this exact idea, even though it’s never been conclusively proven. (The Rule of 7 is still somewhat familiar lore in the industry, despite being purely speculative business advice from the WW2 era). 

This kind of circular reasoning— that ads works simply because companies pay for them — completely denies the existence of economic bubbles and bursts in the first place. It’s a convenient story that the ad industry tells itself to justify its existence and explain away the industry’s collective delusion— the kind of collective delusion you need when 99% of consumers don’t want the ads you get paid to make.

The problem is that for a young consumer businesses trying to scale, there really isn’t much of a choice but to spend heavily on content creation and distribution. It feels practically impossible to generate any kind of mass reach without at least some kind of feedback cycle embedded in your social media presence.

Simultaneously, creators are now businesses just as much as they are individuals, and as such, must compete amongst each other— no different from farmers or founders. And like farmers and founders, there will be economic shocks to these labor markets here and there. There is some nonzero amount of creator economy saturation that must be occurring if our feeds are de facto infinite.

Industry lore for the last decade tells us that impressions don’t matter, because engagement does. But at a very literal unit economics level, engagement is almost equally as moot because likes and comments will not pay your team’s salaries, especially post-ZIRP. Engagement metrics are presented in industry circles as basically soft currencies: brand health, awareness, preference, earned media value, and more. Just ask Spotify, MoviePass, Vine, Tumblr, Quibi, or hundreds of other giant boom-and-bust consumer that businesses that won plenty of hearts but hardly retained any earnings. If the success of their ad buys and online popularity turned into hard currency, that success would be explained and shared in hard currency, not soft ones.

While the more obvious examples are the aforementioned dead or famously unprofitable VC-backed tech products, there exists very little data about how pernicious the problem might be elsewhere because established brands have no reason to ever publicly share their conversion metrics on a given campaign. But, incentive structures could define the story quite clearly.

Every player in the digital advertising ecosystem, from platforms to agencies to publishers to tech vendors, is incentivized to paint the rosiest possible picture of the creator economy's effectiveness. The industry is captured by polished case studies, sizzle reels, cherry-picked data, and self-serving metrics which are all designed to keep teams hopeful about the efficacy of the next campaign, no matter how the previous one performed. These metrics (mostly some hodgepodge of views, likes, comments, and shares) are almost guaranteed to not linearly translate into meaningful business outcomes for the brands footing the bill.

Why is Cannes Lions Film Festival For Creativity, which is explicitly an award show for advertisers, not called such? I'd venture to say it's because there's no logically coherent way to conclude that one piece of creativity is better than another, although there should be at least one logically coherent way to say one ad is more effective than another. The industry shields itself from scrutiny by masking performance for creation.

Depending on how chronically online you are, you may be creating 200+ impression points for ads on a given day. But how often do you swipe up on an influencer’s IG post and checkout from there? How often do you click on the banner ads of your news articles? What were the last 5 ads you saw? Do those banners interrupting the Business Insider article really capture you in that moment? Have they ever?

Empirically, as the first digitally-native generation is entering adulthood, it seems like we’ve built the muscle memory to skip over the ads. There’s plenty to be contributed here about click fraud and the fact that most Americans have ad blockers installed, but I'll be sharing more on that later.

Nowhere are these challenges more evident that in the collapse of the DTC industry, where brands were entirely born and bred from the distribution potential of digital ads. From 2016 to 2021, consumers watched more than 20 DTC brands go public in rapid succession. In that decade, VCs dumped over $600 billion of dry powder — a 10x increase on commonly unprofitable businesses — into the DTC space, the dollars of most of which went straight to digital ad spend with Meta and Google.

Somewhere around 90% of these brands were using Facebook and IG Ads as their primary driver of ad impressions. Then, about 90% have built their social presences on the same three or four platforms, and then, almost 3/4 built their ecommerce funnel on either Shopify or Woocommerce. Then, around 3/4 of these brands decided to sell product in just three different categories: apparel, food, or home goods. They all seemed cheeky, and appealed to a vague notably millennial sensibility of 'lifestyle' brands.

The near identical vibe of these businesses was not a $600 Billion coincidence. The DTC space collectively decided to run the same playbook at the same time, which was entirely built on the expectation that buying ad space on creator content to get social media impressions will linearly flow into your bottom line. 

The result is that a few short years later, the DTC space was decimated. Increased frequency and cost of ad spend coupled with rising demand for creators in the labor market created headwinds for aspirational upstarts that built their entire distribution model on the idea that the creator economy is only poised to grow-- but somehow not subject to economic forces.

Today, the majority of those public brands have seen their stocks plummet by over 50%, with a few of the largest standouts like SmileDirectClub and Winc having already gone bankrupt. “VC money is not falling from the ceiling anymore… so [we’re] moving on from being a lifestyle brand to… ‘We are a mattress retailer’”, as Casper CEO Emilie Arel put it bluntly. This is the closest to raw insight on we have on the fragility of the creator economy and the lack of transparency surrounding the ad agencies that broker them.

The idea that “good advertising works” by paying to drive up social media impressions forever is worth questioning— perhaps that phenomenon was more psychological theory, and less economic reality. Looking forward, the stakes may be higher than they appear. As the creator economy grows, social media will become just media, and eventually, the advertising industry that funds those creators will have to weather real economic shocks.

Since 2022, the digital advertising economy has become about as valuable as the U.S. Defense industry. Today, creator-economy activity and tools account for about 1/3 of that money. By 2027, its projected that half of all digital advertising spend will be a direct result of the content produced by social media creators. It’s a staggering sum of money when you consider that the industry only reached its first billion in the last decade.

The majority of this spend is a combination of glossy influencer partnerships, sponsored content, paid media campaigns, and the tools used to power them from global brands like Target or American Express; we're inundated with these ads daily. Digital marketing teams at these brands live in an entirely pay-for-play world, where day-to-day business decisions go something like this…

• “Hey Big Ad Agency, do you know this girl @soandso? She keeps popping up on my For You page. I feel like she’d be perfect to promote that product launch we have coming up.”

• “Yeah! She has 1M followers… if we could just capture 1% of her audience or close to that, that’d be a huge win. I reached out to her manager; they want $40K per post.”

• “Oof, that’s steep. But this is our biggest launch of the quarter, so management might think it’s worth it. Let’s give it a shot and see if it'll go viral."

• After negotiating, sponsored content is up within a few weeks…

• "Damn, our promo is one of her worst performing videos this month. The Growth team said they saw a little spike in our site traffic, though.”

• “Don't worry, we won't hire her again. But I know this other creator whose vibe might fit our target audience a little better… so I’ll call her manager!”

The creator economy is a nascent internet casino: lots of dice rolling, hand waving, testing your luck, and reporting metrics on the bright side. But… there are very few ways for brands to pack up and leave the table. 

This might seem innocuous, and perhaps it is. But digital advertising is the defining (and most pervasive) business in the history of the internet. And in a world where almost half of teenagers admittedly want to be a creator, misaligned incentives and opaque ad performance actually threaten the long-term sustainability of the entire ecosystem, which could materially threaten how accessible the internet is (more on that later). There are nearly 50 million creators today earning a meaningful income (at least $1k / month) from producing content for a handful of social media platforms... so long as brands are willing to pay them.

Mainstream culture embraced the creator economy as a democratizing force— it’s never been easier for people to share content on the internet and make a livelihood from that. There’s something undeniably freeing about knowing that anybody make a living out of being themselves online. The emergence of creators has inarguably been a positive development for the internet on the whole. 

But it’s dangerous to conflate the righteousness of the creator economy with the assumption that this economy is somehow immune to the same market forces and competitive pressures that shape every other industry.

On the whole, consumers don’t care about ads, and are completely blind to how those ads perform. That’s… probably fine? But behind the scenes, brands are still being coerced into paying endless sums of money on only a few different ad platforms, who act as a cartel for social media distribution. 

Mat Baxter, ex-CEO of Huge, has been running ad campaigns for brands like Verizon, Nike, McDonald’s, M&M's, and Google. He put it quite succinctly…

“There are lots of brands in the world with 95% brand awareness who can’t make their sales numbers. Is Coca-Cola happy with the amount of Coke Red it’s selling right now across the world? No, they’re fucking not.”

The tone has changed markedly in the past decade. In 2011, The Atlantic published  “Why Good Advertising Works (Even When You Think It Doesn’t)”. In it, Nigel Hollis makes the case that “the best advertisements are ingenious at leaving impressions”. US companies, Hollis reminds us, “would not invest $70 billion (yes, that's the size of TV's ad market) in something they thought didn’t work.” 

The thinking goes that enough impressions subconsciously drives our affinity for the product until we make a purchase. Modern day advertising still hinges on this exact idea, even though it’s never been conclusively proven. (The Rule of 7 is still somewhat familiar lore in the industry, despite being purely speculative business advice from the WW2 era). 

This kind of circular reasoning— that ads works simply because companies pay for them — completely denies the existence of economic bubbles and bursts in the first place. It’s a convenient story that the ad industry tells itself to justify its existence and explain away the industry’s collective delusion— the kind of collective delusion you need when 99% of consumers don’t want the ads you get paid to make.

The problem is that for a young consumer businesses trying to scale, there really isn’t much of a choice but to spend heavily on content creation and distribution. It feels practically impossible to generate any kind of mass reach without at least some kind of feedback cycle embedded in your social media presence.

Simultaneously, creators are now businesses just as much as they are individuals, and as such, must compete amongst each other— no different from farmers or founders. And like farmers and founders, there will be economic shocks to these labor markets here and there. There is some nonzero amount of creator economy saturation that must be occurring if our feeds are de facto infinite.

Industry lore for the last decade tells us that impressions don’t matter, because engagement does. But at a very literal unit economics level, engagement is almost equally as moot because likes and comments will not pay your team’s salaries, especially post-ZIRP. Engagement metrics are presented in industry circles as basically soft currencies: brand health, awareness, preference, earned media value, and more. Just ask Spotify, MoviePass, Vine, Tumblr, Quibi, or hundreds of other giant boom-and-bust consumer that businesses that won plenty of hearts but hardly retained any earnings. If the success of their ad buys and online popularity turned into hard currency, that success would be explained and shared in hard currency, not soft ones.

While the more obvious examples are the aforementioned dead or famously unprofitable VC-backed tech products, there exists very little data about how pernicious the problem might be elsewhere because established brands have no reason to ever publicly share their conversion metrics on a given campaign. But, incentive structures could define the story quite clearly.

Every player in the digital advertising ecosystem, from platforms to agencies to publishers to tech vendors, is incentivized to paint the rosiest possible picture of the creator economy's effectiveness. The industry is captured by polished case studies, sizzle reels, cherry-picked data, and self-serving metrics which are all designed to keep teams hopeful about the efficacy of the next campaign, no matter how the previous one performed. These metrics (mostly some hodgepodge of views, likes, comments, and shares) are almost guaranteed to not linearly translate into meaningful business outcomes for the brands footing the bill.

Why is Cannes Lions Film Festival For Creativity, which is explicitly an award show for advertisers, not called such? I'd venture to say it's because there's no logically coherent way to conclude that one piece of creativity is better than another, although there should be at least one logically coherent way to say one ad is more effective than another. The industry shields itself from scrutiny by masking performance for creation.

Depending on how chronically online you are, you may be creating 200+ impression points for ads on a given day. But how often do you swipe up on an influencer’s IG post and checkout from there? How often do you click on the banner ads of your news articles? What were the last 5 ads you saw? Do those banners interrupting the Business Insider article really capture you in that moment? Have they ever?

Empirically, as the first digitally-native generation is entering adulthood, it seems like we’ve built the muscle memory to skip over the ads. There’s plenty to be contributed here about click fraud and the fact that most Americans have ad blockers installed, but I'll be sharing more on that later.

Nowhere are these challenges more evident that in the collapse of the DTC industry, where brands were entirely born and bred from the distribution potential of digital ads. From 2016 to 2021, consumers watched more than 20 DTC brands go public in rapid succession. In that decade, VCs dumped over $600 billion of dry powder — a 10x increase on commonly unprofitable businesses — into the DTC space, the dollars of most of which went straight to digital ad spend with Meta and Google.

Somewhere around 90% of these brands were using Facebook and IG Ads as their primary driver of ad impressions. Then, about 90% have built their social presences on the same three or four platforms, and then, almost 3/4 built their ecommerce funnel on either Shopify or Woocommerce. Then, around 3/4 of these brands decided to sell product in just three different categories: apparel, food, or home goods. They all seemed cheeky, and appealed to a vague notably millennial sensibility of 'lifestyle' brands.

The near identical vibe of these businesses was not a $600 Billion coincidence. The DTC space collectively decided to run the same playbook at the same time, which was entirely built on the expectation that buying ad space on creator content to get social media impressions will linearly flow into your bottom line. 

The result is that a few short years later, the DTC space was decimated. Increased frequency and cost of ad spend coupled with rising demand for creators in the labor market created headwinds for aspirational upstarts that built their entire distribution model on the idea that the creator economy is only poised to grow-- but somehow not subject to economic forces.

Today, the majority of those public brands have seen their stocks plummet by over 50%, with a few of the largest standouts like SmileDirectClub and Winc having already gone bankrupt. “VC money is not falling from the ceiling anymore… so [we’re] moving on from being a lifestyle brand to… ‘We are a mattress retailer’”, as Casper CEO Emilie Arel put it bluntly. This is the closest to raw insight on we have on the fragility of the creator economy and the lack of transparency surrounding the ad agencies that broker them.

The idea that “good advertising works” by paying to drive up social media impressions forever is worth questioning— perhaps that phenomenon was more psychological theory, and less economic reality. Looking forward, the stakes may be higher than they appear. As the creator economy grows, social media will become just media, and eventually, the advertising industry that funds those creators will have to weather real economic shocks.