How Influencers Hijacked The Consumer Economy

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1:53Welcome to Prof G Markets. I'm Ed Elson. It is June 10th. Let's check in on yesterday's market vitals. The S &P 500 and the Nasdaq fell with tech and semiconductor stocks leading the declines. News that Iran shot down a U.S. helicopter added to the selling pressure. Oil declined earlier in the day, but rose again as President Trump said the US would respond to the attack. And finally, Apple shares slid nearly 4 % on day two of its developers conference as investors remained unimpressed by its AI vision. By the way, that was its worst day since February. Okay, what else is happening? There's a lot happening in the markets this week, with the biggest IPO in history coming on Friday.

2:40We will be covering all of it throughout the week. But today, we wanted to take a break from the AI news cycle and discuss something a little bit different, and that is the influencer economy. If you walk around New York City long enough, you'll notice something strange right now, and that is a lot of people standing in a lot of lines. 60 % of Gen Z say they have waited for more than 30 minutes in a line for a specific food in the past year after seeing it on social media. For instance, people start lining up at 6 a.m. for a dot cake, which is an$11 cup of cake that just went viral on TikTok. But it's not just food.

3:20More than 80 % of Gen Z discover new music through social media and user-generated content. Marketing companies like Chaotic Good Projects create networks of TikTok accounts engineered to push artists into recommendation algorithms. They call this the process of trend simulation. What they've really mastered, though, is the science of going viral. All of this raises an important question, which we will answer in this conversation, and that is, do influencers run the consumer economy right now? Joining us to answer that question, we're speaking with Rachel Carton, author of the Lincoln Bio newsletter, and also Alison Schrager, senior fellow at the Manhattan Institute and columnist for Bloomberg, who just wrote about the influencer economy.

4:05Rachel, Alison, thank you for joining me on Prof G Markets. Alison, I'm going to start with you because you just wrote this article. The article is titled, quote, The Influencer Economy Has Crossed the Line. I gave a little bit of an intro as to like what these lines are. But if you could kind of explain to us what are we seeing right now? What are these lines that everyone's seeing on the blocks in New York City and in other cities as well? In the article, I'm actually quite bullish on it. I call it, you know, a manifestation of capitalism on display, you know, technological innovation on display.

4:39And what we're seeing is, you know, a lot of people hear about a good or service, usually a good like frozen yogurt on Instagram, on TikTok. talk. They want to try it themselves and then film it for themselves, for their network, either to try to grow their audience or just to impress their friends that they've tried this good. And you create a lot of hype. I mean, I think the cliche in New York is now becoming people used to wait in line for nightclubs. Now they wait in line for bagels. It's kind of true. I saw someone speculate recently that because it's a more antisocial generation, this is their sort of new in-person experience.

5:21You know, there's problems with it, you know, like any new market. It's a very winner-take-all, like a lot of aspects of our economy. Like, most influencers can't earn a living at it. It also sort of shines a lot of economic activity on certain businesses that manage to sort of catch fire for reasons that aren't sort of very well understood. There's so much in there happening. I mean, one is these random products are going viral, and then suddenly everyone has to get this bagel or everyone has to get this dot cake. And then there's also the fact that young people are willing to wait in two-hour lines for a dot cake.

5:59And I think the comparison to waiting in the line for a nightclub versus waiting in the line for a bagel is a genuinely apt comparison. Rachel, I just want to get your views. Alison sees this as a good thing economically economically or maybe a good thing, something technologically good about it. How do you see what's happening? And what do you make of the fact that young people are down to do this? Well, I think also to understand why this feels so prevalent right now, it's also important to look at like how the algorithms have changed. And so I think when you think of the traditional view of an influencer, it was like, you grow your following and you grow your views, and that's how you have influence.

6:39And with these interest-based algorithms, now somebody with 500 followers can have a million views reviewing a product and maybe they're actually seen as more trustworthy because they aren't an influencer, quote unquote. And so I think that we're seeing this explosion at this time also because everyone is an influencer now. It's not because you have spent five years growing your following to have some sort of influence. If you get on TikTok and speak, you are an influencer essentially at this point. And so, you know, I think that to some degree lines lining up for things. I worked at Bon Appetit for four years before I started my newsletter in 2016.

7:16People were lining up for milkshakes then and cronuts and supreme drops. And so I do think lines and people wanting to sort of thinking it's worth it to spend 30 minutes line is not a new thing. But I also think that the way that TikTok has created conversation around it has created urgency around it and has essentially created a new content stream, which is I tried the viral thing as a way to go viral feels really different right now. I tried the viral thing feels really important. I think a lot of people might be thinking like, why are we talking about this topic on this show? The reason we're talking about it is because I'm interested in it.

7:52But also, I think it matters for businesses. It seems to matter in the actual real world economy, where it seems as though the way you succeed today, if you are selling any consumer product is you go viral. You randomly hit the lottery, the algorithmic lottery, and suddenly everyone's saying, oh, I tried the viral cronut bagel donut dot cake, whatever it may be. I just wonder, and I'll start with you, Rachel, on this question. Do you think that that is true? Do you think it's true that you basically have to cater to the algorithm if you want to succeed in consumer business today? I will never say you have to be on social media because I'm exhausted by social media myself, but I think it's a very powerful lever that businesses can pull.

8:40And I think that if you look at an example like Chili's and their triple dipper, like they have credited in earnings calls that the triple dipper has changed their business. And that's because it's people posting about it online. And then you're seeing, I think, when you look at, you know, Dunkin selling a bucket of coffee. That has to be in that meeting, thinking about how does that show up online? What type of content are people making about it? You know, we're in a time where views are, anyone can get views. And so I think that what holds cultural currency right now is participation. And how do we get people to make posts about our thing?

9:15That's where momentum is built. And so I think that I would not be surprised that a lot of brands are behind the seeds, developing products with that in mind. Alison, this is the part where you might see, I'm not so excited about this because I worry that we're just creating all of these kind of BS products like a bucket of coffee because we want to go viral. And in a way, I mean, do consumers really want that? I guess, how would you respond to that view? I agree. I think the question is, is this worse than what we had before? You know, in my column, I talk about that there was this wonderful article written in the late 90s about the sort of PR power girls, as they call them, these women in their 20s who were like the precursor to influencers who are effectively girls from very rich, influential New York families who ran the city through their own self-started PR companies.

10:09And they're the ones who instigated lines, usually like places like Moomba, like a nightclub that was cool in the 90s and they could get Leonardo DiCaprio to go. And then that created the hype. And, you know, I'm not sure that was better. In some ways, it was worse because to be an influencer, then you had to come from wealth in a very well-connected family. And you only really had to please this elite group of people as opposed to there is something more democratic about this. As Rachel pointed out, anyone can be an influencer. You don't even have to live in New York. You can, you know, you don't even have to have a lot of money.

10:42You just need to have, you know, a good Wi-Fi connection and you're good to go. So, I mean, in some ways, you know, there seems something more ephemeral about these things that like how you build a brand, it's hard to sustain it. And that sort of I think is sort of feels scary. And there's certainly problems. It's also not clear. I mean, most influencers don't are living at it. But if you do, I mean, are you building skills that are going to age with you? Like, can you be a 50 year old influencer? And if you dedicate your human capital to this, you know, where does this go for you? I think these are all like very concerning questions.

11:14but I'm not convinced that this is necessarily worse than what we had before either. Yeah, it certainly was true. There was an element of, you know, what we would call the gatekeepers. If you make it on the list, whether it's, you know, the New York Times list or those PR machine lists, you had to be on the list. You had to get approved by the tastemaker, the gatekeeper, and then you succeed. But I wonder if influencers are essentially just another version of the same thing. There's just some statistics that we have here. So for one, 74 % of Gen Z say they have ordered a restaurant item after seeing it go viral on social media.

11:58So that alone seems striking that you, I mean, it seems as though you kind of need to go viral if you want to sort of make it today. But then, just looking at some of this other data here, on YouTube, the top 1 % most watched videos account for 91 % of the total viewing time, and on TikTok, the top 1 % of TikTok creators capture 81 % of the total views. So it seems as though we still have kind of a lopsided world where a handful of influencers, and I don't know if this is actually true, and I want to hear your guys' views on this, But it seems as though influencers have a crazy amount of power.

12:37And I'd be interested to hear more, Alison, on why that's, I guess, better. Maybe it's because they were sort of chosen at random by the algorithm. I'm not totally sure. But I wonder if you agree with this notion that these economies, the restaurant business, maybe even the music business, is predominantly dominated by a small handful of influencers. That's absolutely true. In economics, we call it the winner-take-all economy. And it is more prevalent than ever. Like before, you might have a lot of pop stars who are successful. Now, like it's just Taylor Swift and like maybe a handful of people.

13:15So it's harder to make it in any industry. I think even like public speaking, I'm told like, you know, there's the top who get millions of dollars and then there's everyone else. My co-host. Yeah. Every industry has become winner take all. And that is maybe sort of a sign of our change. But one thing I think that makes me sort of less worried about it than other people is who are those people? And as I said, if in the 90s you had to be born into wealth and privilege to be in that top percent. And now, I mean, I think there's also something I find reassuring about the fact that, yeah, it's the algorithm.

13:47But it is also pleasing the masses. It is that ability to connect with a wider audience, which does also make it more democratic. So, I mean, it's an interesting parable, I think, of technology in general and where the economy is going and how you have a new technology and it completely, you know, wipes out these jobs and sort of these incumbents who maybe were there for a variety of reasons, sometimes fairly, sometimes unfairly. And you get these new jobs coming in with new people, maybe like who don't have much of a business background, maybe people who came from very humble business. Sometimes yes, sometimes no.

14:20And so in a lot of ways, what we're seeing in this influencer economy and what it's replacing is just sort of bigger than just this. It is for the whole economy. And, you know, there's good things and bad things about it, but it is change. Rachel, do you think that influencers run it now? Is it basically, is the trajectory of businesses, whether it's in New York or otherwise, are they, I mean, consumer businesses specifically, is their trajectory mostly determined by how much sunlight they get from a handful of influencers? I don't think that that's like a make or break thing for a business. And I think, you know, I just ran a survey in my newsletter of like, what are the best brands on social media to you?

15:00And some of the top brands are brands like this company called Merit, a beauty company, a fragrance brand called Fern. And people are really reacting to actually their restraint on social media. They don't feel like they're flooding the zone and trying to be everywhere and work with every influencer. They're actually very strategic of how they show up. And there's a lot of intention behind it. And so I do, you know, it's always fun to talk about what has momentum right now, which is this moment with influencers and, you know, sort of a volume game. And what I'm always interested in is, like, what's the reaction to that going to be?

15:31Is it sort of a pullback of like maybe a brand says we actually don't work with influencers or we've never paid anyone to talk about our products? And what would that look like as sort of a way to gain trust with consumers is a reaction that I foresee maybe coming along. This gets to sort of the other question that I have, which is why are people interested in those products that go viral? Like, what is it about, you know, we could use the dot cake as an example, but any other sort of viral product that suddenly blew up? Like, what resonates, would you say, for young people specifically? What is that moment where suddenly you're the hot thing?

16:16There's small pieces of it. I think like auditory, like when I think about what blows up on TikTok in terms of food, there's a crunchy or there's actually like a hook of like an auditory element. The dot cake videos all start with spoons scraping along the top of it. So there's that piece of it, which is just a good hook on social media. And then I think another piece of it is truly like almost a self-interest of if I review this thing, like Allison was saying, like I will go viral too. I think one thing that might be one of the reasons this sort of explains our economy right now is it's accessible.

16:51I mean, as you said, I haven't waited in line for a dot cake, but you said it's$11. Yes. I mean, like, I mean, only so many people could party with a Leonardo DiCaprio at Moomba. But like anyone can buy a dot cake. It's a lot. It's a lot for a small cake, I would say. I would say it's a little overpriced, but I agree most of us can can partake if we're down. And the opportunity cost of waiting in line for two hours. I mean, this is time you could be, I mean, I guess if you're a professional influencer, it's worth the time. But for the rest of us, I mean, this is significant opportunity cost. But, you know, you get to partake in the sort of the excitement of what's hot as opposed to before.

17:28Again, it was less accessible. And that was in some ways interesting, too, because being inaccessible was what made it interesting. And now you want to promote goods that are accessible. Stay tuned for more of this panel after the break. And for even more markets insights, you can subscribe to my weekly newsletter, Simply Put, at simplyput.profgmedia.com.

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21:07we're back with prof g markets this also gets to something we've been talking about on the show recently which is young people's interest in reducing their screen time or getting off of these online spaces and also by the way i can't i don't know if this has anything to do with the trends we're seeing but getting off of alcohol i mean we've seen that young people aren't really drinking anymore, where there are these more sort of sober, curious event gatherings. And I wonder if these lines, if that's part of it, if it's an opportunity to kind of get together with your peers, be outside, partake in a social event versus it just, you know, going to get the product, whatever the product is.

21:50Alison, do you think that that's part of it? Yeah. I mean, especially as you said, because they're not going to bars and drinking that, You know, it's like I once interviewed the CEO of Cinnabon, and she was telling me in the Middle East they had a huge following. They didn't have lines, but just because she said when people drink less, sugar becomes sort of their vice. So if people are turning away from drinking, then, yeah, food, treats sort of fulfill that. And also the socialization. It is forcing you to have this in-person experience. And, you know, it is your phone is actually kind of part of it in a messed up way.

22:27But it is sort of a socialization of a kind. Yeah, there's sort of a phenomenon that I've been noodling on around like offline, but online, where you have these sort of lookalike contests, things that are happening offline, but you're documenting it for online or like, you know, analog trend while you're posting about it. So how analog really are you? And so I think there is this sort of like social signifier of like, I'm offline, I'm documenting it. But it's this tension, I think, of knowing that they want to be off their phone, but still feeling that urge to tell everyone about it. Something I've also been thinking about here.

23:07Let's say you go viral. You're running a small business and you come out with a great new product and suddenly everyone's doing it. I tried the viral cronut, whatever it is. I wonder what the longevity of that actually is for the business. Because it seems as though you want to try to go viral. You want the line around the block. But I wonder if the line exists two weeks from then or three weeks from then, or if suddenly it just sort of falls off a cliff. Alison, I mean, I don't know if you have any insight into this, but do we know if this actually is a good thing long term for businesses or is it more of a fad and therefore kind of a a business red herring maybe i mean my guess would be it's like anyone who gets attention in this sort of attention economy is it can be a great start but do you have a good business do you have a good product do you have a good marketing plan are you willing to work hard to do something with that opportunity and sort of build on it.

24:12I mean, if you sort of just have one, you know, viral product and you don't really have a good business plan to back it up, or you don't have other goods and services that people want, you probably it's not good, but certainly maybe it can sort of spark a business for you. Rachel, as somebody writes about a lot of these topics, I mean, what is your advice or what would you recommend to businesses who see this, hear this conversation, they see these trends and they're kind of like, I don't really know what to do with this information. Like, are these the kinds of trends that businesses need to actually be acknowledging and thinking about?

24:49You know, I wouldn't be like, get in the lab and make something that you think will go viral necessarily. But I, you know, when I'm talking to small businesses who are like, do I need to be on social media? I say, you know, it's a powerful thing. I have an example. there's a coffee shop in Minnesota called Little Joy. They've used their own social. So essentially treating their own social, like how do we become the influencer? Let's not hand over the keys or we're happy to hand over the keys, but let's make our social page the hub of where people want to watch. And I think they've built a really amazing customer base by being really consistent and essentially creating like a serialized show on their own social.