YouTube sponsors are often seen as terrible, and it's a trend that doesn't seem to be improving. While companies like BetterHelp have faced scrutiny, some content creators express gratitude for their sponsorships, like with FTX.
YouTube has transformed significantly since its inception less than 20 years ago, evolving from basic home videos to productions rivaling Hollywood studios. This evolution has been largely fueled by money. Initially, earning money on YouTube was nearly impossible, leading even major creators to film from their bedrooms while balancing day jobs.
The introduction of AdSense allowed YouTube and a select group of creators to share in native advertising revenue. By 2017, this became a substantial income source for millions of channels, with partnership requirements set at 1,000 subscribers and 3,000 watch hours. Although YouTube's integrated advertising has its own issues, creators are also earning revenue by directly partnering with companies, bypassing YouTube's system.
However, YouTube sponsors have been criticized for various reasons, including making false claims about products, defrauding customers, freezing bank accounts, selling personal information, and even providing unlicensed medical advice.
Major corporations like Pepsi or Ford F-150 rarely appear as YouTube sponsors. Instead, most YouTube sponsors fall into three categories: subscription services, one-off novelty purchases, and dubious investments. This isn't just because subscriptions are prevalent; it's also due to the different business models of most YouTube sponsors.
Many YouTube sponsors, such as Nord Security, HelloFresh, Yotta Bank, Dollar Shave Club, and FTX, are or were startups that received substantial investments from private equity and venture capital firms. These companies often employ a strategy called "Blitzscaling".
Blitzscaling: A High-Stakes Growth Strategy
Blitzscaling, a term borrowed from the World War II tactic, involves rapidly expanding a product or service to as many customers as possible, even if advertising costs exceed sales revenue. The goal is to capture market share quickly, hoping that other aspects of the business will catch up. This strategy can also help businesses outpace regulations; by the time authorities consider banning unregulated services, the business is so popular that a ban would be politically unfeasible. This model is particularly popular with subscription services, as recurring revenue can generate profits after the initial marketing push.
Why YouTube is Ideal for Blitzscaling Companies
YouTube and other influencer platforms are perfect for introducing unknown brands due to two main reasons:
- Cost-effectiveness: They are cheaper than traditional advertising channels.
- Leveraging parasocial relationships: These companies can capitalize on the parasocial relationships creators have with their audience, fostering inherent trust in recommended brands, even if unfamiliar.
A survey by Influencer Marketing Hub found that 63% of respondents trusted influencers over brands, even when influencers were reading from a script. Nielsen's study revealed that 92% of consumers trust recommendations from people they know, and crucially, they consider online influencers as friends.
While established brands like Coca-Cola gain little from this type of advertising, new products from unknown companies are prime candidates for word-of-mouth marketing. Traditionally, this meant creating excellent products, but for Blitzscaling businesses, that's too slow. Their alternative is to "buy words from the mouths that are for sale," meaning they don't need a good product to get recommendations. This often leads to companies cutting corners to grow quickly and satisfy investors. For instance, Yotta Bank, a major YouTube sponsor during its Blitzscaling phase, focused on onboarding customers but reportedly neglected the safety of depositors' money.
Influencers' Role and Lack of Consequences
Influencers share responsibility for promoting questionable products. They blur the line between traditional advertising and genuine recommendations, often encouraged by brands to make promotions seem authentic. Despite disclosure laws, influencers try to integrate sponsorships subtly. This is especially damaging when the influencer is a supposed subject matter expert. Finance influencers promoting companies like Yotta Bank, FTX, or crypto projects caused significant harm because their audience sought financial advice from them. Health and wellness influencers promoting dubious supplements or online therapy deserve similar scrutiny. Companies even pay extra for brand deals with subject matter experts.
Influencers engage in these sponsorships for three main reasons:
- Short shelf life: Influencers' careers often have a limited duration, and many won't find traditional jobs that pay as well. This pressures them to maximize earnings during their peak, making it hard to decline lucrative deals.
- Competition: Influencers who refuse these deals compete with those who produce high-quality, expensive videos, often funded by brand deals.
- Lack of consequences: There are often no significant repercussions for bad sponsorships. Influencers who promoted FTX or even ran crypto pump-and-dump schemes remain popular, with their videos still garnering millions of views. While there might be negative comments, these can actually boost audience engagement, which the YouTube algorithm favors.
While selling out might make financial sense for influencers, it's justifiable to be upset when it comes at the audience's expense.
Our Shared Responsibility
We, as the audience, also play a part in this problem. YouTube sponsorships can be annoying, interrupting content and making the platform feel like old network television. When someone validates our dislike for a frequently advertised brand, it feels good, and we might overlook brands that genuinely deliver on their promises. Ironically, a strategy to build a popular YouTube channel could be to expose popular sponsors and their questionable practices, as demonstrated in the video itself.