Yumi, an ambassador for Procter & Gamble's SK-II brand, is adept at interacting with the Japanese skincare company's customers online, offering beauty tips around the clock to help people better understand and care for their skin.
But unlike the products she's hawking, Yumi is not real. She's a computer-generated avatar powered by artificial intelligence — a chatbot with a face that doubles as a lifelike brand ambassador. In June, SK-II unveiled Yumi as "the world's first autonomously animated digital influencer" that can answer customers' questions and suggest skincare products based on a shopper's preferences.
SK-II is far from the only brand to incorporate virtual influencers into its marketing strategy. Chanel, Prada, KFC, Vans and Rihanna's Fenty Beauty are among the established players looking to drive brand buzz with similar digital characters.
Much of what's driving the recent uptick in virtual influencers is consumer curiosity and mounting uncertainty around the authenticity of traditional creators, according to Anna Gilligan, senior strategist at agency T3.
"There is a lot of skepticism right now about what's organic content versus paid, so this gives brands an out-of-the-box way to cut through that conversation," she told Marketing Dive.
Whether or not these characters have much staying power as influencer marketing's next big thing, they are raising a slew of legal questions around proper disclosure, intellectual property and blurred lines between creator content and outright ads. Coupled with few concrete guidelines from the Federal Trade Commission, these questions point to the current state of legal limbo in influencer marketing as the federal agency that protects consumers from misleading advertisements catches up to the trend.
'Common sense can go a long way'
The FTC proposed guidelines in 1972 to crack down on misleading advertisements. It has continued to update its rules since then to match modern trends and technology, but is often months or years behind. One workaround emerged in 2009 when the organization provided examples of how established rules could extend to include social media ads, and again in 2017 when hundreds of human influencers were called out for burying disclosures of paid partnerships or omitting them entirely.
According to Venable LLP Partner Melissa Steinman, the legal agency often provides fresh guidance in informal ways — speeches, interviews and letters — to keep apace with rapidly developing trends.
"The FTC may not have come out and made new rules, but the sentiment is there. This is advertising, and it should be treated as such," Steinman told Marketing Dive. "The FTC is mostly concerned about whether consumers can clearly tell when something's an ad, and they've indicated that nothing will be that different in the rules around influencers: CGI or flesh-and-blood."
Currently, the agency is observing the landscape around virtual influencers and how well consumers understand their role in advertising before developing definitive rules. The safest move for brands in the meantime is to treat these CGI personas as human influencers and double down on disclosure to avoid legal action or negative brand attention, Steinman said.
"If it feels like you're trying to hide something, that's a red flag. This is an area of consumer protection, and we're all consumers, so disclosure and common sense can go a long way," she said.
What's driving the hype?
Much of what's powering these virtual characters' emergence is fatigue around their human predecessors. Influencer marketing has long surpassed the threshold as a buzzy trend and is now a mainstream tactic that's nearing saturation on platforms like Instagram. Despite concerns around overcrowding, influencer marketing spend is forecast to surge to $15 billion by 2022 from $8 billion this year.
As more brands double down on working with these typically young, stylish tastemakers who have amassed extensive online followings, consumers are beginning to show signs of influencer fatigue. On Instagram, the top social media platform for influencer marketing, creators have seen their engagement rates hover near all-time lows as it becomes congested with sponsored posts, according to a July study by analytics firm InfluencerDB.
"They're not able to actually use the product ... so how can they really endorse something?"
Partner, Venable LLP
Brands are responding to this decline by exploring creative ways to renew excitement, which is becoming even more imperative as social platforms like Facebook and YouTube consider removing the "like" count from posts.
While these virtual creators have shown significant brand power, they have yet to match that of traditional influencers, according to Gilligan. Perhaps the most recognizable virtual star, Lil Miquela, has amassed 1.6 million Instagram followers since her 2016 debut and has collaborated with brands such as Prada, Calvin Klein and direct-to-consumer athleisure line Outdoor Voices.
Brand safety vs. authenticity
Like traditional influencers, Lil Miquela and her virtual counterparts appeal to brands because of their fast-growing followings, consumer intrigue and consistent social media content that young users can relate to. A key differentiator, however, is brand safety. Even marketers with the strongest influencer partnerships and detailed legal contracts can't predict what human creators do or say. Opting for the CGI type gives brands tighter control over content, whether they run their own virtual stars like luxury brand Balmain or partner with a third-party operator like KFC did in April.
But because authenticity is the cornerstone of influencer marketing, can these virtual stars be trustworthy or relatable when someone else is strategically directing their entire existence to foster positive brand image?
"They're not able to actually use the product. Lil Miquela isn't wearing that Calvin Klein shirt. She doesn't wear anything," Steinman said. "Certainly they're not eating, so how can they really endorse something?"
According to T3's Gilligan, virtual influencers are arguably more authentic than the traditional kind. She says users are savvy enough to recognize that virtual influencers are used as extensions of brands and, thus, any product mentions are ads. Hundreds of human creators have been hit with FTC warnings for burying or omitting disclosures, prompting users to now question any product endorsement on social media, even if they appear to be organic.
"We know their content is a direct byproduct of a brand. Their intentions are not hidden, so us users can kind of let our defenses down," Gilligan said. "Instead of having brands be hidden puppet strings behind [human] influencers we consider relatable, maybe we prefer them to own it and just create their own so we can filter through that content and not make us question [human] influencers' motives."
Murky legal landscape
The bigger question, according to Steinman, is whether brands should be required to disclose that these influencers are not human. Lil Miquela and her fellow CGI characters look almost real, but there's still enough nuance where the average consumer may be unsure. That gray area introduces opportunities for riskier brands to go rogue, using the lack of clear FTC guidance as a loophole around fully disclosing partnerships.
"If consumers can't clearly tell that these influencers are virtual, then you really should be disclosing that on top of any paid relationship between the advertiser and the influencer's creator," Steinman said.
Risk-averse brands can avoid damaging press or potential private litigation by over-disclosing while the FTC clarifies its rules, she said.
Other legal considerations when working with virtual influencers include standard contractual agreements around intellectual property ownership, trademark licensing, copyright, compliance and a moral clause, which outlines behavioral standards for paid partners to safeguard brand reputation. If a virtual influencer breaks the agreement, Steinman suggests marketers treat the situation as they would for a human creator.
Aside from a terminated partnership, brands whose CGI influencer crossed the line could face fines, class action or private lawsuits, and a headache-inducing level of bad PR. Steinman expects consequences for virtual creators' misdeeds to mirror that of human influencers, where the first few cases usually serve as industry examples with no monetary fines, but beyond that, potential penalties could cripple a brand.
"Legal orders that bind a company to not engage in similar behavior can last years or decades," Steinman said. "Nobody, especially in the technology age, wants to be restricted to what they can and cannot do when it comes to marketing on social media or elsewhere."