December 12th, 2006

If You Can’t Tell Whether Something Is An Ad, It’s Now An FTC Violation

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In response to PayPerPost’s continuing lack of disclosure policy, I wrote, “if you can’t tell whether something is an ad, that’s deception.” It appears that the Federal Trade Commission agrees (via The Washington Post).

The Federal Trade Commission yesterday said that companies engaging in word-of-mouth marketing, in which people are compensated to promote products to their peers, must disclose those relationships.

and

Word-of-mouth advertising is already covered under existing FTC regulations that govern commercial endorsements. What the FTC sought to do yesterday in its staff opinion was to note that such marketing could be deceptive if consumers were more likely to trust the product’s endorser “based on their assumed independence from the marketer.”

“The petition to us did raise a question about compliance with the FTC act,” said Mary K. Engle, FTC associate director for advertising practices. “We wanted to make clear . . . if you’re being paid, you should disclose that.”

The FTC said it would investigate cases where there is a relationship between the endorser of a product and the seller that is not disclosed and could affect the endorsement. The FTC staff said it would go after violators on a case-by-case basis. Consequences could include a cease-and-desist order, fines and civil penalties ranging from thousands of dollars to millions of dollars. Engle said the agency had not brought any cases against word-of-mouth marketers.

Markets may be “conversations,” but if you can’t tell who’s carrying on the conversation, that’s now a finable offense. This is also a bucket of cold water on the use of social networks like MySpace and Facebook to engineer “viral” product recommendations and other such word-of-mouth marketing schemes. Tony Hung has some interesting observations on how this might affect affiliate marketing.

Jason Calacanis’ effort to uncover instances of payola on Digg may have gotten more interesting as those may now be construed as violating the FCT regulations — which raises an interesting question about the liability for word-of-mouth channels like social news sites.

Just when you thought it was safe to “monetize” everything “social”…

Comments (9 Responses so far)

  1. FTC Moves to Unmask Word-of-Mouth Marketing Affiliate Marketing Disclosure Now Required By Law? More Bad News for PayPerPost: FTC Getting Involved – Is Affiliate Marketing Next? How To Save PayPerPost – Bonus!: The FTC & Affiliate Marketing If You Can’t Tell Whether Something Is An Ad, It’s Now An FTC Violation

  2. | Threadwatch.org | Marketing and Technology Discussed | duncanriley.com | Engadget | Kotaku, the Gamer’s Guide | Techdirt. | Joystiq | Wired News: | Slashdot: News for nerds, stuff that matters | Publishing 2.0 | Techmeme | Copywriting tips for online marketing success from Copyblogger Copyblogger – | Deep Jive Interests

  3. word-of-mouth marketers and compose guidelines for that type of marketing. A number of opinions about the FTC opinion have circulated through the blogosphere today as others offer their thoughts on the topic. Publishing 2.0 blogger Scott Karp opined about its impact:

  4. I’m not being paid money at least!Scott Karp / Publishing 2.0: If You Can’t Tell Whether Something Is An Ad, It’s Now An FTC Violation

  5. [IMG] If You Can’t Tell Whether Something Is An Ad, It’s Now An FTC Violation

  6. Amen, about time.

  7. [...] Digg it   |   Track with co.mments   |     |   Cosmos   |   Annotate this page Click here for copyright permissions! Copyright 2006 MathewIngram [...]

  8. [...] More stories here, and here, and here. [...]

  9. [...] Scott Karp points out: [...]

  10. [...] Blog community response: “True word of mouth efforts don’t come about as the result of any specific campaign, but rather an effort to make a good product or service that people believe in which they’d want to talk about, and making it easier for them to do so. In other words, focus on the product and then get the hell out of the way. If you’re trying to program the message as part of a campaign, it’s no longer word of mouth marketing.” –Techdirt “The industry which may not as obvious (at least to the technosphere) is the affiliate marketing industry which is responsible for moving billions of dollars worth of e-commerce by itself. While there has been much talk about the necessity of disclosure with outfits that directly affect blogs, there has not been a similar discussion within affiliate marketing – probably because it predates PayPerPost and its ilk by…oh, seven or eight years.” –Deep Jive Interests “Markets may be ‘conversations,’ but if you can’t tell who’s carrying on the conversation, that’s now a finable offense. This is also a bucket of cold water on the use of social networks like MySpace and Facebook to engineer ‘viral’ product recommendations and other such word-of-mouth marketing schemes.” –Publishing 2.0 [...]

  11. [...] Scott Karp has written a little more on this and found out that the FTC has enforced that companies that engage in word of mouth advertising must disclose their relationships. This is, potnetially, good news. However I wonder where the disclosure needs to be. Afterall, if it’s not in or near the blogvert then it’s of little value, if any. [...]

  12. [...] commentary:http://publishing2.com/2006/12/12/if-you-cant-tell-whether-something-is-an-ad-its-now-an-ftc-violation/trying to find out who is paying diggers:http://www.calacanis.com/2006/12/12/out-the-social-news-scammers/ [...]

  13. The Washington Post said:

    “The FTC staff said it would go after violators on a case-by-case basis.”

    Right. I think we all know what that means: Nothing.

  14. [...] One sales executive apparently sees more opportunity selling ads for PayPerPost, whose no-disclosure-required policy was just declared a big No-No by the FTC, than selling ads for MySpace (via PayPerPost blog): Randy Mountz, former vice president of sales for MySpace.com’s Midwest region, has joined PayPerPost as the company’s vice president of sales, a new position. [...]

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