Microsoft Under FTC Scrutiny About Ad Practices

Microsoft this week offered to settle with the FTC on charges of deceptive advertising surrounding its PocketPC print campaign last year.

The “Can Your Palm Do That?” campaign demonstrated applications of PocketPC-based PDAs — like reading wireless email — while wryly suggesting that competitor Palm’s PDAs could not do the same. The campaign, designed by WesDesign, debuted in April and ran for several months in print business and news publications.

The problem centered on a disclaimer on the ads that indicated that the demonstrated features required the additional purchase of a wireless modem. As with almost all disclaimers, the legal statement was printed at the bottom of the ads in tiny type. Too tiny, say FTC regulators, for consumers to notice.

Now, Microsoft has put together a proposed settlement agreement with the FTC, but wouldn’t divulge details. Spokespeople from the FTC declined to comment on the case, since the final settlement has yet to be approved by FTC commissioners.

“We’ve cooperated fully with FTC on this matter, and signed an agreement addressing their concerns,” said Microsoft spokesman Jim Desler.

“The issue at hand is adequacy of disclose about modems on a print ad campaign we had for PocketPCs that ran last year. The issue was not necessarily, ‘did we disclose?’, it was the adequacy, and issue of font size and graphics,” Desler said. “The type in the original ad campaign was smaller than they would have liked, and we agreed to make the font larger.”

Spokespeople from Seattle-based WesDesign said the agency had believed the disclaimers were in line with standard practice.

“We felt they were in line with industry norms, and obviously there was a difference of opinion about that,” said creative director Matt Trinner. In later PocketPC ads, “we used FTC guidelines as to what they expected.”

Microsoft said that despite the hoopla, it felt the original campaign was successful in making a name for the PocketPC.

“We felt that [the ‘Can Your Palm Do That?’ work] established PocketPC in terms of what its capabilities were,” Desler said. “Then we went on to new phases of advertising that go more into educating consumers of all the capabilities of the PocketPC.”

Since it ended the campaign last year, the company has continued to advertise its PocketPC platform, most recently launching a less “directly comparative” print campaign in February.

“Right now, our focus is on educating those that have bought and want to know more about its options,” Desler said.

Of course, it’s in Microsoft’s best interests if the FTC’s ad case gets settled quickly and quietly — since it’s already in the process of appealing the government’s antitrust case.

While the new FTC charges are unrelated to the antitrust case, they don’t help Microsoft defend itself from what the government has painted as heavy-handed business practices — especially when it comes to the company’s efforts to break into new markets.

And for Microsoft, whose bread-and-butter is still its Windows PC operating system, the PDA arena is one on which it is banking heavily with its PocketPC system, although it has had little success with PDAs in the past.

In October, the software giant settled a similar false-advertising case with the FTC in another emerging market — interactive TV. The FTC ruled that Microsoft’s WebTV advertising deceptively misled customers as to the cost of the WebTV service — which requires long-distance telephone charges for some users — and that it gave consumers access to the entire Internet — while the service can’t show streamed content or certain Web sites normally viewable from PCs.

Microsoft settled with the agreement that it would launch a consumer education campaign about the specific features of the WebTV.

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