The FTC and Disclosure, Part 1

The U.S. Federal Trade Commission (FTC) made a landmark recommendation to the search engine industry saying it should improve disclosure of paid content within search results.

The implications of these recommendations on the search engine industry are enormous. This article, part one of a three-part series, will discuss the recommendations themselves. Part two will discuss disclosure issues for paid placement and paid inclusion. Part three will look at other disclosure issues and the impact disclosure may have on consumers.

The FTC action came in response to a deceptive advertising complaint made last year by watchdog group, Commercial Alert.

“Clear and conspicuous disclosures would put consumers in a position to better determine the importance of these practices [use of paid content] in their choice of search engines to use,” the FTC wrote, in a letter addressed both to search engines specifically named in the Commercial Alert complaint and the industry general.

Commercial Alert filed its complaint last July, claiming a lack of disclosure about paid content integrated into search results constituted “deceptive advertising,” which the FTC protects consumers from. The group, backed by consumer advocate Ralph Nader, sees the FTC action as a victory.

“We thank the FTC for their investigation and effort to protect citizens from sleazy search engines,” said Gary Ruskin, Commercial Alert’s executive director.

Since the complaint was filed, several search engines have made improvements Ruskin recognizes. But there’s more that must be done, he said.

I’ve not yet queried the major search engines about their reaction to the FTC letter. I’ll wait before doing so. I’d prefer to let them have time to study the recommendations. This should provide more thoughtful answers about how they see themselves measuring up and actions they might plan to take.

Some preliminary published reactions from search engines were what you might expect. They said they aren’t misleading with paid content but will review and take seriously the FTC recommendations.

Claims about compliance with the FTC recommendations don’t hold up in a survey of paid content I conducted the day the FTC letter was released. Among the major search engines, only Google was found to provide the “clear and conspicuous” disclosure the FTC recommends.

The main failing point for the other major search engines revolves around “paid inclusion.” We’ll explore next week what the FTC thinks about this aspect of paid content, as well as “paid placement,” where listings are guaranteed to rank highly for particular terms.

Being Historically “Pure” Places Greater Burden to Disclose

It’s important to understand neither the original complaint nor the FTC’s response suggests inclusion of paid content in search results is wrong. The concern is over disclosure. There’s worry the public may not realize search engines have paid content, especially given the fact search engines historically provided only “pure,” editorial-style results.

The type of search engines we use today to scour the Web first emerged in 1994. During the first six years of this industry’s eight-year life span, paid listings in results were minimal to nonexistent — at least, paid listings sold on behalf of the search engines themselves.

During this period, third-party “search engine optimization” firms were paid for listings obtained in search engines through legitimate or illegitimate means. Search engines did not benefit. These third-party efforts continue and can be a major problem for search engines when done illegitimately. This, in part, is why there’s no such thing as truly “pure” search results.

GoTo (now Overture) was the exception among the major search engines. It appeared in early 1998 and boasted it sold placement to the highest bidder. In late 2000, the company sparked a major change among all the other major search engines in terms of paid content.

In September 2000, Overture signed its first major distribution deal, placing its paid listings on Netscape Search and AOL Search. In the space of a just year, every major search engine had paid listings of some type prominent in search results.

Overture was not the only provider of paid content. Inktomi also unveiled a paid inclusion program in 2000 that distributed paid listings to partners. Google, officially launched in September 1999, debuted paid listings three months later.

Regardless of how paid listings were obtained, in a very short period they appeared alongside editorial results. Consumers often had no clue about this development. Paid listings may look the same as editorial results, or, if labeled, headers such as “Partner Search Results” or “Featured Listings” didn’t connote a paid arrangement.

Commercial Alert (among others) felt the shift warranted greater disclosure. Users had perceived search engines as a source of unbiased information. If search engines changed direction and were influenced by payment, disclosure was necessary.

“Because of the earlier editorial integrity in search engine results, there is an implied representation to search engine users that listings are not skewed by marketing or commercialism. Consumers are accustomed to search engine protocols based on editorial integrity, and have not been told of the departure from these protocols. In effect, this is a high-tech case of ‘bait and switch,'” the organization wrote to the FTC.

The FTC agreed, stating in its response to Commercial Alert’s complaint:

Because search engines historically displayed search results based on relevancy to the search query, as determined by algorithms or other objective criteria, the staff believes that consumers may reasonably expect that the search results displayed by individual search engines are ranked in accordance with this standard industry practice — that is, based on a set of impartial factors. Thus, a departure from the standard practice, such as a search engine’s insertion of paid-for placements in the search list, may need to be disclosed clearly and conspicuously to avoid the potential for deception.

Search Engine Marketers: Include your company on before the list launches July 16th.

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