The FTC issued an official opinion stating that people who endorse of a products, and who are compensated for their efforts, must disclose the nature of that relationship to their “customers”. While its not a law per se (as far as I can determine), sometime in the future, persons or companies in violation of this position might be the target of cease and desist orders or civil fines in the order of millions of dollars.
Yikes.
With the rise of social media, “Word of Mouth” marketing has come to the forefront with regards to marketing messages and firms salivating at getting their messages through blogs, social networks and social bookmarking sites. While it looks like some agencies are “getting” it, by getting genuine consumer participation, interaction and cooperation through these technologies, others are taking a ‘black hat’ at these social media methods.
Whither through the creation of fake personalities, fake blogs, or paying people on the sly to shill your product, all of these techniques are at their heart, duplicitous. And its the last of those that are the target of this FTC statment.
In the blogosphere, one of the most obvious stakeholders in all of this is PayPerPost, who currently doesn’t require its bloggers to disclose that they are blogging on behalf of an advertiser; clearly, this is a violation of the spirit of this opinion. If it goes any more beyond an official “statement”, we can look to PayPerPost to evolve into a more disclosure-minded model, such as ReviewMe. Although with its efforts behind disclosurepolicy.org, a web tool that allows people to create a disclosure document (with varying degrees of accuracy), its a bit baffling why they simply don’t go all the way and force their bloggers to sign up and their advertisers to agree.
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.
One of the biggest examples of affiliate marketing is the Amazon Associates program; like many other affiliate programs, the Amazon pays its affiliates when they refer people to their site, and those people purchase its products. The controversy comes in, as I see it, when enterprising individuals create websites or blogs full of content to rank on a search engine, and then embed them with affiliate links … that are not identified as affiliate links.
A great example is carbuyingtips.com, which looks fairly innocuous at first. But beyond all the helpful information are clues to how carbuyingtips.com pays its bills (and more)
On its site is lots of helpful information, but plenty of outbound links as well.
What the unsophisticated reader may not realize is that a significant number of those links are actually affiliate links to different companies. They may not realize, for example, that clicking on that link to “invoicedealers” pays out cash to carbuyingtips.com, because invoicedealers pays its affiliates on every quote that is fetched on their end (not even a “sale”).
I’m not here to debate the merits of the affiliate marketing, but I wonder, out of the billions that are earned by affiliates for their parent companies, what percentage of them are earned under similarly “duplicitous” circumstances. I only use the word “duplicitous” in the sense that carbuyingtips.com certainly is not letting anyone know about their affiliate arrangement with any of these online car related e-commerce sites.
Many tech savvy readers might be aware that when hovering over that link, all that gobbledy-gook following the main URL actually means an affiliate link … but many might not.
After all, if you think I overstate myself, there is a reason software is sold to obfuscate those links (and free ones as well, such as tinyurl.com, which is used for this very purpose) — affiliates want to make sure they’re paid out on visitors sent to a site, and not get that special URL stripped of its identifying data. And savvy visitors may not necessarily want blogs or sites to monetize on a relationship that may have been fleeting at best, and duplicitous at its worst.
Is it a “big deal”? Well, I don’t see anyone asking people to identify every single outbound affiliate link (look at carbuyingtips.com and try to identify all of the affiliate links) on a site, but there might need to be a prominent notice that the site is affiliated with specific companies, so that its identity isn’t mistaken for one that is exceptionally altruistic.
And when that happens — if it happens — it’ll be interesting to see how it will affect the most important metric of all. The affiliate industry’s bottom line.
(interesting stat: Amazon derives 40% of its sales from affiliates)
December 12th, 2006 at 6:10 pm | Permalink
[…] Digg it | Track with co.mments | | Cosmos | Annotate this page Click here for copyright permissions! Copyright 2006 MathewIngram […]
December 12th, 2006 at 7:10 pm | Permalink
Tony, the Washington Post article is written from a completely different perspective than the same story from AdAge:
http://adage.com/article?article_id=113749
AdAge’s perspective is basically that FTC found this issue to not be significantly problematic to cause full investigation and instead settled on pursuing one-off cases it finds most aggregious. I’m not clear that PayPerPost is in so much trouble here.
What do you think?
December 12th, 2006 at 7:50 pm | Permalink
As always, great observations Tony.
This looks like the FTC declined the petitioner’s 2005 (pre-PPP) request for a ruling against WOMM (see WOMMA.org’s victory post) and the opinion remains silent about the requirements of online service/marketplace providers like PPP, but the message to marketers (e.g. Amazon) and bloggers is clearly to err towards transparency. Given that the opinion specifically mentioned non-cash compensation (e.g. passes, products, exclusive info) and family/friend relationships as disclosable conflicts (like cash), this looks like a good excuse for every blogger to adopt a Disclosure Policy from DisclosurePolicy.org (my baby) or from scratch.
Your observations about the massive affiliate networks are spot-on as well and could shake-up a significant chunk of what funds the blogosphere/net — particularly given that aff bloggers, unlike Posties, get paid specifically for convincing readers to click/buy what they are pitching. As you hint, there is probably a role for site-wide Disclosure Policies there as well.
Never a dull moment in this space, that’s for sure… ;-)
December 12th, 2006 at 9:46 pm | Permalink
[…] But as Tony Hung also points out, this is going to potentially hurt some highly profitable affiliate marketing business models. […]
December 12th, 2006 at 10:12 pm | Permalink
Tony, the lawyer in me loves the site wide disclaimer, and it would certainly be less disruptive from a conversion perspective, but the way the FTC generally treats deceptive ad copy wouldn’t seem to allow that. Hard to say really, because I think this whole issue will turn on whether or not we see any enforcement.
As competitive as the affiliate marketing world is though, I wouldn’t be surprised to see people ratting out their competitors. :)
December 12th, 2006 at 11:11 pm | Permalink
[…] There’s more on this over at Tony Hung’s blog. If you enjoyed this post Subscribe to the Free ProBlogger Newsletter […]
December 13th, 2006 at 12:23 am | Permalink
[…] Now, some are already trying to tie word of mouth into Affiliate Marketing, which I think is a big, big stretch. I’ll have more of my thoughts on this here and over at ReveNews over the next few days, but I wanted to write this post to illustrate one key message. […]
December 13th, 2006 at 1:28 am | Permalink
Brian — thanks for dropping by … man, sometimes the law degree comes in handy when blogging about this kind of stuff, don’t it? :)
Anyway, I totally agree … I think it will become an issue of enforcability. There are hundreds of thousnads of small time affiliate site operators, in hundreds of iterations that I haven’t even thought of yet. The FTC probably doesn’t have the time or inclination to police those small fries.
The big ones, however, may have a problem.
And as I was saying over at Jim Kukral’s blog — who knows what the effect of lawsuits on the big boys will have? Will smaller ones start shutting down out of fear of litigation? (tactics not unlike the RIAA and so on).
Anyway … the only way to know is to follow the story.
Cheers
t
December 13th, 2006 at 1:34 am | Permalink
Gene — thanks for the tip. The WaPo article certainly IS written in a very different light than the one in AdAge!
I think what would be great is if we could actually read what the FTC had put forward. If only it was posted on their blog!! :D
But back to your point … if AdAge is on the ball here, then affiliate marketers are probably safe for now (and Jim would argue, they were always safe), as a case-by-case basis creates less incentive for anyone to come forward to complain than a “thorough” investigation.
Having said that, the very fact that the FTC looked into it, and it made the news, means that the issue of disclosure has bubbled into its consciousness — and that its aware of the issue.
That, I think, is something, given how far word of mouth marketing has come with the rise of social media.
Cheers!
t
December 13th, 2006 at 1:35 am | Permalink
Dan … if nothing else, my shrill brayings are nothing else except to entertain.
Thanks for the kind words. ;)
t
December 13th, 2006 at 5:25 am | Permalink
[…] As Tony Hung and Brian Clark point out, this could end the reign of many websites that look as though they are providing unbiased information, but are really, ” fake personalities, fake blogs, or paying people on the sly to shill your product…” […]
December 13th, 2006 at 2:12 pm | Permalink
[…] Matthew Ingram is quite ecstatic as well, and Deep Jives wonders how this applies to affiliate marketing. […]
December 13th, 2006 at 5:07 pm | Permalink
Tony, there’s a PDF copy of the staff opinion that the FTC put out here.
December 13th, 2006 at 8:44 pm | Permalink
Commercial Alert’s original petition to the FTC was about the kind of WOM that P&G’s Tremor division uses vs. the PPP scenario. But, I can see that the FTC’s statement could be applied anywhere deception is deemed serious enough to affect a buying decision.
My personal opinion is that complete, upfront, clear, conspicuous and comprehendable disclosure is needed in all WOM scenarios including throughout the “downstream” in buzz marketing. My other point is that there are many non-cash incentives that motivate people to pass on WOM that is started in an “institutionalized” way. While I’m for full disclosure WOM Mktg, I’m against any kind of even seemingly innocent deception. Here is my blog post on why:
http://www.brokerblogger.com/brokerblogger/2006/05/deceptive_marke.html
December 13th, 2006 at 9:00 pm | Permalink
What’s the deal with the rasta man? This Jamaican doesn’t get it.
December 13th, 2006 at 10:40 pm | Permalink
Sometimes it gets a little non-sequitur on DJI, what can I say? :)
December 14th, 2006 at 2:00 am | Permalink
It strikes me that the conversation hasn’t focused on the international dimension as enforcability comes up. What can the FTC do against blogs/websites etc hosted offshore or owned by foreign persons?
If websites/blogs were to be forced to disclose in the US, it might lead to a situation where webmasters/bloggers moved their accounts off shore like so many european webmaster/bloggers do.
I’m not agreeing with the legitimacy of this action, but pointing out that the solution could create a cure much worse than the symptoms.
Essentially affilliate ad laundering sites might pop up to replace the current batch, and dollars flowing to accounts outside of the US to match the action.
Again not condoning the activity, but too many times legislation or regulatory actions that fails to take market forces into mind result in the market moving into grey and black areas or to foreign jurisdictions that allow the activity legally.
this is why the United States is one of the worlds largest International Tax Havens for people not living in the US and why similarly so many Corporations for write or for wrong have moved to jurisdictions that have cheaper tax structures, like Ireland, Malaysia and so many others.
Will we see affilliate marketers selling their domains to Dutch holding companies in the near future?
December 14th, 2006 at 2:58 am | Permalink
[…] Deep Jive Interests brings up interesting points about affiliate programs and links that are used within the text of an article or post. On some sites these affiliate links are used multiple times and no where on these sites are there any form of a disclosure statement. Read the article to get his full point of view on the subject. […]
December 14th, 2006 at 4:29 am | Permalink
Hi Tony
That prominent notice needs to be with the content, and not on the sidebar.
Most sites have RSS feeds these days, thus a notice is needed within the feed, as a large majority of readers might never visit the site in question.
I use my new Disclosure Policy Plugin for “Content Wide” disclosures, without having to highlight specific links.
It is also capable of specific disclosures based on any keyword.
You can also update disclosures site wide, because various financial relationships change over time, and that should be reflected in your content.
December 14th, 2006 at 6:26 am | Permalink
[…] I then read Dr. Tony Hung’s opinion (he is a Dr of medicine) but the opinions are very valid. […]
December 21st, 2006 at 4:33 am | Permalink
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January 18th, 2007 at 9:39 pm | Permalink
What’s the deal with the rasta man? This Jamaican doesn’t get it.
February 4th, 2007 at 5:36 pm | Permalink
[…] Recently news circulated about new laws that may impact how affiliates promote online. […]
February 8th, 2007 at 3:11 am | Permalink
[…] Recently news circulated about new laws that may impact how affiliates promote online. […]
March 9th, 2007 at 9:30 am | Permalink
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April 14th, 2007 at 10:37 pm | Permalink
[…] resorting to the messy job of using puny humans to hunt for paid links? Would they resort to the FTC ruling on reporting word of mouth marketing to bludgeon bloggers into disclosing their paid links? Even if puny humans ARE sorting through blogs […]
July 20th, 2007 at 3:17 am | Permalink
[…] Bloggers, PayPerPost is Illegal Matthew Ingram and Tony Hung go into it in more detail, but the FCC FTC has made a ruling on schemes (like PayPerPost) where […]