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FTC Cracks Down on Deceptive Word-of-Mouth Advertising
By DaveM | December 13, 2006
There has been a buzz around the blogosphere and forums recently about a new FTC initiative to crack down on deceptive word-of-mouth advertising (a.k.a. affiliate marketing) practices. I guess I never realized how big of an issue this really is until I took my time and really read the posts and articles in detail.
Here’s an excerpt from the first article I read, “FTC Moves to Unmask Word-of-Mouth Marketing“:
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 here’s another paragraph from the same article:
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.”
Apparently, huge companies are enlisting the help of volunteers (ie. affiliates) to go out into online and offline communities to hawk products for them. This is done through recommendations to family & friends, and the “volunteers” typically don’t disclose the fact that they are getting paid for their endorsement. Even worse, these affiliates are being provided with canned information and positive statements to share with others either verbally, or online through forums, blogs, or social networking sites such as MySpace.
Now, I understand that independent product & service endorsements are the basis of affiliate, or word-of-mouth, marketing, but I don’t think companies or affiliate marketers should be deceptive about it in any way. What’s wrong with actually buying and using a product and THEN, if you really like the product, tell others about it. Unfortunately, this isn’t standard practice in word-of-mouth marketing. For this reason, I think it’s good that the FTC is getting more involved.
Sadly, there are many s0-called “scam buster” and “review” sites out there trying to come off as consumer advocates. They claim to be providing unbiased helpful information about various products & services to protect the consumer. But when you really dig deep under the covers, you find out the products & services they “review” and give their highest ratings to, are also the ones paying the highest affiliate commissions. Some examples that come to mind are: web hosting review sites, car/electronics/book/etc review sites, dating services, and even some doctor/dentist “referral” sites. As a consumer, you really have to be careful and KNOW what you are looking at before taking any recommendation at face value.
As I always say… Follow the money and you’ll quickly learn whether or not you can trust the source of your information. This applies equally to TV, radio, books, magazines, newspapers, billboards, Internet, and verbal face-to-face marketing.
Nobody really knows yet what the disclosure guidelines are going to be, but I won’t be very happy if the FTC eventually forces all affiliate marketers to start placing some sort of visual indication next to every affiliate link. Google AdWords used to do this by requiring something like “-aff” or “(aff)” in your ad copy if you were promoting an affiliate product. They later removed that requirement, but I’m guessing it might be resurrected soon in light of this new FTC initiative.
I don’t think I’m in any danger of receiving a cease-and-desist order or a hefty fine from the FTC any time soon. After all, I make no bones about the fact that I’m an affiliate marketer and I’m promoting affiliate products in the hopes of making a little extra money. Heck, I even have an entire page listing my favorite affiliate programs so others can do the same if they choose. 
But not all websites are like this one. Many will try to pose as impartial 3rd party reviews or recommendations, and really they could care less about any of the products/services they promote. They just want you to click and make a purchase so they get paid.
In the end, I have to wonder whether or not the FTC crack-down will really help. I mean, the tech-savvy consumers can already spot an affiliate link from a million miles away. So will the NON-tech-savvy consumers really have any clue what it means if I have “-aff” next to a link?? I’m guessing they won’t.
Full disclosure is great and I’m all for it. But it kinda seems pointless if it does nothing to protect the people it is really meant to help. It seems to me that a full-scale campaign targeted at educating the average consumer would go a lot further toward solving the problem.
Just to cast a little shadow of confusion on this whole thing… Here’s another article I found that was posted just one day earlier than the one above:
FTC Rejects Call for Probe Into Word-of-Mouth Practices
Here’s how it starts out:
The Federal Trade Commission today rejected a consumer watchdog group’s call for a full-scale probe of word-of-mouth marketing, the controversial practice that tries to turn ordinary consumers’ affection for products and brands into free advertising.
What does this mean? One one hand they reject a request to investigate deceptive word-of-mouth marketing practices, and then (in the other article) they decide to push the burden of disclosure onto the independent marketers.
Sounds a little like a “don’t ask, don’t tell” approach to me.
Here’s another excerpt from the same article:
The ruling comes during the Word of Mouth Marketing Association’s annual summit in Washington. WOMMA officials praised the FTC for turning down the request and said they agreed with pursuing case-by-case prosecution, noting that stealth marketing violates the group’s guidelines.
What? Since when is there a Word of Mouth Marketing Association?? Sign me up!
Anyway, I’d love to hear some varying opinions on this. Maybe there’s more to it that I know.
UPDATE: I just found the official position letter from the FTC to Gary Ruskin, Executive Director of Commercial Alert. The FTC letter also references the WOMMA white paper titled, “Word of Mouth 101.”