FTC Wants Clear Ad Disclosure in Search Results

The Federal Trade Commission (FTC) responded to a complaint filed last year by consumer advocacy group Commercial Alert alleging search engines use deceptive advertising practices. Eight major search engines were accused of "placing ads in search engine results without clear disclosure that the ads are ads." Implications were that search engines valued commercialism over editorial integrity.

The FTC responded to the complaint by saying that current disclosures are not sufficiently clear and should include more conspicuous descriptions of paid listings. Key changes recommended for search engines using paid placement and paid inclusion pricing are:

• Clear delineation of paid listings, whether separated from, or integrated into, the non-paid listings. Paid listings can be made clear and conspicuous by prominence, placement, mode of presentation, and proximity to explanations or qualifiers.

• Clear descriptions on how sites are selected for inclusion in search engine indices, located where consumers can easily find these descriptions and become aware of the impact of paid inclusion in their search results.

While the FTC doesn't plan legal action, it will send a letter to those named in the complaint (AltaVista, AOL Time Warner, Direct Hit Technologies, iWon, LookSmart, Microsoft and Terra Lycos), calling for clearer disclosure and more conspicuous descriptions of paid listings.

Commercial Alert executive director Gary Ruskin called it a victory, while acknowledging that some practices have improved since filing the complaint. However, the consensus is that search engines still have a long way to go toward clear and conspicuous disclosure.

Specific FTC Recommendations

The FTC recommends that all search engines review their Web sites, making changes necessary to ensure that:

• "Any paid ranking search results are distinguished from non-paid results with clear and conspicuous disclosures.

• "The use of paid inclusion is clearly and conspicuously explained and disclosed.

• "No affirmative statement is made that might mislead consumers as to the basis on which a search result is generated."

Furthermore, search companies providing results to third-party Web sites must also discuss adherence to the above criteria with regard to "supplied search results that involve payment of any kind for ranking, insertion of paid results into unpaid results, or any pay-for-inclusion program."

Is the General Public Aware of Paid Listings?

The FTC letter quotes a recent study suggesting that the general public is not aware that the top listings are paid ads. This lack of knowledge coupled with the belief that search engines should have editorial integrity can result in users not grasping the significance of paid listings in search results.

Princeton Survey Research conducted a national survey for Consumer WebWatch in January 2002 on credibility and trust online. The study reported the following on users' knowledge of paid placement in search engines.

• "Despite so many people using search engines and despite their importance online, most users express ignorance of the practice of many of these engines taking fees to list some sites more prominently than others in their search results. Only four in ten (39%) Internet users have heard of this practice and only 43 percent of those who use the search engines. The more experienced users (those online three years or more) show more awareness of this practice (46%) than those online for six months or less (24%).

• "After being told that some search engines take these fees, a solid majority (80%) say it is important for search engines to tell users about their fee deals, including 44 percent who say it is very important. There is no difference between the novice users (79% important) and the most experienced users (77%). Those who use search engines feel strongly as well (81% important).

• "About one in three (30%) say they are less likely to use a search engine if they know it is taking money from other sites for higher placement in the results. A small minority (10%) would be more likely to use the site if it revealed the financial arrangements. Given the complicated situation, a majority (56%) say it would make no difference to them."

Consumer Alert contends that as more consumers become aware that the top listings are paid ads, they will move away from the search engines that don't have clear disclosure. Now that the FTC has spelled out guidelines for the disclosure of search engine paid listings, perhaps there will be a little more standardization, and the public will be better informed.

Meeting FTC Guidelines

While none of the search engines named in the complaint meet the FTC guidelines, one search engine does. Google offers paid listings (Google AdWords Select) and clearly labels them "Sponsored Links." It meets clear and conspicuous disclosure by displaying its paid placement ads in shaded boxes to the right of the main listings and providing a link explaining the program below those listings. Since Google doesn't offer paid inclusion, it easily meets the FTC guidelines.

It won't be so easy for search engines that display multiple paid listings and have paid inclusion partners. So it will be interesting to see how search sites like AOL, MSN, Yahoo!, AlltheWeb, AltaVista, AskJeeves, Lycos and Netscape explain these multiple partnerships to consumers. It will also be interesting to see if they opt for consistency by adopting clear terms like "Sponsored Links" rather than the more ambiguous "Products and Services" or "Featured Listings."
July 3, 2002