Pay per click search engine advertising, one of the most popular forms of online marketing, is under scrutiny now, with the Federal Trade Commission taking action last week.
Actually, the FTC
decided "not to take formal action against the search engine companies," but instead is sending letters to the companies warning them against a common practice that may be illegal and was brought to
the agency's attention by Commercial Alert, a citizen's action group formed by Ralph Nader.
Last year, Commercial Alert filed a deceptive advertising complaint with the FTC against seven search
engine companies, charging them with running ads that appear as search results "without clear disclosure that they are ads." The organization says the ads "look like information from an objective
database. But really they are paid ads in disguise." The companies in the complaint were Alta Vista, AOL Time Warner, Direct Hit Technologies, iWon, LookSmart, Microsoft and Terra Lycos.
Of course,
paid placement is a common industry practice, with companies paying for their listings to appear at the top of any search. But Commercial Alert says such listings must be labeled as advertising so as
not to confuse consumers.
And the FTC agrees. In a June 27 letter to Gary Ruskin, the executive director of Commercial Alert who filed the complaint, the FTC said it would send another letter to
search engine companies so that "they may avoid possible future Commission action."
In the letter to Ruskin, the FTC said, "Any websites or URLs that have paid to be ranked higher than they would
be ranked by relevancy, or any other objective criteria, should be clearly labeled as such using terms conveying that the rank is paid for."
The question is whether search engines do that.
LookSmart and iWon label ads "featured listings" while Netscape uses the term "sponsored links." The FTC says "featured listings" and other neutral terms, such as "recommended sites," "search
partners" "products and services" and "partner search results" are inadequate and misleading.
Some sites separate search engine ads from other listings, but don't necessarily label them as ads.
In response to the FTC's actions, some search engines say they will change the way they list ads while others defended their current practices. Heather Staples, chief marketing officer for Ask
Jeeves, which owns Direct Hit Technologies, one of the companies in the Commercial Alert complaint, says, "We have language around our paid placement results that is consistent with what they say.
It's appropriate."
While Ask Jeeves may label its listings appropriately, Staples admits not all search engines do. But she says there have been changes since Commercial Alert's complaint was
filed. "There's been a lot of evolution with how they call out paid results," she says. "More and more sites are calling out paid listings with sponsor language. That wasn't the case a year ago."
Ruskin, who attacked the search engine practice of not labeling listings as ads as "degradation of information, which is a serious matter in a democracy," is pleased with the FTC's response. "They
ruled in our favor," he says. "Search engines will tell us when ads appear. The FTC is telling search engine companies to adopt clear and conspicuous disclosure. That's what we wanted."