Government Scrutiny Of Incentivized Lead-Gen Yields New Standards

Two government regulatory decisions publicized in November set significant new standards for incentivized online lead generation. They are the Florida Attorney General's voluntary compliance agreement with Azoogleads U.S. Inc. and the Federal Trade Commission's settlement with Adteractive Inc.

The Azoogle case involved the advertising of third-party cell phone ringtones that were proferred as "free," "complimentary," "without charge" or used similar language. The case is significant because in agreeing to pay $1 million (without admitting guilt), New York-based Azoogle also agreed to cooperate with the Florida Attorney General in its ongoing investigation of third-party ringtone suppliers. Among other things, Azoogle is required to produce detailed records about any companies that were "third party wireless content providers at any time since [Azoogle] and its publishers began promoting ringtones, including, to the extent available, the third party ringtone service provider's name, physical address and the name and address of the advertiser's contact person." Needless to say, this element of the agreement breaks chilling new ground within the realm of affiliate relations.

With regard to ringtones, Azoogle has agreed not to use the terms "free," "complimentary," "no charge," "without charge" or any other term that reasonably leads a consumer to believe that he or she may receive something of value, entirely or in part, without a requirement of compensation in any form. The company is allowed to use those terms so long as its initial representation to consumers "clearly and conspicuously" states that the free item may be received by a consumer pursuant to his or her authorization of billing for a paid subscription plan, the price of the plan and its term. According to the settlement, "For instance, a free ringtone offering requiring a consumer to subscribe to a monthly subscription plan at a cost of $9.99 per month shall say, ‘Free ringtone with paid monthly subscription of $9.99/month.'"

In addition, Azoogle agreed not to permit the placement of pre-checked boxes "in an offer intended to be used for acceptance of a term(s) or condition(s) of the offer." I've consistently stated that the use of pre-checked boxes is not a preferred practice in online lead-gen. Consumers are perfectly capable of checking the boxes of their choice and should be given the opportunity to do so.

In the Adteractive case, which the San Francisco company settled for $650,000, it's believed to be the first time that the FTC has cracked down on a company offering supposedly "free" products like flat-screen televisions, Microsoft Xbox 360 and Sony Playstations that turned out not to be "free." Adteractive does business as and and has been doing this stuff since June of 2004. According to the FTC, the come-ons to consumers in e-mails and Web-based ads contained such language as "Test and keep this flat-screen TV" and "Test it-keep it, Microsoft Xbox 360." Other ads consisted of trivia games and contests ("Participate now and you'll receive a FREE SONY PLAYSTATION 3"). Of course, once consumers clicked on links and arrived at landing pages, they discovered they must incur expenses to get the "free" merchandise. But first they had to jump through hoops in various tiers of offers, not all of which qualified them for the promoted "free" goods.

Just how expensive can free merchandise be? According to the FTC, in one instance consumers were required to subscribe to a year of satellite TV at a cost of nearly $600. "In most instances," says the Adteractive settlement, "it is impossible for the consumer to qualify for defendant's promised free merchandise without spending money."

Things like this were what the federal CAN-SPAM Act was designed to prevent. So now Adteractive is permanently restrained from violating the Act, and the FTC has the right to pose as consumers or suppliers to Adteractive's businesses just to make sure the company stays on the straight and narrow. As I write this, both and are offering Sony Playstation Portables -- list price $445 -- but with the proviso "free with purchase." (Amazing what a government settlement will do.) However, there are differences of opinion as to the impact of a $650,000 payment by a company as big as Adteractive, with reported revenues of $115 million. According to one press account I read, FTC Commissioner Jon Leibowitz dissented from the decision to accept the Adteractive settlement, arguing that the fine is way too small.

Nonetheless, the agreement does provide new guidance for companies engaged in similar activities. For the last two years, the Online Lead Generation Association has been warning lead-gen companies, advertisers and Web publishers that the tide is turning on practices that the government believes are deceptive. We are led to believe these are just the beginning of a wave of similar enforcement actions. I urge everyone to review these recent government actions and take appropriate steps, lest all of lead-gen be tarnished by the practices of a few of its brethren. You can find the settlements (plus a copy of CAN-SPAM) at under Resources and Research.




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