FTC Leans on Search Engines Over Ad Labeling

The Federal Trade Commission’s Bureau of Consumer Protection on Monday issued a letter to search engines including Google, Yahoo and Microsoft, advising them to provide better labeling and notification of advertising that appears alongside search results.

The letter is an update to guidelines issued in 2002.

“After the 2002 Search Engine Letter was issued, search engines embraced the letter’s guidance and distinguished any paid search results or other advertising on their websites,” explained the letter, which was signed by Mary K. Engle, the FTC’s associate director for advertising practices. “Since then, however, we have observed a decline in compliance with the letter’s guidance.”

The growth of social media, mobile apps and other new technologies over the years, meanwhile, has also warranted an update, the FTC noted: “Regardless of the precise form search may take in the future, the long-standing principle of making advertising distinguishable from natural results will remain applicable,” it explained.

Potential Fines

The letter was sent to general-purpose search engines AOL, Ask.com, Bing, Blekko, DuckDuckGo, Google and Yahoo as well as to 17 of the most heavily trafficked search engines specializing in particular areas of shopping, travel and local business.

Google, Yahoo and Microsoft all responded to the FTC’s letter with statements confirming the importance of clear labeling and disclosure and asserting their plans to review and comply with the latest guidelines.

Although it wasn’t mentioned in the FTC’s letter, Section 5 of the Federal Trade Commission Act gives the commission the power to investigate search engines that don’t comply for the possibility of unfair or deceptive acts or practices, with potential fines as a consequence.

The FTC did not respond to our request for further details.

Paid Search

Search engine advertising has evolved considerably over the past 10 years.

“The clear trend here is that there are more and more search results popping up on pages and commanding more of the real estate,” BIA/Kelsey Senior Analyst Jed Williams told the E-Commerce Times. “This idea of paid search has come to pick up more real estate on the page. Clearly the amount is increasing, which set off government agencies to be concerned about consumer protection.”

It is possible that consumers conducting searches are failing to observe the notifications from search engines.

“These notifications are still present,” Manish Kacker, associate professor of marketing at McMaster University‘s DeGroote School of Business, told the E-Commerce Times. “This suggests that another factor behind the inaccurate consumer recollections could be that they do not pay much attention to the notifications or care about the distinction between advertised and native search results.”

‘Beyond Search Engines’

Though the warning was issued to search engines, native advertising on social networks such as Facebook as well as editorial sites could be the FTC’s next target. Native advertising can look like friend posts in a user’s news stream or paid “advertorial” stories on newspaper and other editorial sites.

“This really extends beyond search engines,” Greg Sterling, principal analyst at Sterling Market Intelligence, told the E-Commerce Times. “The native advertising craze is trying to blend advertising content seamlessly into the stream of organic content to make it less intrusive.”

Sponsored and paid search results are not much different from advertising on other platforms.

“Bear in mind that the mixing of advertising and natural content is something that occurs on other digital advertising platforms as well — ‘native advertising’ is becoming increasingly important in the digital world,” Kacker said. “It remains to be seen whether this FTC notification is the start of a broader effort by them to ensure the separation of advertised and organic content across all forms of digital advertising.” [*Correction – June 27, 2013]

There may, however, be more confusion in this area, as consumers aren’t as accustomed to having ads pushed at them in this way, Williams noted.

A Data-Driven Response

Either way, advertisers will have to adapt.

“Response from advertisers will be data-driven: They will be able to quickly assess whether a more visible separation between paid and organic search results reduces the effectiveness of their advertising,” said Kacker.

Of course, “even if this happens, they may continue to use search advertising if the advertising effectiveness of alternate digital advertising mechanisms is relatively weak,” he added.

In any case, advertisers ultimately will likely appreciate the clarification, Williams predicted.

“The advertising ecosystem in general would, I hope, embrace this idea,” he said, “so consumers are being protected.”