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FTC Warns Search Engine Companies
by
Posted On July 8, 2002
Responding to a 2001 accusation by a consumer watchdog group that search engine companies engaged in deceptive advertising by failing to clearly label favorable links on hit lists, the Federal Trade Commission sent a letter to seven companies suggesting that they alter their behavior to avoid future FTC action. Although the staff of the Bureau of Consumer Protection declined to initiate formal action against the search engine companies, the consumer group Commercial Alert declared "Victory!" on its Web site, and the FTC warnings sent shivers through the search industry.

In July 2001, Commercial Alert, a Portland, Oregon, group affiliated with legendary consumer advocate Ralph Nader, wrote to the FTC filing a formal complaint, asking that the FTC "investigate whether these companies are violating prohibitions against deceptive acts or practices by inserting advertisements in search engine results without clear and conspicuous disclosure that the ads are ads." The complaint was raised against AltaVista, AOL Time Warner, Direct Hit, iWon, LookSmart, Microsoft, and Terra Lycos.

The Commercial Alert complaint asserted: "When search engine companies first unveiled their engines, they did not put ads in the search results. Results were displayed based on objective criteria of relevancy tallied by algorithms." It went on to claim that "within the last year [presumably since July 2000], some search engines sacrificed editorial integrity for higher profits, and began placing ads prominently in the results, but without clear disclosure of this practice."

The complaint objected to three practices:

  • Paid placement—Advertising that appears as a result of a search, but outside the editorial content (the "hit list")
     
  • Paid inclusion—Advertising in the form of paid content intermingled with the hit list
     
  • Paid submission—The practice of search companies requiring payment in order to speed up the processing of a submission to the service
The complaint further noted that some companies, such as Google, had not engaged in such deceptive practices, and that in other realms the FTC had brought cases against companies whose advertisements were not clearly labeled. Commercial Alert asserted that such deceptive practices could confuse consumers who assumed that editorial integrity in search engines remained intact.

In a letter dated June 27, 2002, Heather Hippsley, acting associate director of the FTC's Division of Advertising Practices, responded to the nearly year-old complaint. Hippsley stated, "After careful review, the staff of the Bureau of Consumer Protection has determined not to recommend that the Commission take formal action against the search engine companies listed in your complaint at this time." While noting that many search engine companies do attempt some disclosure, the letter went on to say that "there should be clearer disclosure of the use of paid inclusion, including more conspicuous descriptions of how any such program operates and its impact on search results."

The FTC response, while not a formal action nor even the launching of an investigation, received widespread coverage in the general and Internet media. The Toronto Globe and Mail reported, "Search Engine Ad Policies Under Fire." The New York Times headlined, "U.S. Warns Web Sites to Label Sponsorships." Writing in the U.K. paper The Guardian, columnist John Naughton discussed "how the search engines sold out," adding "It's vital to the public interest, therefore, that search engines should be honest."

The Commercial Alert complaint, as well as some associated rhetoric, seems to imply that there is no benefit to consumers who receive relevant advertisements in response to a particular query. Of course this ignores the possibility that, for instance, when a user types "Christmas Caribbean cruises" he or she may appreciate relevant advertisements from established companies.

The extent to which consumers are aware of the search companies' practices—and the extent to which they may care—remains in question. The FTC response quoted a BBC survey that found that 71 percent of U.K. users were unaware of the practice of advertisers paying for more prominent results.

It's possible the FTC letter could jar search companies into action, to the benefit of consumers and companies alike. At least one search engine company named in the complaint, Terra Lycos, told me that it had recently done focus groups with customers and changed the layout and labeling of results in response to their comments. Terra Lycos said that recent changes by the company, predating the FTC letters, meant that "the FTC action changes nothing for Lycos." Tom Wilde, general manager of search services for Lycos, said: "Three to 4 months ago we surveyed our users, and they asked for a clean way to discern types of content on our site. Our goal is the best experience for our customers, which turns out to be doing the right thing when it comes to advertising."

Wilde notes that advertisements, even when clearly labeled, can be extremely useful to customers. "If ads were evil, no one would click on them—and we know our users do click on them," he said. "We've had lots of positive feedback from users after we changed our labeling."

Google, specifically noted as an exception in the Commercial Alert complaint, stands out in this story. The original paper that proposed Google as a service, "The Anatomy of a Large-Scale Hypertextual Web Search Engine," remains online at Stanford (http://www-db.stanford.edu/~backrub/google.html). Google co-founders Sergey Brin and Lawrence Page, writing in 1998, observed: "At the same time, search engines have migrated from the academic domain to the commercial. Up until now most search engine development has gone on at companies with little publication of technical details. This causes search engine technology to remain largely a black art and to be advertising oriented…. With Google, we have a strong goal to push more development and understanding into the academic realm."

David Krane, Google's director of corporate communications, said, "Google was founded on the principle that our users should be able to trust what they find using our search engine." He noted that Google has always separated advertising from editorial content and labeled it as such. Krane continued: "Ads are only displayed if they're relevant to the search terms a user enters, which means that Google's ads help our users find the information they need. Tricking users into viewing ads degrades consumer confidence in search engines and directly lowers the performance of an online ad campaign. With this ruling both consumers and advertisers win."

Another company not named in the complaint is Overture. Founded as Goto.com, Overture has always taken honesty in identifying advertisements to its logical extreme: It labels each item in the hit list with the amount the advertiser paid for the privilege of being there.

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Richard W. Wiggins is an author and speaker who specializes in Internet topics.  He is a senior information technologist at the computer center at Michigan State University.

Email Richard W. Wiggins
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