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FTC finds problems with search engine results

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The Federal Trade Commission last month warned search engine operators-which have increasingly blurred the line between search results and advertising-that their current advertising disclosures are not sufficiently clear. The warning was in response to a complaint filed last July by Commercial Alert, a nonprofit consumer protection group based in Portland, Ore.

In the FTC's written response, the government agency said that during its review of search engine practices it found paid advertisements could be mistaken for actual search responses. As a result, the federal agency is calling for search engines to alter the way they display advertisements and carefully delineate between actual results and paid advertisements.

"As a general matter, clear and conspicuous disclosures would put consumers in a position to better determine the importance of these practices in their choice of search engines to use," said the FTC in a statement to 12 of the major search engine companies, including AltaVista, AOL Time Warner's AOL Search, LookSmart, Terra Lycos and Google. Google is the only company that already does a good job at alerting users to paid advertisements, the FTC said.

Informal recommendations

Although the FTC isn't taking additional regulatory steps that would require search engines to make changes, even the informal recommendations may change the way advertisers and search engines do business.

Today, only 40% of consumers are aware that search engines receive fees for link placement, according to a recent Consumers Union national survey. As a result, marketers that use such services often receive high click-through and conversion rates. The trend carries over to the b-to-b world, according to researchers. Many of the top b-to-b companies pay for placement on search sites.

If the FTC's suggestions are implemented and, as a result, consumers stop clicking on the paid links, search engines could lose millions of dollars in revenue. On average, marketers spend 25% of their online budgets on portal placement, according to a recent Forrester Research report-money that may go elsewhere if conversion rates suffer.

In addition to fewer click-throughs, the FTC suggestions also have the potential to create more work for marketers. If paid search engine links produce fewer leads, advertisers may shift their investments to optimizing their own Web sites. Such optimization can-but not necessarily will-result, in higher placement on a search engine's results page.

To date, most search providers are issuing only issuing terse written statements on the FTC's review.

"We believe that the paid listings that we display on our site are delineated from our search results and that the disclosure is not misleading," said Fred Bullock, AltaVista's chief marketing officer in a statement. "To date, the FTC has not addressed any letter to us regarding this matter. If and when we do receive such a letter, we will take it very seriously and review its recommendations carefully. We will then respond accordingly."

No impact on marketing

Some marketers are taking a similar stand, saying that the FTC's suggestions have had no impact on their marketing plans.

"All services that we use currently list our ads as either featured links or sponsored links, which are different from the general search listings," said a spokesperson for Microsoft Great Plains Business Solutions, a b-to-b advertiser that buys placement on search engines. "As a result, our potential customers, or the general Web surfer, can easily distinguish what has been paid for and what hasn't."

One analyst wondered if the FTC's decision goes too far. "Search engine results function in the same way that phone books do," said Rudy Grahn, an analyst with Jupiter Research. "The prominence of an ad in the Yellow [Pages] depends on what an advertiser is willing to pay," he said, noting that the Yellow Pages are full of advertising. "But it's a form of advertising that meets consumer and business needs." The FTC guidelines, Grahn said, are well intentioned, "but for the purposes of commerce, what the marketer wants the consumer to see and what the consumer wants to see may be one and the same."

But Gary Ruskin, executive director of Commercial Alert, said the Web is inherently different than offline resources. "There are some significant implications of the degradation of information quality due to the hijacking of technology. Search engines are essential to the Web. As information quality degrades, it has a serious implication for democracy and education."
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