An excellent question was posed by Eric Alexander earlier this morning:

Does it [the passing of the new Federal Trade Commission's disclosure rules for "endorsements and testimonials"] only affect product or service endorsements or even all affiliate links, banners, etc that a website may publish?

I’ve just given the Guides a second (or really third or fourth) look. They state that the Federal Trade Commission was specifically looking to address issues connected with “the messages conveyed by consumer endorsements” and particularly with “the use of so-called “disclaimers of typicality” accompanying testimonials that do not represent experiences that consumers generally achieve with the advertised product of service” (p. 2). Upon receiving feedback on the 1980 version of the Guides, some of which argued that “the proposed revisions to the Guides could have a negative affect on emerging media channels and impede the ability of businesses to communicate with consumers through legitimate testimonials and endorsements”, the Commission has still decided to proceed with the new Guides. The purpose of the newly introduced rules was not to interfere with legitimate reviews and testimonials, but rather: to address the so-called “non-typical testimonials” (pp. 3-4). What exactly is the FTC trying to address, and who exactly is affected? Reading on, we see the following paragraph:

The Commission does not believe that all uses of new consumer-generated media to discuss product attributes or consumer experiences should be deemed “endorsements” within the meaning of the Guides. Rather, in analyzing statements made via these new media, the fundamental question is whether, viewed objectively, the relationship between the advertiser and the speaker is such that the speaker’s statement can be considered “sponsored” by the advertiser and therefore an “advertising message.” In other words, in disseminating positive statements about a product or service, is the speaker: (1) acting solely independently, in which case there is no endorsement, or (2) acting on behalf of the advertiser or its agent, such that the speaker’s statement is an “endorsement” that is part of an overall marketing campaign? The facts and circumstances that will determine the answer to this question are extremely varied and cannot be enumerated here, but would include: whether the speaker is compensated by the advertiser or its agent; whether the product or service in question was provided for free by the advertiser; the terms of any agreement; the length of the relationship; the previous receipt of products or services from the same or similar advertisers, or the likelihood of future receipt of such products or services; and the value of the items or services received. An advertiser’s lack of control over the specific statement made via these new forms of consumer-generated media would not automatically disqualify that statement from being deemed an “endorsement” within the meaning of the Guides. Again, the issue is whether the consumer-generated statement can be considered “sponsored”. (pp 8-9)

The FTC’s concern is clear: are the “positive statements” (note the adjective here!) influenced by the prospect of earning money, or are they posted without any monetary motivation attached?

So:

• The FTC is concerned with consumer-generated media — specifically with product/service endorsements/reviews/testimonials.
• The main question is whether there is a sponsorship relationship present between the website owner (or producer of the content), and the advertiser, or not.
• The goal is to provide a transparent environment where if a sponsor-endorser relationship exists the end-user/consumer/reader must be notified of it through a proper disclosure of the relationship

Additionally, since the above text talks specifically about “positive” reviews and endorsements, the question of whether a negative review with a merchant’s ad on the site be deemed an “advertising message” remains open. Knowing that negative reviews also increase sales, it would only be just to presuppose so. However, this (just as anything that is written in this post) remains to be my personal presupposition.

Another question related to the consumer-generated media would be this: what if someone starts a forum which offers its readers a platform for their reviews (non-biased, subjective yet not sponsored in any way), and decides to monetize it by adding ads to it (be they text links from within the people’s reviews, or rotating banners, or even a directory of the services that are being reviewed where every link is being compensated in some form)? Would the obvious monetary interest of the forum’s owner affect the trustworthiness of the reviews posted by independent reviewers? Unlikely. Can the FTC get concerned? Most probably so.

And finally, let’s briefly look at other websites that have an obvious monetary interest in promoting merchants, but are not producing reviews/endorsements as such.

Example 1

Comparison shopping engine (with or without a “review product” function) which provides consumers with an option of searching products across different advertisers, sorting them by price, popularity (either based on a review rating, or on the “most frequently viewed” stats), alphabetically, etc. Would it be necessary for such a website to disclose the monetary connections with the “sponsors”? Obviously, this includes not only affiliate websites with a comparison shopping function, but also such giants of the comparison shopping vertical as Shopping.com and Epinions.com, Shop.com, NexTag.com, PriceGrabber.com, mySimon.com, Shopzilla.com, and multiple others.

Example 2

A fishing (or any other topic) blog where the author is post his fishing tips and pictures, and has either banners, widgets, or other types of affiliate links “on the side”, but offers no reviews as such? Would this website be required to disclosure the blogger’s financial interest in his readers purchasing from the advertisers he/she promotes?

Example 3

A cashback affiliate (e.g.: FatWallet.com), or a coupon affiliate (e.g.: CouponCabin.com).

Example 4

A paid search affiliate (whether they link their PPC ads directly to the merchant, or route them via a website of their own, but provide no merchant reviews on the latter).

The list of examples could go on and on. The primary question is what we started this post with or Does a publisher that is not explicitly involved in reviewing their advertisers’ products or services have to provide disclosures of monetary connections? I don’t see anything that would imply this in the FTC’s guides. The Commission’s concern seems to be specifically with the objectivity of the “speaker’s statement” when endorsing a product/service. It is being stated that all “endorsements must reflect the honest opinions, findings, beliefs, or experience of the endorser” (p. 60) and when there is a material connection between the endorser and the vendor, it must be clearly disclosed. If there is no such connection, there seems to be nothing to disclose. If there is no sponsored endorsement, there seems to be nothing to disclose either.

Don’t treat any of the above as a legal advice. These are just my personal speculations based what I’m reading in the Guides.

As always, feel free to chime in with your thoughts on the subject by posting them in the “Comments” area below.

Fake is as old as the Eden tree.
– Orson Welles

Blogs, forums and other websites that allow room for such elements of online social interaction as customer reviews are still a great way to promote merchants through affiliate programs. One thing to keep in mind though is the fact that faking reviews is not only unethical, but it is now also being prosecuted by attorneys general.

Earlier this week The State of New York fined a cosmetic surgery company $300,000 for fabricated reviews. The New York Times wrote:

The company had ordered employees to pretend they were satisfied customers and write glowing reviews of its face-lift procedure on Web sites, according to the attorney general’s statement. Lifestyle Lift also created its own sites of face-lift reviews to appear as independent sources.

One e-mail message, discovered by the attorney general’s office, told employees to “devote the day to doing more postings on the Web as a satisfied client.”

I think this is a good precedent. Both affiliates, and merchants have something to learn from it. The Internet is giving us not only a larger reach, but also a responsibility. It is good to see things becoming more transparent, and hence authentic.

In continuation of my earlier posted thoughts on the effectiveness of blog reviews, it seems appropriate to now turn to the Federal Trade Commission’s plans to monitor blogs for paid/biased reviews.

On Sunday, the Associated Press wrote that blogging, which continues blooming, “has taken on characteristics of community journalism — but without consensus on the types of ethical practices typically found in traditional media”. Journalists who work for newspaper and broadcasting companies “are held accountable by their employers, and they generally cannot receive payments from marketers and must return free products after they finish reviewing them”. Up until now the blogosphere has not been regulated by any such rules. FTC is about to change this, and the new regulation may come into force by the end of Summer 2009.

CNET News commented that for the first time ever, FTC will seek to enforce guidelines that would “ban deceptive or unfair business practices”. CNET continues:

The rules could be quite strict, even extending to the practice of affiliate links — for example, a music blogger who links to a song on Amazon MP3 or iTunes that earns an affiliate commission in the process.

Izea.com’s sponsored conversations are brought up as an example of a website that offers its contributors incentives — such as “free trips, products, gift certificates, or outright payments” — for coverage (see Ted Murphy’s reply here).

We are once again back to two questions: (i) that of disclosure, and (ii) that of authenticity. The question of disclosure was touched upon in earlier discussions about dropping affiliate links on Twitter (see “Damn Marketers. Affiliate Links in Twitter” post by Scott Jangro, and Shawn Collins’ “Affiliate Link Disclosure Manifesto” post, and comments under both of them too). I blogged a bit about authenticity (and how it’s connected with trustworthiness) earlier today. While there will be a need for policing, it seems that the end users are already doing a great job deciding who to trust.

Is the disclosure necessary, and will it help? Richard Koman, a lawyer and technology writer for ZDNet.com, believes it is and it will. He writes that, in reality, “the solution is simple enough: ‘If you buy this book through my site, Amazon pays me a few cents.’”

I do not view this FTC’s move as a potential cause of any major trouble for decent affiliates. There is nothing to be unhappy about. After all, the aim is “to crack down on false claims from bloggers” (italics mine). The subjects of (a) how exactly to word the guidelines, and (b) how to implement the effective policing do leave room for discussions, but overall, the FTC’s concerns are proper and this is a good move.

Other interesting discussions and articles on the subject may be found below:

• FTC Going After Bloggers = Epic Fail (SEOBook.com)
• FTC Is Ready to Pounce on Dishonest Bloggers (PC Magazine)
• Are Paid Bloggers Guilty of Ad Fraud? (ibid)
• FTC Eyes Blogs for Conflicts of Interest (PC World)
• FTC to go after product reviews bloggers who accept freebies (ZDNet)
• Adding an Amazon or Apple Affiliate Link to Your Blog? The Feds Want to Know (All Things Digital)

I’ve written about blogs as an excellent marketing method for affiliates to employ in promotion of affiliate programs. I have also published some encouraging stats and forecasts on blogging here.

Yesterday eMarketer.com has published some additional statistics we should know about. While word-of-mouth recommendations still move the end users to purchase online, “word-of-blog” reviews are actually considerably less effective. Quoting Mintel’s recent study on the subject, eMarketer writes that “34% of US Internet users who bought a product or service based on a recommendation got that tip from a friend or relative” and “one-quarter bought based on advice from a spouse or domestic partner”. Blogs are on the list too, but way down that list. Here’s the actual chart:

Trustworthiness of a blog review is directly tied to the trustworthiness of the reviewer. Hence, when affiliates do use product or service reviews in their blogs they better be real reviews. Merchants, on the other hand, should start using “recommend to friend” buttons more aggressively. Just look at the stunning stats above.

I’ve been following the responses to Jangro’s “Damn Marketers. Affiliate Links in Twitter” post with great interest. Today Scott has asked a semi-rethoric question: “Isn’t it really that opinions and recommendations are suspect if there’s money involved?” Websites providing hosting reviews are the first ones that come to my mind.

You’ll be surprised to learn what customers think. At least I was when asked a related question in the survey I was doing for my “Online Shopping Through Consumers’ Eyes” book.

Question: If you knew that some of the product/service comparison websites were paid (by the retailers they feature) to feature their specific products/services, would it bring the value of such websites down?

Answer:

No, it wasn’t the number of those that gave the positive answers to the question that surprised me. I was surprised to see that over 15% of online shoppers do not care if there is any bios involved, and close to 1/3 answered “maybe” (i.e. maybe yes, but maybe not).

Cooper & Grutzner (2008) stress that customer reviews can be “your most powerful selling tool.” Over half of the online shoppers that were surveyed by ForeSee (their sample consisted of 10,000 shoppers from top 40 online retailers) cited product reviews “as the primary factor in their purchase decisions.” These authors write that customers “often trust peer reviews over the company’s word” and “even negative reviews help legitimize good reviews in customer’s minds.” (see “Tips and Traps for Marketing Your Business.” pp. 146-147)

However, paid reviews are different, especially if the owner of the website is economically interested in having reviews actually leading to a sale. The sincerely and authenticity of the review is then under a big question.

Additionally, Trout (2007) stresses the legal ramifications associated with undisclosed “sponsorships”:

Under the rules of the Federal Trade Commission (FTC), word of mouth marketing is deceptive if potential consumers are more likely to trust the endorser of a product or service based on the assumption that the endorser is independent from the marketer. If your blog features paid product placements or paid reviews, and you fail to disclose the fact that you are getting paid for your “opinion,” these rules are going to hit you right between the eyes. If you are receiving money from a company you discuss favorably in your blog, you better be up front about the affiliation.
(see “Cyber Law: A Legal Arsenal for Online Business.” p. 39)

This certainly puts a different perspective on things.

Conclusions? My main one is: If you use reviews on your affiliate websites, make sure they are real reviews, opinions, and testimonials. You can add a product ranking system, and an option for your website’s visitors to leave reviews on the products they have previously purchased, or even services they have previously used (like you can leave your hotel reviews on TripAdvisor.com). Of course, this is more work than putting together your own reviews, but it’ll both save you from potential legal troubles, and help you build a website that actually adds value.