The US Federal Trade Commission criticize search engines for unmarked text ads

(July 1 2002, update July 2) Pandia has repeatedly commented on some search engines' reluctance to label pay per click search results as sponsored results.

At AltaVista, for instance, pay per click search results (i.e. text ads that are paid for by advertisers) are disguised as "Products and services", while Ask Jeeves call them everything from "useful options" to "featured listings". Many metasearch engines do not label them at all.

Does it matter? As some search engine representatives argue, these paid listings may be highly relevant, and the searchers do not mind anyway, right?

Such listings may indeed be relevant, and the major providers of pay per click search results/text ads (Overture, Espotting and Google) have laid down strict rules that are to ensure that the ads lead to pages that includes information that is relevant to the search query.

We fail to see, however, why a company that is willing to pay more for a pay per click listing than others necessarily present products, services or information that are more useful than others.

When generating regular search results, the search engines strive to develop objective algorithms that are to push relevant high quality sites to the top.

In other words: The search engines do not normally treat paid results according to the same rules as other search results, and they should not be presented as such.

On the other hand, there can be nothing wrong in adding pay per click text ads, as long as they are clearly labeled. After all, search engines have to make a living, and text linked to search queries are one of the most efficient forms for advertising available.

And indeed, some search engines, like Lycos, already label paid text ads as "sponsored results". Google even put them in colored text boxes in order to make them stand apart from regular search results.

So why do not all search engines follow their example?

One explanation may be that text ads camouflaged as regular search results lead to a higher click-through rate than others. Searchers are normally more likely to click on the very first results listed. Given that the search engine is paid every time someone clicks on a search results, it is tempting to "encourage" as many as possible to do so.

The fact is, however, that neither the searcher, the advertiser nor the search engine necessarily benefit from this.

If the searcher has planned to buy a certain product or service this click may possibly unite a happy customer and a service-minded company.

On the hand, if the searcher is looking for general information on a specific topic, he or she is more likely to be disappointed. Commercial sites do not normally provide much unbiased information of a general nature. The advertiser also loses, as the visitor are less likely to buy its goods.

In the long run the search engine will also lose, as searchers looking for general information soon find that the results presented by the search engine most often are irrelevant.

The searcher may not understand that this is caused by the presence of paid text ads, however, and may conclude that there is something wrong with the quality of the search engine itself. End result: The search engine loses a regular visitor.

According to a survey made by Consumer WebWatch, only 39 percent of Internet users have heard of paid placement and only 43 percent of those who use search engines.

After being told that some search engines take fees, 80 percent say it is important for search engines to tell users about their fee deals, including 44 percent who say it is very important.

Still, it is interesting to note that users that are told about the inclusion of paid text ads, are unsure on how to react. About one in three say they are less likely to use a search engine if they know it is taking money from other sites for higher placement in the results.

A small minority would be more likely to use the site if it revealed the financial arrangements.

A majority of 56 percent say it would make no difference to them, a figure that might convince some search engines to stick to using ambiguous terms for paid results.

However, consumer activists are turning up the heat, making unmarked text ads a PR liability. The consumer advocacy group Commercial Alert made a complaint to the US Federal Trade Commission last year.

As a result of this the Federal Trade Commission will now send a letter to the relevant American search engines, asking for "clearer disclosure of the use of paid inclusion, including more conspicuous descriptions of paid inclusion itself."

The FTC does not plan to to file suit against the search engines, however.

"We won. The FTC set forth a good and clear standard, and the search engines will have to come into compliance with it," says Gary Ruskin of Commercial Alert to Voelspriet.

FTC's letter to Commercial Alert can be found at the Commercial Alert Web site (PDF-file). The original complaint can be found here.

See also Search Engine Watch's take on the matter.

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