Flogs and Farticles – The Crackdown Begins Day 1

On what has historically been tax day, April 15th, the FTC sought to impose a tax of its own, this time against those associated with fake blogs and fake news sites. Last year, we said that it was not a matter of if but when the FTC would take action against those involved in the marketing of fake blogs. The when was a two step approach, the filing of five lawsuits and a just completed press conference titled, “FTC Cracks Down on Fake News Websites Used to Advertise Acai Berry Weight-Loss Pills.”

We first started talking about fake blogs two years ago, in early 2009. By then, fake blogs had already been running successfully for more than six months, and taste aside, offered many insights into performance based advertising. A study of the fake blog ecosystem was a look into risk and arbitrage based media buys. It provided case studies on the monetization of remnant advertising, one click or two click models, and lessons in run of network advertising. And, since their inception, we’ve seen them promote weight loss, colon cleanses, auto insurance, e-cigarettes, penny auctions, men’s supplements (not those men’s supplements), and work from home programs.

Fake blogs and fake news sites also taught us a lot about the affiliate marketing space – highlighting the difference between affiliate networks and CPA Networks as well as those doing lead generation and those doing continuity marketing. They were a source of tremendous wealth, as well as a lot of pain, especially for the earliest participants. The FTC filings could appear to those not following the industry as a first action against such advertising; instead, it’s just the latest. Merchant accounts were shut down, and millions of dollars held by the credit card companies never made their way to the advertisers who then ended up leaving the networks holding the proverbial bag.

It’s easy to understand why someone would go down the fake blog route, especially when hearing story after story of individuals successfully buying more than a hundred thousand dollars of media per day. The problem, as even those creating the fake sites knew, was that they were entering a race to the bottom. They knew what a competitive market it was. They knew that other marketers could easily copy their sites, so in a perverse way, they were constantly forced to iterate for the worst. It was a marketer’s version of Name That Tune where the bet became who could make the biggest, boldest claims. The most bold generally meant the best performance and a means for keeping out would be competitors. It’s those bold claims that came under the scrutiny of the FTC.

More specifically, the FTC, as mentioned in the lawsuits, “…enforces Section 5(a) of the FTC Act, 15 U.S.C. § 45(a), which prohibits unfair or deceptive acts or practices in or affecting commerce. The FTC also enforces Section 12 of the FTC Act, 15 U.S.C. § 52, which prohibits false advertisements for food, drugs, devices, services, or cosmetics in or affecting commerce.” As context for the suits, the FTC has said, “Millions of consumers are being lured to websites that imitate those of reputable news organizations. The ‘reporters’ on these sites supposedly have done independent evaluations of acai berry supplements, and claim that the products cause major weight loss in a short period of time with no diet or exercise. In reality the websites are deceptive advertisements placed by third-party or ‘affiliate’ marketers. The websites are aimed at enticing consumers to buy the featured acai berry weight-loss products.”

A read through the actual filings is very telling as to what troubles the FTC and what activities they find in violation of the above mentioned sections of the FTC Act. Here are snippets from one:

• The sites use the heading “News Alerts” and include the names and logos of major television networks and newspapers, falsely representing that the reports on the sites have been featured on these networks or in these newspapers.

• Defendant’s sites purport to provide objective investigative reports authored by a reporter typically pictured on the sites. The supposed authors of the reports claim to have personally tested or researched the products or services and to have experienced dramatic and/or positive results. Following the reports are “responses” or “comments” that appear to be independent statements made by ordinary consumers.

• In fact, Defendant’s news reports are fake. The featured reporters on the sites are not journalists and never conducted the research or experienced the results described in the report. The “responses” and “comments” following the reports are simply additional advertising content, not independent statements from ordinary consumers.

• The sole purpose of Defendant’s websites is to promote the featured products

• Defendant has failed to disclose in a clear and conspicuous manner that the reporters featured on his websites have not objectively evaluated the products or services and, in fact, that Defendant has been paid to promote the products or services.

• In promoting products and services through his website, Defendant also makes deceptive claims about the products and services. (This is one of the main issues around all of the suits.)

At some level, it’s hard to argue with the FTC, especially when the average disclaimer reads like the following, “It is important to note that this site and the stories depicted above is to be used as an illustrative example of what some individuals have achieved with this/these products. This website, and any page on the website, is based loosely off a true story, but has been modified in multiple ways including, but not limited to: the story, the photos, and the comments. Thus, this blog, and any page on this website, are not to be taken literally or as a non-fiction story.” Everything about it is fake (the images of the reporters were often real) and none of the functionality works. There is nothing authentic, and as mentioned in the suits, no actual investigation to substantiate the claims. Doing it the right way is hard though, and it’s also not necessarily profitable. That has been and always will be the challenge in performance based advertising – the fake but unsustainable way, or the real but uncertain way.

Given that the lawsuits reference acai, there is a very real chance that we will see more suits covering other verticals within the flogosphere.