More than 75,000 people follow Jeremy "Shoe Money" Schoemaker on Twitter for his candid takes on news and strategies in search engine marketing, his expertise. Recently, they got something else: a 140-character promotion for the new NBC (GE) comedy series Community. The TV network paid Schoemaker a total of $2,000 for two Twitter posts, both of which included a brief disclaimer that the message was an ad.
As advertisers begin to take innovative approaches to tapping online social media, Uncle Sam wants to make sure the old rules of fairness and transparency still apply. On Oct. 5, the Federal Trade Commission issued a set of updates to its guidelines for acceptable use of endorsements in ads. For the first time, the revisions specified that bloggers, like mainstream media outlets, are required to disclose any "material connections" they have to a brand or product they write about. What's more, the guides apply to any users of Twitter, Facebook, and other social media sites where people may be paid to pitch goods to friends, according to Rich Cleland, assistant director of the FTC's division of advertising practices. "We felt it was necessary to address social media marketing because it has become the most significant new area of advertising," Cleland says.
Closer scrutiny from regulators in Washington could give pause to big advertisers wading into the social media space, says Forrester (FORR) analyst Sean Corcoran, author of the March report Add Sponsored Conversations To Your Toolbox: Why You Should Pay Bloggers To Talk About Your Brand. "These new rules mean you have to readdress your strategy," says Corcoran. "The legal teams will be more involved and they're going to be more discerning." Forrester estimates that more than $700 million will be spent on social media marketing in 2009, and more than $3 billion will be spent by 2014.
FTC Could Bring Legitimacy While the FTC guidelines are not law—rather, they define how the consumer protection agency interprets existing laws in light of new technology —advertisers and bloggers could be issued warnings or be brought into court by the agency for violating the guidelines. "The FTC issues guidance because they think it's necessary," says Michael Mallow, attorney with the Los Angeles law firm Loeb & Loeb. "If marketers do not pay attention to that, then yes, [the FTC] is going to go after them."
The new guidelines concerning endorsements also come at a time when other efforts toward regulating the Web are gaining steam in Washington. In September the Food & Drug Administration scheduled a hearing to review efforts by drugmakers to market their goods using online social media. This past summer members of Congress began drafting legislation that could bar advertisers from engaging in the practice of "behavioral targeting."
Many argue that the FTC's involvement in social media marketing could help legitimize the practice. "I have always been a big believer that if you are being paid for something you should tell people about it," says James Eliason, who operates Twittad, a service for Twitter advertising. Like a handful of other startups in the space, including Ad.ly and IZEA, Twittad is beginning to attract major advertisers to its service, such as Sears (SHLD) and Land Rover. It takes their sponsored messages and offers anywhere from $2 to $2,000 to Twitter users who want to post these messages to their accounts.
Average Users Confused These services meet the basic requirement of the new FTC guidelines: They ask users to include disclosures inside their "tweets," such as "Ad by Ad.ly." Twittad use several types of disclosure: Each Twitter publisher must post a badge on his or her page that says Twittad, links include the text "spon.in"—meaning "sponsorship in update"—and each time someone clicks on an ad they are shown a dropdown bar indicating they've clicked on an advertisement.
These Twitter ad services offer forms of disclosure, but their standards vary, and could confuse average users who are unaware that Twitter users are promoting brands. They also exclude independent bloggers like Melanie Notkin, who receives requests from major brands like Disney (DIS) and Yoplait to pitch their goods over her Twitter account. Notkin has more than 11,000 followers on her Twitter account, many of whom she says fit a demographic—women without children—that is hard for advertisers to reach. Under her Twitter pseudonym SavvyAuntie , Notkin was recently paid by Turner Networks to provide a running online commentary for eight episodes of its show Saving Grace. Each of her messages included the disclosure "SP," meaning "sponsored post." Notkin says she is currently pitched by about five brands each month asking for similar arrangements.
The ability of upstart online personalities like Notkin and Schoemaker to attract dollars from major advertisers underscores a larger challenge for regulators like the FTC: How do you govern ads when average people in everyday conversations become marketers? "The FTC obviously intentionally provided ambiguity," says Anthony DiResta, general counsel for the trade group Word of Mouth Marketing Assn. "But that's a challenge."
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