The Federal Trade Commission (FTC) issued a letter to search engine operators in the United States regarding a potential consumer deception, which is a violation of the Section 5 of the FTC Act.


Although the agency did not name any particular search engine operator in the letter, it is expected that the three largest search engine operators in the country such as Google Inc (NASDAQ:GOOG), Yahoo! Inc. (NASDAQ:YHOO), and Microsoft Corporation (NASDAQ:MSFT) received it.

The regulation mandates search engine operators to distinguish advertising from natural search results “clearly & prominently.” The FTC noted that the compliance of search engine operators to identify any paid search results or other advertising on their websites is declining. Search engine operators received a guidance letter regarding the regulation in 2002 from the agency.

FTC Issues Warning on Ads That Look Like Results or Posts

The FTC emphasized that the fundamental principles of the 2002 Search Engine Letter remained the same although search engines constantly change the devices and the process of retrieving and presenting results to consumers. According to the agency, the principle is, “Consumers ordinarily expect that natural search results are included and ranked based on relevance to a query, not based on payment to a third party.”

In addition, the FTC pointed out that a search result included or ranked in whole or in part based on a payment is an advertisement. “To avoid the potential for deception, consumers should be able to easily distinguish a natural search result from advertising that a search engine delivers,” according to the agency.

Search engine giant Google Inc (NASDAQ:GOOG) generally puts advertisements on top of its website for every search result related to the query of the users. However, the advertisements are noticeable because the advertisements are enclosed in a light pink box accompanied with the words, “ads related to…”

Search Engines Sliding Closer to Violations

The FTC stated that features used by traditional search engines in differentiating advertisements from natural search results are becoming less noticeable to consumers, particularly the top ads. According to the agency, a survey conducted by the Pew Research Center in 2005 found that almost 50 percent of users did not recognize the difference between top ads and natural search results.

The agency urged search engine operators to change and improve their practice of labeling advertisements to comply with its guidance.

Google Inc (NASDAQ:GOOG)’s search engine is the most prominent and widely used by internet users in the United States and globally. In 2012, a study from eMarketer showed that the search engine giant gained a 73.8 percent share of the $17.8 billion search advertising spending. The remaining $4.5 billion went to its competitors in the industry such as Yahoo! Inc. (NASDAQ:YHOO) and Bing from Microsoft Corporation (NASDAQ:MSFT). Most recently, data from eMarketer revealed that Google Inc (NASDAQ:GOOG) captured the highest revenue in mobile ads.