What if advertisers found a stealthy new way to get their pitch across — a form of messaging perceived more as a friendly recommendation than hard sell? In an over-crowded media environment, marketers would surely flock to such an innovation.
And they have. In the nascent realm of social media influencing, paid endorsements are burgeoning. Celebrities and other influencers present their taste and choices in the marketplace as nothing more than the act of sharing tips with fans and the public — even while failing to make clear that, often, they are being paid to do so.
The only hitch, of course, is that failing to publicly disclose compensation for promoting a product or service is illegal. The practice falls under the category of deceptive advertising, and the problem has become widespread enough to capture the attention of the Federal Trade Commission, which recently sent a shot across the bow of the industry. In a letter to 90 influencers and marketers, the FTC reminded them of the obligation to “clearly and conspicuously disclose their relationships … when promoting or endorsing products through social media.”
There is nothing about social-media technology itself that makes identifying paid messages difficult, points out Wharton marketing professor Jonah Berger, author of Contagious: Why Things Catch On. “Native advertising can note that it is an ad, and tweets can include hashtags that note someone was paid.”
But though there is a way, it is less clear that there is always a will.
“One reason word of mouth is ten times more effective than advertising is that people trust it more. Knowing someone got paid to talk about something makes us much less likely to trust that message.” –Jonah Berger
“Companies don’t want to adopt these tactics,” says Berger, “because it will reduce the effectiveness of their message. One reason word of mouth is 10 times more effective than advertising is that people trust it more. Knowing someone got paid to talk about something makes us much less likely to trust that message.”
In one respect, the proliferation of this kind of practice is just one more skirmish in the ageless game of cat and mouse between advertiser and consumer. But right now, the stakes are particularly high.
“First, consumers are getting desensitized to ads. In fact, the install rate of ad blockers among millennials is very high,” says Wharton professor of operations, information and decisions Kartik Hosanagar. “Advertisers are looking for new ways of getting their messages through, and native advertising where ads are built into the content are more commonplace. Second, and a related point, is that media influence is becoming increasingly decentralized with bloggers and social media influencers taking over. This makes it harder for the FTC to regulate. This is not going away, and so it makes the FTC’s job extremely hard going forward.”
The Rise of the Influencer
Influencer marketing is growing rapidly. Mediamix, a major influencer marketing firm, notes that some key demographic groups now receive media content solely through social media channels, apps and platforms, and that the total ad spend of the influencer market will rise from $500 million in 2015 to between $5 billion and $10 billion by 2020.
“The issue now is that so many companies, large and small, have the opportunity to advertise on Snapchat, Twitter and Instagram – it’s a relatively cost-effective way to reach a global audience,” says Erin E. Rhinehart, a partner at Faruki Ireland & Cox in Dayton, Ohio, who leads the firm’s media and communications practice. “What we are seeing are a lot of traditional marketers forgetting the fundamentals of the need to disclose, and a lot of smaller and mid-size companies are not paying attention to the fact that regulations still apply to them.”
Rhinehart notes that regulations have been in place for decades governing false and deceptive ads, as well as the requirement for disclosure when the “fan” of a product is being paid, through a patchwork of state and federal laws. Additionally, the FTC issued a set of guidelines in 2015 designed to instruct social-media influencers, making it clear that the same obligations that apply to traditional media apply to them.
The agency says it does not generally monitor bloggers, but that “if concerns about possible violations … come to our attention, we’ll evaluate them case by case. If law enforcement becomes necessary, our focus usually will be on advertisers or their ad agencies and public relations firms. Action against an individual endorser, however, might be appropriate in certain circumstances.”
This is exactly what led the FTC to send its recent warning letter to 90 influencers and marketers. Public Citizen, the consumer-rights advocacy group founded by Ralph Nader in 1971, filed a petition with the FTC, and the agency investigated. The FTC did not initially disclose the names of the recipients. But according to the National Law Journal, which filed a Freedom of Information Act request with the FTC, recipients included Jennifer Lopez, who posted an Instagram photo with Beluga brand vodka in the background, and Jersey Shore star Nicole Polizzi touting Flat Tummy Tea with an Instagram photo captioned with: “There’s just NO WAY I’m doing summer without a flat tummy.”
Brands, too – such as Adidas – received FTC warning letters, according to the National Law Journal.
Lines between advertising and editorial content have been blurring for years, but more so recently. On The New York Times website, for instance, while the company clearly labels certain ads with the line “sponsored content,” the online placement of these ads in the middle of the page, with a graphic treatment similar to that of articles, makes the distinction less clear than traditional pop-up ads or ads that are boxed off.
“This is not going away, and so it makes the FTC’s job extremely hard going forward.” –Kartik Hosanagar
Still, the distinction eludes many. In a recent study of 1,212 adults who regularly access the internet, Contently and the Tow-Knight Center for Entrepreneurial Journalism at the City University of New York found that the majority of readers, 77%, didn’t interpret native ads as advertising.
Small wonder that native advertising is expected to zoom. By 2021, native display ad revenue in the U.S., which includes native in-feed ads on publisher properties as well as social media platforms, will make up 74% of total U.S. display ad revenue, up from a 56% share in 2016, according to one report from Business Insider.
The FTC’s recent warning marks a change, says Rhinehart. For the most part, it has gone after companies it felt violated consumer trust; in 2016, the FTC and Lord & Taylor settled over charges after the store had paid 50 influencers to wear certain dresses and post about them while failing to disclose that they had been paid between $1,000 and $4,000 each. But the recent warning letters, she says, are “the first time they have been going after individual influencers. The Kardashians, for instance, can’t keep posting [paid endorsements without disclosing them as such] on Instagram and then claim it’s the company’s fault. The FTC is now watching you.”
Technically, even much smaller fish are violating FTC guidelines when they fail to disclose —