Is This The End of Affiliate Marketing?
The FTC finally published its revisions to the 1980 testimonial and endorsement rules. Some bloggers, copywriters, and marketers, even lawyers, have talked about this, sometimes a lot more eloquently than me.
It’s obvious the FTC’s intent is to curb, control, and go after those nefarious flogs (i.e., “fake blogs”), like Google Money and Acai Berry. But the language is left to be desired and, if not clarified, can lead to some serious repercussions.
Especially for affiliate marketers.
Based on what I’ve read, I can easily interpret “affiliates” and “vendors” falling in what the FTC dubs as “endorsers” and “advertisers.” (According to TechCrunch, the FTC has responded and clarified this somewhat, which I will come back to in a moment.)
In its new rulings, they make two powerful points. Points I agree with. At least, in intent. TechCrunch did a great job fleshing out the changes and its implications. The most important of which is the fact that the FTC can fine you $11,000 per infraction.
But these two biggest changes, which also may become problematic, are…
1) Authenticity
We must be authentic in our claims and testimonials. That’s common sense, and I applaud the ruling. But also we must show they are atypical, and to buttress any claim or testimonial with one that the consumer can reasonably expect from using the product.
This, in itself, opens a huge can of worms.
If a product is new, untested, or not used as intended by the user — which is, sad to say, what the typical user fails to do most of the time and over which we have no control — then how can we share what we believe the user will reasonably expect?
Let’s say you sell a diet pill. There is only one way to consume it. Plus, there’s only one result. You either lose weight or you don’t. Simple. And in this case, you can carry out scientific analysis to measure the results in order to discover what is typical.
For instance, you simply get 100 people to take your pill, measure their results, and post the average. And you can make them aware of the average result. Easy, peasy.
But in the case of a marketing or business-building training program, which teaches multiple strategies, multiple concepts, for multiple types of businesses, in multiple markets, the problem is that there is no “one size fits all” of using this product. It’s impossible.
(And most how-to or do-it-yourself information products fall in that category.)
Every single user of that training program will have a different result. There is no such thing as “typical.” In fact, by the very existence of such a training program, all results are atypical. So the question is, how do you comply with the new legislation?
That said, if you do offer a one-size-fits-all product, or one with a singular, measurable result, then can you simply say, “If used as directed, you should get [typical result]?”
According to the FTC, you no longer can.
The older rule said that having a blanket disclaimer (somewhere, such as a link at the bottom of a sales page), to show that results are atypical and that individual results may vary, is no longer possible. The FTC says we “no longer have this safe harbor.”
The next problematic issue is the one of liability. If I’m an affiliate and point to or reprint testimonials given to me by the affiliate vendor, and they are “atypical,” am I therefore liable? According to the FTC, I am. And that makes sense. In theory.
But in practice, it’s a potential nightmare waiting to happen. (I’ll come back to this in the second point below, as it is an important one we need to look into and cannot ignore.)
2) Disclosure
If the endorser has a relationship with the sponsor, they must disclose it. Even if it’s a payment “in kind” or any material connection between endorser and advertiser, such as an exchange of exposure, free products or services, even contests and joint ventures.
(How about if it’s just buying them a beer? But I digress.)
Again, this makes sense. But does that mean we have to tell everyone when an affiliate link is an affiliate link? What about other media, such as social media like Twitter? (The FTC did mention “social media,” too.) How can you do this in 140 characters or less?
What will be interesting is to see how the FTC clarifies these rulings (on a “case-by-case basis,” they say). But liability is an important issue and not to be taken lightly.
For example, let’s say one of my less-than-ethical affiliates blogs about me. They lie in their endorsement or review, exaggerate some of the claims I make, or simply fail to indicate their affiliate relationship with me. All of which are things I have little control over.
Now, here’s the rub.
The new rule stipulates that the advertiser and endorser are both liable. Does “advertiser” mean “vendor?” That is, the affiliate program owner? Meaning, are we, as vendors, also liable for what our affiliates say, sell, promote, or blog about?
Again, it makes sense that we should. To a degree. But what if the affiliate goes rogue, and uses unacceptable practices to bump up their sales? Sure, they broke the terms of their affiliate agreement. We can cancel their accounts and forfeit their commissions.
But the damage is done. And believe me, the government has a long memory.
Here’s my question. When the FTC says that the “advertiser” and “endorser” are liable, do they mean exclusively? Or inclusively? In other words, do they mean that either one is liable, specifically the one who engaged in unethical (and now, illegal) practices?
Or do they mean both are liable, regardless of who’s at fault?
My friend, Armand Morin, in a personal exchange, said this…
The way I read it as well is that the vendor is ultimately responsible. If you have a rogue affiliate and they do not disclose that it’s a promotion and they are being paid to do so, then you are the responsible party as well as they are.
It reads, though, that the ($11,000) fine comes to to the company and not the actual affiliate. I may be wrong on this, but it looks that way. Bottom line, it’s not a good thing.
Either way, “this is a game-changer,” says Armand. And I agree.
This could literally mean a ton of affiliate programs shutting down, if this is the case. For some marketers, their entire businesses, which rely heavily on affiliate promotions, would die — or at best, be forced to make huge overhauls to their affiliate systems.
Because it’s now too risky to operate an affiliate program.
Or in an attempt to comply with the new rules, they must carry out an expensive, labor-intense application and review process, where they must vet, qualify, and monitor every single affiliate. And do so with hundreds, even thousands, of existing ones.
Logistically, it’s another nightmare.
Nevertheless, it remains to be seen. Clarity is going to be key. Some people have blogged about their concerns and need for clarity. For example, this blogger posted a rather interesting, and somewhat sarcastic, open letter to the FTC. And it makes sense.
Sure, it has less to do with affiliate marketing, but some questions are relevant — and applicable — to our industry as well. For instance, the third question in that open letter can be easily extrapolated to the affiliate space just as well. It says…
If an unpaid blogger at the Huffington Post “endorses” a consumer product without meeting the FTC guidelines for disclosure of “material connections” to the makers of that consumer product, who’s liable: the blogger or the Huffington Post?
However, in the TechCrunch post linked earlier, the author posted a response from the FTC, which did not appear on the original blog post. The FTC clarified a few points, but at the same time they opened up several new questions. Here was their response…
Update: The FTC responds
When asked if the FTC views bloggers equally and whether or not it recognizes levels of authority on par with traditional media, Mary Engle, associate director for advertising practices, clarified its position and perspective, “All bloggers aren’t the same and we are not saying that all bloggers are marketers. Most of them are ordinary folks musing or sounding off. The question as we put it in the notice we published today is whether, viewed objectively, the blogger is being sponsored by the advertiser. (We list a number of factors to consider.) Independent product reviewers, whether offline or online, would not be viewed as sponsored by the company whose products they are reviewing.”
Engle further observed the distinction between expert and consumer bloggers, “But if bloggers regularly receive free products from a company, the blog audience might view their reviews differently than if they went out and bought the products on their own. Under those circumstances, bloggers should disclose they got the products from the company. This is consistent with the WOMMA code of ethics. And, companies who use bloggers to generate buzz about their products by sending free merchandise should have a policy that their bloggers should disclose.”
I think this clarifies it somewhat, because those who create blogs and, on occasion, have product reviews such as affiliate marketers who are, according to the FTC, “independent product reviewers,” are not the ones who are targeted in this case.
But are affiliate marketing vendors still safe?
Granted, the FTC appears to be aiming for blogs where “the blogger is being sponsored by the advertiser.” And that “independent product reviewers, whether offline or online, would not be viewed as sponsored by the company whose products they are reviewing.”
But it’s still a little muddy. For example, is affiliate marketing considered “sponsored advertising?” Or is an affiliate marketer an “independent product reviewer?” I think — and hope — the FTC will be clarifying its position soon. I know they will as we go along.
We’ll just have to wait and see, I guess.
But for some people, waiting, taking the risk, and possibly becoming the target of the FTC who wishes to make an example out of them, may be too much to bear.
My intent was to simply express my concerns, as the lack of clarity can become problematic for legitimate marketers. It may change affiliate marketing as we know it.
It wasn’t too long ago, when a now-famous Internet marketer — he wasn’t so famous at the time — was hit by an FTC lawsuit, over $250,000 in fines and penalties, including seizures of his property, accounts, and his business, just because of a “rogue affiliate.”
In this case, it was a rogue resell-rights owner. He unethically promoted this marketer’s product, which contained marketing materials and templates from the original marketer. When they were caught, they went after the one whose name was on the salesletter.
The original marketer, not the rogue who broke the law.
That’s how serious this could be. Just my three cents.
Update #2: The folks over at FastCompany interviewed FTC representatives to clarify some of its rulings, and it did make some of it a little clearer to appease certain fears. The gist from the interview comes down to three important clarifications:
1) Complaint-Driven
The FTC stated they won’t have reviewers scouring the web on a regular basis searching for violators. They will work mostly on a case-by-case basis, based on complaints. They will rely more heavily on education and voluntary compliance than prosecution.
2) Three-Strike Process
They will not fine offenders at first. Again, prosecution won’t be their first aim. They will instead follow a three-step process with which they give offenders some time to redress and comply. Even with the most flagrant offenders and “wost-case scenarios.”
They will start by issuing a warning. If that doesn’t work, then they will send a cease and desist. And finally, if all else fails, then they will fine the offender up to $11,000.
3) (Perceived) Authority
Casual affiliate links or product reviews are fine. What the FTC seems to be really going after are blogs that are more extensive, either as recognized authorities themselves, or perceived as authorities by blogging about one particular product or business.
I’m not a lawyer. But my guess is, if your blog is all about reviews but has multiple affiliate links, you should be fine. But if you’re an authority, or if your blog is all about a particular product or business, you must clearly disclose your relationship and compensation.
For instance, TechCrunch does reviews on a regular basis. They are considered an authority. So they are expected to disclose. Same with blogs dedicated to entire products, such as those Acai Berry blogs or Google Money blogs.
Remember the Wal-Mart “trip around America” fiasco, where a couple was blogging about their experiences by driving to Wal-Marts from state to state? The flak that followed was because they failed to disclose they were being paid by Wal-Mart.
Their blog was entirely focused on their travels. Hence, it had perceived authority.
The bottom-line?
If you own an affiliate program, I think most of your affiliates are safe. But if you have one affiliate who decides to set up an entire blog or website dedicated to a single product or business, they must disclose their relationship as there is perceived authority.
That makes perfect sense. While these clarifications help a lot, and now a clearer picture is emerging, some questions still remain unanswered. We’ll just have to wait and see.
Update #3: My good friend Jim Edwards grilled FTC Director Richard Cleland on the new laws coming into effect on December 1st. Absolutely golden information. If you’re confused or worried about these new laws, you must watch this video. It’s excellent.
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