FTC's focus on paid search engine disclosure: Golden moment for the industry -- or missed opportunity?

In 2001 search engines finally started labelling pay-per-click search results as "sponsored" or "paid" results. Pandia has asked an industry representative to give his view on the future of pay-per-click and paid inclusion.

By Special Guest Writer James Beriker, Search123

The Federal Trade Commission's recent landmark recommendation to the search engine industry to improve disclosure of paid listings within search results is a gentle rebuke -- a veiled suggestion that the industry ought to get its house in order, lest the FTC break out the regulatory stick.

The implicit message in the ensuing FTC disclosure debate is that there is something vaguely sinister, or at least misleading, about the practice of including paid listings within search engine results.

The conventional wisdom holds that search engines that accept paid submissions could not possibly be open about what they do, because doing so would convey to the consumer that these are not "real" search engines and that the results cannot stand up to the Googles of the world.

As usual, the conventional wisdom is wrong. It is time to demystify our business practices, in the interest of what is fair for consumers and what is best for the long-term growth of our industry.

The FTC's action has done the paid search segment, indeed all search engines, an enormous service -- if the industry is wise enough to recognize and leverage it. The Commission has given the industry an opening to educate and, yes, to extol what it is that we do. And what is that again? We use search engine platforms to connect qualified buyers with relevant sellers -- good old fashioned direct marketing, but in real time.

In what other medium can a relevant ad for exactly what a consumer is seeking appear at exactly the time they are looking for it? Granted, the highest- ranking listings are held by the advertisers who are willing to pay the most for a click, but the consumer doesn't pay to click, and ultimately holds the power to decide whether or not to make a purchase.

While the disclosure issue may not be on the consumer's radar just yet, it will be soon enough. In the interim, we ought to use the FTC directive as an opportunity to help consumers care -- and more importantly, help them become more knowledgeable about what advertising-based search results offer the online marketplace. We actually enhance the experience of consumers on the Net.

Consumers long ago tuned out banner advertising. In fact, we have all been trained not to click on ads. Consumers need to know that paid search engine listings are relevant and valid, and that no other form of advertising is as consumer-friendly.

After all, advertisers have no incentive to misguide an unqualified user, since they pay for each click whether or not the user becomes a customer. For consumers, paid search listings represent a departure: these are the "good" ads. They are radically different from CPM-based banners because they directly relate to the search initiated by the consumer.

One reason for the FTC inquiry into our business, and rightfully so, is that most consumers have no idea that the results being presented in search engines are influenced by advertising.

But monetizing search results is not a new practice brought on by the growth of the paid search industry. For years, search engines have sold banner ads that relate to keyword search terms and have given preferential treatment in listings to their highest paying advertisers.

As paid search grows and engines seek to monetize more of their search results, it is better to proactively educate consumers about the benefits of paid search, rather than to react to the backlash when they realize (or at least feel as though) they have been duped.

But more than a preemptive public relations strategy, the search engine industry has an obligation to provide users with truly relevant results. We must strike a balance between serving the advertisers who pay us, and consumers, who just want to find what they are searching for. Not doing so will only undermine our profits as consumers get wise to exploitation of their naiveté.

This brings up the issue of distinguishing paid search from paid inclusion. While most engines have responded to the FTC by clearly labeling the first tier of search results as "sponsored" links (or similar labels), paid inclusion intertwines paid listings with those that are automatically indexed by the unbiased algorithms of search engines.

The only recommendation made by the FTC with respect to paid inclusion is that "there should be clearer disclosure of the use of paid inclusion, including more conspicuous descriptions of paid inclusion itself." The FTC did not go so far to recommend that each paid inclusion listings be labeled as ads.

While technically it's possible to label anything in a database as an ad, no search engine that I am aware of has yet to make the distinction between paid and non-paid results when they are combined. It would be fair to do so, but perhaps discourages the click if the listing is labeled as an ad.

Herein lies another opportunity to educate consumers about the benefits of paid search, by taking seriously our obligation to provide truly relevant search results. We must devise new ways to display search results that are truly relevant, while also serving advertisers, consumers and our legitimate right to earn a profit for providing search services.

I am concerned that some search engines will react defiantly to the FTC, and even more concerned that others will tacitly concur with the conventional wisdom. A perceived lack of disclosure has already put some engines on the opposite side of consumers. Remaining in stealth mode at this juncture is precisely the opposite of what is required.

If we as an industry view disclosure as a form of empowerment for consumers, we perform a service for everyone in the advertising "supply chain" -– the advertisers who list, the distribution partners who incorporate paid search into their sites, and the consumers who shop and buy.

Paid search is the vanguard of performance-based advertising, but performance is impossible without participation from every link in the chain.

According to our research, the growing paid search industry will represent upwards of $1 billion this year – even amid the recession. This kind of growth is no accident; it is a testament to the fact that paid search performs for all concerned.

While it would certainly be folly for paid search engines to resist the FTC's guidance on disclosure, it would be an even greater mistake not to seize the moment and take the overwhelming case for paid search directly to the consumer.

James Beriker is CEO of Search123 in Westlake Village, Calif. Search123 was one of the first pay-per-click search engines to launch on the Internet.

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