Responding to a complaint last July from Portland, Ore.-based Commercial Alert, the FTC said it would send letters outlining the need for clear disclosure to companies that offer Internet search services. Companies named in the complaint were AltaVista, AOL Time Warner, Direct Hit Technologies, iWon, LookSmart, Microsoft and Terra Lycos.
The FTC said it would not take formal action at this time, however, noting that many of the sites named in the original complaint had already taken steps to flag paid listings. Of the 12 search sites owned or operated by the seven search-engine companies named in the complaint, 11 separate paid-ranking results by placing them above the non-paid results, the agency found.
Commercial Alert Executive Director Gary Ruskin said the FTC's response was a victory for consumers.
"The FTC is telling search-engine companies to adopt clear and conspicuous disclosure for paid listings, under direct threat of possible future commission action," he said. "They've set standards of disclosure and are telling search-engine companies to comply."
The tussle over paid-search listings comes as Web publishers turn to search engines as a rare bright spot in an otherwise bleak environment for online advertising. Paid-search company Overture Services has posted strong revenue growth in recent quarters on the strength of a syndicated paid-listings service that has won over a long list of customers, including Web portal Yahoo.
The sudden proliferation of paid listings has raised red flags for consumer groups such as Commercial Alert, which claims the practice threatens to undermine editorial integrity on the Web.
Some search-engine companies downplayed the FTC's result, saying they had already taken steps to clearly mark listings that appear as a result of payments from advertisers. An AOL Time Warner representative said the company's Netscape Communications division at one time had used the term "Partner Listings" to display such results, but changed the language to "Sponsored Links" prior to this week's decision.
In a statement, Fred Bullock, AltaVista's chief marketing officer, also defended his company's practices.
"We believe that the paid listings that we display on our site are delineated from our search results and that the disclosure is not misleading," he said. "To date, the FTC has not addressed any letter to us regarding this matter. If and when we do receive such a letter, we will take it very seriously and review its recommendations carefully. We will then respond accordingly."
In its letter Friday, the FTC said some disclosures from search engines still fall short. The agency singled out a long list of terms that it considers inadequate, including "Recommended Sites," "Featured Listings," "Premier Listings," "Search Partners," or "Start Here."
"Other sites use much more ambiguous terms such as 'Products and Services,' 'News,' 'Resources,' 'Featured Listings,' 'Partner Search Results,' or 'Spotlight,' or no labels at all," the FTC found.
News.com's Stefanie Olsen contributed to this report.