The FTC’s crackdown on misleading advertising will benefit both consumers & advertisers
Renewed interest in mitigating fraudulent and misleading advertising will only aid the ad industry and bolster consumer trust, writes Digital Remedy’s David Zapletal.
The US Federal Trade Commission (FTC) is looking with a more scrupulous eye at how leading social media and tech companies are handling misleading advertising on their platforms.
Earlier this month, the agency ordered eight top social media and video streaming organizations – including Meta, TikTok, Twitter and YouTube – to share detailed information on what actions they’re taking to mitigate fraudulent advertising.
Although the results of the probe remain to be seen, it‘s a development that has positive implications for ad industry stakeholders as well as consumers.
A renewed focus for the FTC
Fraud is not new to the advertising industry nor is the FTC’s involvement in mitigating the negative impacts of fraud. In 1938, the FTC issued a statement in an attempt to crack down on deceptive and anti-competitive commercial practices including misleading or fraudulent advertising.
Although the industry has come together somewhat successfully to combat ad fraud, the issue of advertising fraudulent products or deliberately misleading consumers remains a challenge for brands. Social media itself, as a medium for user-generated content, has created additional opportunities for fraudulent advertisers to mislead customers.
The Covid-19 pandemic put the significant surge in fraudulent advertising in the spotlight once again. Now, we are seeing a continuation of the FTC’s involvement in combating fraud on all fronts, and in this case, addressing it on relatively new media platforms.
The impact on advertisers and consumers
Much like ad fraud was identified as a major concern for the industry and a source of value erosion, misleading ads or advertising for fraudulent products also pose significant risks to consumers. According to the FTC, in 2022 alone, consumers reported losing more than $1.2bn to fraud or misleading ads that originated on social media – more than any other contact method.
Social media provides a huge opportunity to fraudsters because ads inherently look more organic on these channels – making it much easier to run fraudulent messaging or promote fraudulent offerings in a way that’s perceived as trustworthy. Plus, the ability to target certain groups that might be more susceptible to fraud amplifies the threat on those platforms.
Legitimate advertisers should also pay very close attention to the outcome of this investigation because of the potential impacts on their ability to build trust with their audiences. The negative impacts on both sides are intrinsically linked, as fraud erodes trust. Advertisers need to build and establish trust to effectively market their offerings to get their message in front of consumers who would benefit.
Advertisers with legitimate products and transparent messaging lose their share of voice and revenue opportunities to these nefarious actors. Competition for eyeballs in a world where attention is divided across media and screens is amplified by the fact that consumers are more saturated with messaging. This means that every opportunity for an advertiser to make an impact is important.
When customers are misled or taken advantage of, it erodes consumer trust in advertising in general, which can impact all industries and advertisers. All advertisers pay a long-term price when customers are less likely to trust advertising in the future. Advertisers expect high returns on social platforms due to the organic nature of the placements as well as the targeting opportunities.
When fraud impacts enough consumers or a platform develops a reputation for being ripe with fraudulent advertising, consumers are less likely to click, engage or buy due to an ad. That ultimately means that there will be a negative impact on the returns that advertisers receive and a threat to the ad revenue major social platforms receive from advertisers.
A win-win-win situation
Evaluating how the FTC‘s push may actually play out requires a few considerations.
Google and Meta have the least to worry about due to their already existing stringent policies and oversight from the government. The quality and transparency of advertising on Twitter may be a different story as declining ad revenues on the platform indicate that advertisers have already identified significant risk.
The timing of the FTC‘s probe is also important to consider. Macroeconomic factors and increased competition for audiences mean that platforms may consider reducing their own standards and requirements for legitimate advertising as pressure mounts to deliver revenue in an uncertain economic climate.
The FTC‘s move is an important step in protecting both consumers and legitimate advertisers, seeking to address the issue by collecting information about the standards and policies of social media and video streaming companies related to paid commercial ads.
By complying with these new orders, social media and video streaming companies can build consumer trust and show their commitment to protecting consumers and legitimate advertisers. In the end, it’s a win-win-win with consumers, advertisers and the social platforms themselves looking at a brighter and more sustainable future.
David Zapletal is chief innovation and media officer at Digital Remedy.