Abstract
Native advertising is a new form of online advertising that appears in many settings, such as blogs, social media, and entertainment and news publications. Native ads typically blend with their surrounding context, stem from sources or placements that do not signal advertising, lack overtly persuasive or sales-focused messaging, and have less clear material outcomes. Such characteristics raise ethical concerns because native ads are more difficult for consumers to identify and because they challenge concepts that are central to current deceptive advertising policy. Native advertising is a Federal Trade Commission enforcement priority, and the agency has developed guidelines for this new ad form. However, the unique characteristics of native advertising likely require novel approaches to protect consumers. In this article, the authors trace the evolution of regulation relevant to native advertising. They identify shortcomings and propose remedies that the Federal Trade Commission or industry could adopt to prevent consumer harm, detect infractions, and enforce its regulations. The authors also develop an agenda for future research needed to more fully inform public policy and industry response in this arena.
Keywords
Increased Prevalence of Native Advertising
Native advertising is a relatively new form of online advertising that blends into its online context by mirroring the format of surrounding nonadvertising content. “Native advertising” is an umbrella term that refers to many different ad types, such as those appearing in keyword searches (e.g., Google AdWords), on publisher websites (e.g., New York Times, Forbes), and in social media (e.g., Instagram, Facebook, YouTube). Native advertising is on the rise: U.S. spending was expected to grow by 31.0% in 2018 to reach $32.9 billion (eMarketer 2018), and growth is expected to hit 156% by 2020 (Tarazi 2017). In response to this trend, many publishers, such as the New York Times and the Washington Post, have created specialized divisions to develop article-style native ads, which mimic the style of online articles. Influencers—individuals who post to their social media accounts in exchange for compensation—are also increasing in prevalence (Agrawal 2016). With native advertising attracting such sizable spending, the format is also attracting attention from regulators because of its potentially deceptive nature. Native advertising is an enforcement priority for the Federal Trade Commission (FTC) Division of Advertising Practices (FTC 2017a).
The subtle and often masked nature of native advertising raises important questions concerning the format’s potential to deceive consumers. Native advertising blurs the line between advertising and both editorial and consumer-generated content, making it difficult for consumers to identify the advertising. Emerging research on native advertising suggests that consumers may fail to recognize native ads as advertising, leading them to respond more positively to these ads (Boerman, Willemsen, and Van Der Aa 2017; Evans et al. 2017; Van Reijmersdal et al. 2016; Wojdynski and Evans 2016). This scenario echoes similar challenges posed by advertorials and infomercials (Kim, Pasadeos, and Barban 2001; Van Reijmersdal, Neijens, and Smit 2005), as well as product placement or embedded advertising, where the key regulatory concern is deception by omission or masking of the true source of a communication (Cain 2011; Petty and Andrews 2008). Also concerning is that some disclosure phrasings recommended by the FTC (2015b, 2017b) seem to be only minimally effective. These phrases include “Advertising,” which results in ad recognition of only 12% (Wojdynski and Evans 2016); “Sponsored,” which boosts ad recognition relative to a control by 6.6% (Boerman, Willemsen, and Van Der Aa 2017) or by 13.5% (Evans et al. 2017); and even “#ad,” which industry research finds only 33% of consumers understand (Sterling 2017). Adding to the problem, consumer groups (Maheshwari 2016) and market researchers (Main 2017; Swant 2016) find poor compliance with disclosure requirements among brands, publishers, and influencers alike. Repeated FTC (2017c, d) warning letters to influencers provide further evidence of noncompliance.
Deceptive advertising is not a new phenomenon (Fair 2013; Petty and Andrews 2008). It has long appeared in a variety of forms (see Web Appendix A). A large body of FTC and academic work addresses the topic. This work includes the FTC’s regulations, as well as numerous statements (FTC 1983, 2015a), clarifications (FTC 2000, 2013b) and business guides (FTC 2009, 2015b) that the agency has issued over the past decades, including several specific to native advertising (FTC 2015b, 2017b, e). Understanding of native advertising is also informed by a rich set of academic work on masked marketing and deception. These studies include research on persuasion knowledge, the concept that underpins the need to regulate deceptive advertising (Campbell 1995; Campbell and Kirmani 2000; Cowley and Barron 2008; Friestad and Wright 1994; Wei, Fischer, and Main 2008), as well as research that builds a policy-focused understanding of deception (Cain 2011; Hastak and Mazis 2011; Kinnear and Root 1988; Martin and Smith 2008; Petty and Andrews 2008). In an article that is highly relevant to native advertising yet predates the ad form, Petty and Andrews (2008) developed a typology of marketing practices that “mask” the format or source of a communication. Petty and Andrews (2008) concluded that existing regulation largely addressed the masked marketing techniques identified at the time of their article’s publication; however, they also specifically noted that “the practice of marketing advances at a pace far faster than that of marketing regulation. For this reason, marketers must rely on existing laws…to address modern marketing practices that, though similar, are also somewhat different” (Petty and Andrews 2008, p. 15). In line with their prediction, the ubiquity of the internet and the online media forms it has spawned has enabled online marketing to rapidly evolve, often in ways that test, probe, and possibly exploit existing regulation. These actions are particularly evident in native advertising forms that disguise both an ad’s format and its true source, thus representing an intensification of the masking practices outlined by Petty and Andrews (2008). Although the broad principles and underlying intent of existing regulations remain reasonable, changes in how media and advertising are generated, disseminated, and reacted to are blurring boundaries and challenging the traditional operationalization of concepts central to deception policy.
In this article, we discuss how the FTC might respond to the regulatory and enforcement challenges posed by native advertising. To do so, we first outline the distinct ways in which native advertising challenges existing policy. We then review the foundation for, and current status of, FTC regulations relevant to native advertising. Specifically, we review the FTC documents and cases that form the basis of the agency’s current approach to regulating native advertising and enforcing guidelines for clear and conspicuous disclosure in native advertising. Drawing from current regulations and considering the unique characteristics of native advertising, we then detail possible policy responses that could enhance prevention, detection, and enforcement of cases involving potential native advertising deception. We end by charting a research agenda to inform further development of public policy and regulation relevant to native advertising.
Regulatory Challenges Presented by Native Advertising
Native advertising, along any single dimension, may seem similar to existing forms of potentially deceptive advertising, such as advertorials or product placements. However, native advertising does not simply challenge a single boundary; instead, it takes advantage of ambiguities along multiple dimensions. In this section, we briefly describe how native advertising pushes the envelope of existing regulations in new ways, compared with previously examined forms of covert and embedded advertising (Cain 2011; Petty and Andrews 2008). These differences are outlined in Table 1.
Differences Between Traditional Covert Ads and Native Advertising.
First, the internet has led to an explosion of online media channels through which consumers can view a tremendous variety of text, audio, video, and image-based content. This variety is mirrored in online advertising and its associated disclosures, which likely challenges consumers’ ability to learn about and recognize different ad formats and disclosures. A more prescriptive form of standard disclosure, while previously seen as potentially burdensome in the context of television (Cain 2011), may now be appropriate.
Second, the internet has led consumer and advertising content to mix together to a much greater extent than was possible with traditional media platforms. Although television and print advertisers on these media sometimes push the boundary with nonadvertising content through ad forms such as infomercials or advertorials, it is still generally apparent to consumers that the content in traditional media forms does not originate from another consumer. On social media and video-sharing sites such as YouTube, advertisements and consumer-generated content are intermixed. The potential for this intermingling to cause problems is most evident with regard to influencers, defined as consumers paid to endorse products and promote them to their followers, and the growing trend of microinfluencers, or influencers with relatively small online followings (Agrawal 2016; Friedman 2017). The risk of consumer harm seems much greater if an advertisement is confused with consumer word of mouth than if it is mistaken for entertainment or editorial programming, as is the case with product placement. Likewise, celebrities, whose presence has historically signaled advertising (Cain 2011; FTC 2009), are now easily friended and followed on social media. This engagement likely engenders greater personal connection between celebrities and consumers and possibly erodes celebrities’ traditional ability to signal advertising. With friends acting as endorsers, and endorsers and celebrities acting as “friends,” native advertising raises questions concerning the nature of celebrity and the line between advertising and word of mouth or free speech.
Third, the emergence of native advertising challenges the notions of persuasion and claim that are fundamental to the assessment of deception. Although sales-focused native advertising (e.g., Kim Kardashian explicitly encouraging her followers to buy a beauty product) is likely to be recognized (FTC 2015a), many native ads are only minimally persuasive. Indeed, many in industry consider a native advertisement to be successful if it has a “storytelling” or subtle quality (Maheshwari 2016). An article-style native ad might mention a product or service, but it usually only does so peripherally and not in an aggressive or sales-oriented manner. Likewise, a consumer influencer might post a native ad that is simply a picture of a product, with minimal or even no product-related description. Although recent guidance from the FTC (2017b) indicates that images can contain an implicit claim, the guidance is understandably opaque. Indeed, both Petty and Andrews (2008) and Cain (2011) note that FTC advice generally focuses on visual claims that are more concrete in nature (e.g., indicating that a food is “heart-healthy”). Many of the visual claims that influencers and celebrities make in their native ads are not concrete but instead are more affective in nature, often implying enjoyment or simply usage.
An additional wrinkle is that some native ads, such as article-style native ads created by publishers such as the New York Times, are on topics wholly unrelated to the advertiser. They reflect better alignment with the notion of sponsorship rather than advertising and pose little risk of deception. Current FTC guidelines (2015a), as well as Cain’s (2011) review of the three factors used by courts in determining what is commercial speech, seem to confirm this stance.
Also challenged by the subtlety of native advertising is the concept of materiality. The understated nature of native advertising makes more immediate behavioral effects such as purchase, which were traditionally used to assess materiality (FTC 1983), much less likely to occur. Instead, effects are likely limited to earlier stages of the consumer decision-making process, such as awareness and interest (Petty and Andrews 2008; Russell and Stern 2006), akin to the concept of nudging or “mental marketing” (Petty and Andrews 2008). For this reason, the fact that the FTC (2015a) expanded its elucidation of materiality to include effects such as increased interaction with an ad is valuable and promising. Because native advertising is less persuasive, its effects may be visible only over a longer time horizon or after multiple viewings of an ad or campaign. Since digital tools such as cookies allow easy tracking of longer-term effects, there is opportunity to further update the FTC’s operational definition of materiality to better reflect the effects of native advertising.
In summary, native advertising seems to be taking advantage of several relatively new ambiguities brought about by the internet. Petty and Andrews (2008) developed important knowledge that is foundational to our current understanding of advertising deception. However, native advertising tests the scope of many concepts that previously were relatively clear to assess. Before turning to address possible solutions, we next review current regulations relevant to native advertising.
Foundations of the FTC’s Current Approach to Deception in Native Advertising
In this section, we review current FTC policy and enforcement specifically regarding deception in advertising, beginning with foundational FTC documents and working toward more recent ones. The FTC’s foundational 1983 “Policy Statement on Deception” describes how the FTC interprets and enforces regulations regarding deception in advertising. The document provides insight into the FTC’s interpretation of the FTC Act and references specific supporting cases. The understanding of deception in this policy statement is based on a three-part definition (FTC 1983). First, deception involves anything that misleads a consumer and can include omission of information as well as false statements. Deception can arise from either express claims or implied claims generated by the overall impression created by an ad. Second, the perspective taken is that of a reasonable consumer drawn from the ad’s target audience. Finally, deception requires that the manner in which a consumer is misled be material. To be material, a deceptive ad must be likely to cause consumers to choose or purchase differently. In certain cases, such as express claims or health- or safety-related matters, materiality is presumed (FTC 1983). We summarize these criteria in the Appendix, which also incorporates later policy revisions.
The FTC’s (1983) “Policy Statement on Deception” addresses persuasive ads containing false or misleading claims or omitting key product or service information. The statement makes minimal reference to deception involving omission of an ad’s source. Although native advertising fits within the FTC’s 1983 conceptualization of omission, omission of an ad’s source or commercial nature is not a focus of the policy statement. The FTC clarified its stance on false or misleading claims with the release of the first version of “Dot Com Disclosures” (FTC 2000), which turned attention to advertising practices in an online environment. The original “Dot Com Disclosures” (FTC 2000) document clarifies that existing advertising regulation extends to a digital environment and communicates guidelines for meeting clear and conspicuous disclosure requirements. An update of “Dot Com Disclosures” (FTC 2013b) takes into account the emergence of smartphones and social media but continues to focus on disclosure as a means of avoiding deception due to false or misrepresented claims or omitted qualifying information. Similar to the FTC’s (1983) policy statement, the “Dot Com Disclosure” (2000, 2013b) documents do not focus on deception due to omission of an ad’s true source.
Keyword Search Advertising
Although the FTC’s (1983) “Policy Statement on Deception” does not explicitly focus on deception due to omitted or misleading information about an ad’s true source or commercial nature, the definition of deception it provides lays the groundwork for later documents that further clarify the need to disclose such information. This stream of documents is applicable to the challenges posed by native advertisements and is notable in its attention to deception due to omission of the paid nature of a communication. The first form of native advertising that garnered specific attention from the FTC (2002) was keyword search advertising, a form of online advertising that matches the format of search engine results (e.g., Google AdWords). In a public letter responding to a complaint, the FTC (2002) clarified that clear and conspicuous disclosure requirements apply to keyword search advertising. One of the principles expressed in this letter is that if consumers do not reasonably expect a context to contain advertising, disclosure is necessary. In 2013 the FTC (2013c) reminded search engine companies of these principles and noted that they should be adhered to in any new environments in which paid search results may appear.
Endorsement
A second form of native advertising that has attracted increased scrutiny is online content that appears to be a noncommercial endorsement but is, in fact, characterized by a paid relationship. Poorly disclosed endorsement has been an area of FTC and academic interest for some time (Petty and Andrews 2008). In 2009, the FTC issued guidance on endorsements (FTC 2009) but focused on disclosure of material connections of celebrities appearing outside of a typical advertising context or consumers providing testimonials in the context of clearly identifiable advertising. Although the guidance does not address consumer endorsement outside the context of clearly identified advertising, the document suggests that disclosure should be included whenever a communication is not clearly understood to be an ad. The trust consumers place in other consumers, in addition to the large audiences some consumers have developed, makes consumer endorsements attractive to advertisers, whether those opinions are offered by paid influencers or incentivized reviewers. In response, the FTC (2017b) clarified its guidance on endorsements and testimonials to include consumer sources as well as online contexts, such as blogs, forums, reviews, and social media.
The FTC’s (2017b) guidance reiterates the general principles underlying endorsement and clarifies the importance of appropriate disclosure when consumers may not realize that a source is receiving consideration from an advertiser or has a connection to the advertiser. The FTC’s guidance and actions unambiguously convey that existing clear and conspicuous disclosure guidelines apply to content stemming from consumers who are compensated in some way. This requirement was communicated to more than 90 influencers, including celebrities, athletes, and their associated advertisers, in a recent letter from the FTC’s associate director (FTC 2017c). A follow-up letter was sent to 21 influencers for continued noncompliance (FTC 2017c). The letters reminded these influencers of the need to ensure that their social media posts clearly disclose paid relationships with any products featured in their posts. These actions suggest that the FTC recognizes that consumers are much less likely to recognize social media posts from celebrities as advertising than they are to recognize traditional ads featuring those same celebrities.
Multiple Formats
In 2013 the FTC (2013b) hosted a workshop devoted to better understanding the potential regulatory concerns surrounding emerging native ad formats. The workshop culminated in release of the FTC’s “Enforcement Policy Statement on Deceptively Formatted Advertisements” and a companion guide for businesses (FTC 2015a, b). Expanding on earlier guidance related to keyword search advertising (2002, 2013c), the documents (FTC 2015a, b) focus on potential deception due to an ad’s misleading format. The policy statement and companion guide for business (FTC 2015a, b) expand explicit discussion of the need for disclosure to apply to a wide variety of native ad formats, such as articles, videos, and images that may appear in any form of online media. The FTC’s guidance (2015a) specifically encompasses paid, persuasive communications that appear to come from a source other than an advertiser. This type of communication typically refers to content that appears to stem from a publisher or a consumer, and the guidance takes into account an ad’s overall similarity to surrounding nonadvertising content. This statement reiterates the FTC’s (1983) stance that deception is evaluated on the basis of an ad’s “net impression.” The FTC’s (2015a, p. 10) policy statement specifically notes: Deception occurs when an advertisement misleads reasonable consumers as to its true nature or source, including that a party other than the sponsoring advertiser is the source of an advertising or promotional message, and such misleading representation is material. In this regard, a misleading representation is material if it is likely to affect consumers’ choices or conduct regarding the advertised product or the advertisement, such as by leading consumers to give greater credence to advertising claims or to interact with advertising with which they otherwise would not have interacted. Such misleadingly formatted advertisements are deceptive even if the product claims communicated are truthful and non-misleading.
Second, this policy statement (FTC 2015a) on deception rests on the way in which the FTC defines advertising. In an included note, the FTC states that “there are some exceptions, where consumers might not act differently if they were to identify certain forms of advertising” (FTC 2015a, p. 15). The note specifically describes a product placement example, outlining that product placement is of concern only when an objective or implied claim is simultaneously communicated (FTC 2015a). The suggestion is that native advertisements that lack persuasive messaging, in that they include content wholly unrelated to a sponsoring advertiser, are not likely to cause consumers to act differently and thus are not materially deceptive. This position is generally more consistent with the notion of sponsorship (FTC 2015a; Gardner and Shuman 1986). Conversely, the document (FTC 2015a) acknowledges that native ads with more overt persuasive intent (for instance, the FTC includes the example “Come and Drive [X] today”) can reasonably be identified as advertising by consumers.
Finally, while the policy statement (FTC 2015a) reiterates that deception is material when it is likely to affect behavior or decisions related to a product, it notably provides additional examples used to assess materiality. Specifically, a native ad can be materially deceptive even if the only effect of the deception lies in consumer interaction with the advertisement. This phrasing implies that native advertisements can be considered deceptive even if the sole effect of inadequate source disclosure is more time spent viewing an ad. This stance is consistent with the FTC’s (1983) position on misleading door openers, which states that interactions based on source misidentification are deceptive.
The presumption of materiality for editorial content described in the FTC’s (2015a) policy statement seems to have been applied in a case settled in 2016 against Lord & Taylor (FTC 2016b). The merchant was accused of engaging in two forms of deceptive advertising. First, a native advertising article appeared on an online publisher’s site without disclosure of its paid nature. The mere fact that the article mimicked news enabled the FTC to assume materiality under its policy statement (FTC 2015a). This case appears to be the first instance in which the FTC took action against an inadequately disclosed native advertising article. In addition, Lord & Taylor paid 50 fashion bloggers to post a photo of one of the brand’s dresses. Failure to disclose bloggers’ material connection with the brand featured in their posts likely constituted deception because consumers were assumed to be unaware of the paid nature of the posts. The action is important because, as in a similar case involving Warner Brothers (FTC 2016a), many of the influencer posts did not contain explicit selling language or links. Yet, the fact that the dress sold out seemed to support the overall effectiveness of the campaign. The complaint may have been more difficult to pursue had sales been lackluster.
Potential Policy Responses to Challenges Posed by Native Advertising
Potential policy responses to native advertising can be considered from both prevention and enforcement perspectives. We discuss prevention first because in an ideal world, deception would never take place and instead would be prevented.
Prevention
Native advertising takes advantage of ambiguity in the existing operationalization of many concepts that are central to deception. Although the overarching regulations governing deceptive advertising appear sound, the FTC may need to be more definitive in the guidance documents produced for business. The FTC should specify rules that unequivocally require disclosure in certain situations and should develop clearer criteria to determine when disclosure might be necessary in other situations. We encourage the FTC to continue publishing hypothetical case situations (e.g., FTC 2000, 2013b) and guides (e.g., FTC 2009, 2015b, 2017b). In Table 2 we outline responses that may address the challenges posed by native advertising.
Native Advertising: Policy Challenges, Research Opportunities, and Potential Policy Responses.
Given the ambiguities inherent to native advertising and the online environment in which it appears, we believe that the FTC should make several clarifications and assumptions. To start, a claim should be assumed to be present in the case of any online communication that mentions or shows a product and for which associated consideration was provided, regardless of whether explicit written or spoken language is present. This clarification would eliminate the need to develop complex rules to assess claims in images or videos, or to define what constitutes an explicit claim.
Similarly, the FTC should more clearly state that celebrities themselves are not a sufficient signal of advertising in an online environment. It seems reasonable for the FTC to require that consumers and celebrities alike include disclosure on any content that is considered advertising: the cost is minimal and the public benefit is clear. We realize that such a requirement is already alluded to by existing policy (FTC 2009, 2017b) stipulating that even well-known celebrities must include disclosure when a material connection might not be assumed, such as during interviews (Cain 2011). Despite this policy, a more definitive statement of the requirement would be helpful and likely spur greater compliance.
The subtle nature of the persuasion commonly used in native advertising also challenges the notion of materiality historically used in assessing deception. We applaud the FTC’s (2015a) revision to consider as material not just a purchase but also increased interaction with an ad. We encourage the FTC to also consider as material any increased consumer awareness and interest in products featured in a native ad. This awareness or interest might include increased online searches or increased website or store visits, which are now trackable using cookies and geolocation data from phones. Likewise, native advertising campaigns, rather than individual ads, are more likely to have an effect on consumers. It therefore seems reasonable that the FTC should assess materiality at the level of a campaign or set of related ads, rather than a single ad. Finally, we recommend that the FTC explicitly expand the time horizon over which materiality is assessed to reflect the length of the typical consumer decision-making process for a given product. Although we recognize that existing FTC policy is likely broad enough to encompass such effects, explicit recognition of them is likely to prompt proactive advertiser attention to the problem.
Use of the terms “sponsored content,” “sponsored post,” and “sponsored” in conjunction with native advertising has likely eroded the traditional distinction between the meanings of “advertising” and “sponsorship.” The FTC should either formally acknowledge that consumers now equate “sponsored” with advertising and that the distinction between the two terms no longer holds, or actively enforce the traditional use of the terms. The most pragmatic option seems to be accepting the former and simply suggesting new labels.
The FTC has traditionally left relatively open the manner in which advertisers can achieve proper disclosure. However, the wide variety of online advertising forms and associated disclosures almost certainly makes it more difficult for consumers to identify ads and disclosures. In addition, manipulation of digital content is relatively easy and, when done systematically using software, virtually costless. Thus, including disclosure is much less burdensome online than in print or analog contexts. For these reasons, we believe that the ratio of costs to benefits has shifted such that a more prescriptive FTC policy is reasonable given the clear public interest (Cain 2011). Similar to calls for a standard disclosure for product placement (Cain 2011), one of the most effective changes the FTC could make is recommendation of a single disclosure or limited number of disclosures to appear across all native advertising formats. This recommendation could include not only a standard disclosure symbol but also standard colors or shading patterns that signal disclosure, similar to how the Digital Advertising Alliance (2017) requires use of the blue “Ad Choices” triangle by member brands. Because some native advertisements are more visual in nature, having the recommended standard disclosures also be visual in nature would likely be more effective. Consumers would learn these disclosures and be able to more quickly and easily identify advertising content, regardless of the advertising platform on which it appears.
Extending an idea originally proposed by the FTC (2013b), a standard disclosure could also be embedded in URLs, along the lines of the New York Times’ embedding of “paidpost” in the URLs of its native ads. This disclosure would be nearly costless to implement and would also assist third-party web browser plug-ins such as AdDetector, which places a large red banner above native advertising (Perlberg 2014). The convention would also help to address the challenge posed by sharing of native advertising because such URLs could be automatically recognized by social media sites and appropriate discloses applied.
A second means of facilitating disclosure is universal adoption of the ability to allow consumers to designate their posted content as advertising when they have been compensated. While the FTC (2017b, 2017c, 2017d) already suggests that influencers self-designate content as advertising, providing social media sites with such information would enable them to apply the same disclosures that are automatically put on advertising done directly by brands. Although some sites, such as Facebook and Instagram, now enable influencers to tag business partners in posts, this feature is not universal. The ability to self-designate content as advertising would address the growing phenomenon of consumer-controlled influencer audiences. Although influencers are most closely associated with native advertising on social media platforms such as Instagram, consumers create a variety of types of content online, including blogs, reviews, videos, and even written articles (e.g., on medium.com). Some of this content is likely already financially motivated but not disclosed, or at least not disclosed in a consistent manner. Consumers’ ability to self-designate content as advertising not only would ease compliance but also holds the potential to benefit the platforms. Opportunities for self-designation may shift more responsibility for disclosure to content producers and might allow platforms to more accurately apply the algorithms they use to determine optimal levels of advertising exposure.
Detection and Enforcement
When enforcement is considered, detection is the first step. Although deceptive claims are relatively easy to spot, by its nature native advertising is not. The FTC will likely continue to rely on consumers and consumer protection organizations for tips. Ideally, advertising platforms themselves would choose to more actively report content they believe is inadequately disclosed. This reporting could be facilitated by crowd-sourcing mechanisms similar to the tools that social media sites such as Facebook already use for reporting spam or inappropriate content. Similarly, as mandated by federal statute, many sites have routinized reporting mechanisms for complaints under the Digital Millennium Copyright Act. As technology continues to advance, machine learning may evolve such that detection of suspected influencer advertising could become automated.
Although the FTC clearly has the authority to take action on deceptive advertising, an approach integrating self-regulation is desirable. Brands, especially large and more successful ones, have the buying power to demand and cause change within the industry. For instance, Google is credited with dramatically increasing publishers’ use of software code to reduce fraudulent ad sales simply by announcing they would run their ad products only on sites using the new code (Benes 2017). In the case of native advertising, if several large advertisers were to restrict their ad spending to include only those platforms adhering to a higher disclosure standard, this restriction would incentivize more platforms to meet such standards and raise the overall disclosure standard within the industry. While somewhat counterintuitive, such action is likely to benefit larger advertisers because communications from well-known brands are already likely to be more readily identified as advertising (Jeziorski and Moorthy 2018). Smaller brands may be profiting disproportionately from native advertising because the absence of a recognized brand name or logo means that their ads may be less likely to trigger ad recognition unless properly disclosed (Friestad and Wright 1994).
Industry organizations, such as the Interactive Advertising Bureau (IAB), could work to support such self-regulation by facilitating development of, and adherence to, standard disclosure language and formats. The American Society of Magazine Editors (2015) already suggests use of specific disclosure terms for both print and online environments, but adherence by publishers is voluntary. Likewise, the Digital Advertising Alliance (2017) already requires its members to use the blue “Ad Choices” triangle on their ads not only to denote advertising but also to provide consumers with greater control of their privacy. Industry organizations could combine forces to evolve and extend their individual efforts into a common disclosure standard.
Similarly, FTC action involving advertising platforms could motivate change in industry practices. Although the FTC (2002, 2013c) sent letters on two occasions to search engines expressing concerns regarding disclosure on their ad platforms, we are unaware of any similar notice being sent to social media ad platforms. We are also unaware of social media platforms being cited in recent FTC actions regarding improperly disclosed native ads (see Web Appendix B), although such precedent exists in traditional media. Action by the FTC toward ad platforms has been predicted (Barr 2015) and would likely motivate their participation in industrywide efforts to create common standards.
Industry Counterpoint
Existing industry feedback suggests that the reaction to some of our recommendations might be contentious. Before the FTC’s (2013a) workshop on native advertising, an IAB executive stated that “universal disclosure across formats is difficult because brands are different, the ads are different and the consumer experience is different” (Bachman 2013). As described earlier, we do not believe that these differences preclude use of a standard disclosure. Although slight variations may be necessary depending on format, a limited set of standard disclosure forms and associated colors could easily be implemented across digital media. Whereas text disclosures may need more adjustment depending on the ad’s format, a visual standard disclosure would likely need less adaptation. This disclosure might include the blue “Ad Choices” triangle, which is already in use by members of the Digital Advertising Alliance (2017), or an updated version with a “sponsored” tag. Brands have been able to adapt their logos and brand colors to successfully appear in different advertising formats for decades. We have no reason to believe that similar adaptation of a standard visual disclosure would not be possible.
After the FTC’s (2015a, 2015b) release of updated guidance on native advertising, the IAB (2015) expressed several further concerns. First, the IAB stated that “the guidelines could impinge on commercial speech protections and longstanding advertising conventions familiar in other media” (IAB 2015). We disagree with this statement and believe that, given native advertising’s differences from traditional advertising, it is reasonable to consider the format separately from other ad types. As discussed earlier, the regulation of commercial speech is reasonable if doing so “directly advance[s] the public interest at stake” (Cain 2011, p. 233). The format of native advertising risks consumers’ confusing the ad form with either consumer word of mouth, which is highly trusted (Nielsen 2015), or editorial news content. The IAB (2015) statement also expresses concern that proposed disclosure phrasings are “overly prescriptive, especially absent any compelling evidence to justify some terms over others.” However, growing evidence suggests that certain disclosure phrasings are more effective than others (Boerman, Willemsen, and Van Der Aa 2017; Evans et al. 2017; Sterling 2017; Wojdynski and Evans 2016), although reported effects are slight, likely because of the newness of native advertising and the multitude of terms currently being used. Industry research already suggests that the wide variety of hashtags used by influencers is creating confusion (Sterling 2017). We believe that these findings are reasons that prescriptive disclosure is needed.
The IAB’s (2015) statement cited the organization’s own research finding (IAB 2014) that consumers are generally aware of native advertising as evidence that disclosures are not necessary. The statement substantiates this claim by citing recognition rates of 82% and 85% for business and entertainment news, respectively, reported in the IAB’s (2014) study. Interestingly, the IAB’s (2015) statement omits that only 41% of respondents in the same study recognized native ads appearing on a general news site. The lower recognition rate is much more consistent with rates noted in emerging academic research, which also suggests that recognition rates can vary significantly across native ad formats (Boerman, Willemsen, and Van Der Aa 2017; Evans et al. 2017; Wojdynski and Evans 2016). In addition, the IAB (2014) study tested recognition of only one form of native advertising and is therefore far from conclusive. Finally, the IAB’s (2015) response suggests that increased regulation of native advertising could stifle “free, ad-supported news.” Although any regulation should be implemented in a manner that limits harm as much as possible (Cain 2011), protection of industry profit is not itself a reason to avoid regulation when a reasonable need for it exists. Inclusion of disclosure may indeed cause consumers to more readily recognize native advertising, thereby reducing its effectiveness and lowering ad revenue for some sites. However, if such a scenario occurs, it would suggest that the initial effectiveness of the ads was likely due to consumer deception, thus confirming the need for disclosure.
Research Opportunities to Inform Development of Public Policy on Native Advertising
Although research on native advertising is still emerging, existing literature on deception provides important context for understanding the potential for deception in native advertising. Research provides a conceptual understanding of different forms of advertising deception (Cain 2011; Hastak and Mazis 2011; Kinnear and Root 1988; Martin and Smith 2008; Petty and Andrews 2008), and specific studies explore differential consumer responses in cases involving omission (Ashley and Leonard 2009; Campbell, Mohr, and Verlegh 2013). Research generally finds that consumers respond more negatively to a communication when they are aware that it is an advertisement (Campbell 1995; Campbell and Kirmani 2000; Cowley and Barron 2008; Wei, Fischer, and Main 2008). A persuasion knowledge mechanism is generally used to explain this result (Friestad and Wright 1994). In addition, research provides rich background information on FTC ad copy testing principles that are likely relevant to the testing of native ad disclosures (Andrews and Maronick 1995; Maronick 1991).
Existing research specific to native advertising includes investigations furthering our conceptual understanding of the phenomena related to it (e.g., Campbell and Marks 2015; Carlson 2016). Empirical work to date principally focuses on disclosure and specific variables influencing ad recognition and its ensuing effects (Boerman, Willemsen, and Van Der Aa 2017; Evans et al. 2017; Lee, Kim, and Ham 2016; van Reijmersdal et al. 2016; Wojdynski 2016; Wojdynski and Evans 2016). Although it provides an important beginning, this research is limited in the ad forms, disclosure formats, and specific contexts investigated, and the demonstrated disclosure efficacy and ad recognition levels vary widely.
Previously, we outlined the specific ways in which native advertising presents difficulties for existing deception-related policy. These difficulties are summarized in the second column of Table 2 and include challenges to existing operationalization of what constitutes a claim, the role of celebrity status in identifying advertising, the manner in which materiality is evaluated, and how guidelines for clear and conspicuous disclosure are applied. Native advertising also challenges the meaning of commonly used terminology, as well as the FTC’s ability to detect and enforce infractions. All the issues we identify present research opportunities for academics. We also outline research questions raised by the problems and related potential policy responses we list. These questions are aimed at assessing the extent of the problem posed by native advertising, better understanding the way in which consumers process native ads and disclosures, and developing new research methodologies to prevent and detect deception.
Several major themes are evident across the questions and challenges presented in Table 2. First, a tremendous amount of uncertainty exists surrounding how consumers come to recognize native advertising as advertising. Continued research is needed to establish important information on which native ad types are most deceptive and which disclosure forms most effectively prevent such deception. Insight into how consumers process native advertising and any associated disclosures is also needed. For instance, how does the format (e.g., textual vs. visual) of a specific native ad affect how consumers process the ad and any included disclosures? Do disclosure forms that are consistent with how a native ad is processed increase consumer recognition of the content as advertising? Such general theoretical insight would be particularly useful because it can be applied to new forms and formats of native advertising that may emerge. Such knowledge would also assist in developing a standardized disclosure form, should the FTC pursue such a policy response. In addition, because the nature of celebrity has likely changed and terms such as “sponsorship” seem to have taken on new meaning, research is needed to update knowledge on these topics.
Second, native advertising raises many questions around the notions of claim and materiality. Research is needed to explore the subtle and more visual forms of claims common to native advertising. One key question is enumerating when exactly a claim is present, particularly in the case of predominantly visual ads. A further concern is understanding what effects such claims have on consumers. This area of research includes assessment of ads viewed in isolation, in concert with other related native or nonnative ads for the same product, and over time.
A final theme evident in the questions presented in Table 2 surrounds the pragmatics of preventing deception as well as detecting violations and enforcing regulations. Because of the proliferation of online media formats and the ease with which forms and formats can emerge and evolve, we recommend that the FTC prescribe standard disclosure formats and conventions for native ads. This recommendation necessarily raises questions concerning what formats and conventions would be most effective to prescribe. Such a potential policy response also requires assessment of the extent to which it might place an unreasonable burden on advertisers or infringe on their free speech rights.
From an enforcement perspective, native advertising presents practical issues related to detection. Native ads can take a variety of formats and appear on numerous sites, apps, and services online. Unlike print or broadcast advertising, online advertising enables a vast number of ad variations to be quickly created and run by almost anyone. Native ads can also leverage extremely precise online targeting data to potentially appear only to certain, possibly vulnerable, consumers. Methodologies that enable publishers and regulators alike to sift through the millions of ads appearing online to identify violations are needed. Research is needed to assess the efficacy of crowd-sourcing and machine-learning techniques as well as to identify other potential approaches.
The research questions and themes we describe should provide a good starting point for developing a deeper understanding of the current challenges presented by native advertising. However, as the number of native advertising forms and formats grows and their nature continues to evolve, the research that is needed to inform public policy development is likely to change. Changes might also include evolving or even relaxing policy as consumer awareness of native advertising grows. For this reason, we encourage the FTC (2013a, 2016c) to continue its ongoing efforts to bring together industry, academics, and regulators in workshops designed to find solutions to the challenges posed by native advertising.
Appendix: Overview of FTC Criteria Used in Identifying Deceptive Advertising
According to the FTC’s “Policy Statement on Deception” (FTC 1983) and its “Enforcement Policy Statement on Deceptively Formatted Advertisements” (FTC 2015a), advertising is considered materially deceptive if an ad
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meets all of the following conditions: Does an ad mislead a consumer either through ad formatting, omission of information (including source), or express or implied false statements? Is a significant minority of an ad’s target audience misled? Does the deception cause consumers to make different choices concerning an advertised product, respond more positively to advertising claims, or simply engage more with an advertisement?
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Supplemental Material
Supplemental Material, Web_Appendix_-_818576 - The Challenges Native Advertising Poses: Exploring Potential Federal Trade Commission Responses and Identifying Research Needs
Supplemental Material, Web_Appendix_-_818576 for The Challenges Native Advertising Poses: Exploring Potential Federal Trade Commission Responses and Identifying Research Needs by Colin Campbell, and Pamela E. Grimm in Journal of Public Policy & Marketing
Footnotes
Acknowledgments
The authors wish to thank Jagdish Agrawal and representatives from industry and consumer organizations for their valuable comments and suggestions on earlier drafts. We are also grateful to the editors, associate editor, and review team for all of their helpful feedback and suggestions throughout the review process.
Declaration of Conflicting Interests
The authors declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.
Funding
The authors disclosed receipt of the following financial support for the research, authorship, and/or publication of this article: Funding for data collection was provided by a Kent State University College of Business Dean's Summer Research Funding Award received while the first author was at Kent State University.
Associate Editor
Manoj Hastak served as associate editor for this article.
Notes
References
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