Now That The FTC Has Spoken On Native Advertising, What’s Next?

Two weeks ago, the Federal Trade Commission issued a long “enforcement policy statement” on native advertising.

If you want to read all 16 pages, be my guest (PDF). If you want a summary, here goes: The days of playing fast and easy in native advertising are over.

Many of the findings in the FTC statement will result in native advertising becoming less effective, because — surprise! — the FTC wants native ads to be clearly labeled and formatted to look like ads, not content. Here are a few relevant parts of the FTC statement:

1. “If a natively formatted ad appearing as a news story is inserted into the content stream of a publisher site that customarily offers news and feature articles, reasonable consumers are unlikely to recognize it as an ad.”

2. “Misleading representations or omissions about an advertisement’s true nature or source, including that a party other than the sponsoring advertiser is the source of the advertising, are likely to affect consumers’ behavior with regard to the advertised product or the advertisement.”

3. “The Commission views as material any misrepresentations that advertising content is a news or feature article, independent product review, investigative report, or scientific research or other information from a scientific or other organization.”

These are just a few snippets from the FTC report, but stop and think about 98 percent of the native advertising out there today, and it’s hard to imagine native advertising in its current format continuing.

No industry welcomes FTC involvement in their business, so the mere fact that the agency is paying attention to native advertising indicates a failure of the participants in the native advertising industry to regulate themselves. And it’s not like they didn’t see this coming.

Indeed, even I foresaw this regulation two years ago. As I wrote in MarketingLand in 2014, “Surely I’m not the only person who… thought, ‘Gee, these native ads probably don’t do enough to clearly and conspicuously disclose the fact that this is an ad.’”

Now the question is not whether the FTC is going to regulate native ads, but rather, whether these regulations will have any bite at all. Though, as I predicted in 2014, even harsh regulations are still better than the alternative for the native advertising industry:

These changes will impact native ad companies simply because they will reduce click-through rates. But I’d argue that if this is the worst that happens, a decline in revenue is, in fact, a victory for the native ad industry simply because the industry should technically have been shut down by the FTC from day one.

Personally, I think FTC attention will have three primary effects on the industry:

1. The Most Aggressive Native Ad Networks Will Be Fined Or Shut Down

Without naming names, it’s not too hard to figure out which networks are likely to have an FTC bull’s-eye on them. Consider, for example, ads like these:

2. Overall Effectiveness Of Native Advertising Will Decline

Now that the FTC has taken a stand, it will be much harder for publishers to argue plausible deniability.

Published guidelines will result in more disclosure that content is advertising, and more differentiation between ads and content. This will reduce both click-through rates and conversion rates.

3. Big Brands May Join The Native Advertising Fray

Ironically, an FTC clampdown may be just the thing that brings big advertisers to the native advertising world. Now that the rules are clearer, it becomes easier for big brands to invest in the space without fear of being dragged into regulatory action.

The biggest unknown here is how this will impact Facebook and Google. Facebook’s ad revenue is almost entirely driven through sponsored posts, which are basically a form of native advertising.

If the FTC determined that these ad units did not properly inform consumers of their commercial intent, or that they looked too much like the organic content of the News Feed, this could result in dramatic changes to Facebook’s ad program. Assumedly, it would hurt performance for advertisers and for Facebook (in terms of quarterly revenue).

For Google, some clarity around native advertising guidelines might hasten its entry into this market.

In the last few months, Google has introduced some mobile units that are “native-like” — combinations of content and graphics that look like organic content but are actually sponsored listings. The FTC statement might actually encourage Google to do additional experiments and try to take more market share here.

Now that the FTC has weighed in, changes and trends may well emerge more quickly; I don’t expect to wait until 2018 to comment on the next big update.