Is This The End of Affiliate Marketing?

The FTC finally pub­lished its revi­sions to the 1980 tes­ti­mo­nial and endorse­ment rules. Some blog­gers, copy­writ­ers, and mar­keters, even lawyers, have talked about this, some­times a lot more elo­quently than me.

It’s obvi­ous the FTC’s intent is to curb, con­trol, and go after those nefar­i­ous flogs (i.e., “fake blogs”), like Google Money and Acai Berry. But the lan­guage is left to be desired and, if not clar­i­fied, can lead to some seri­ous repercussions.

Espe­cially for affil­i­ate marketers.

Based on what I’ve read, I can eas­ily inter­pret “affil­i­ates” and “ven­dors” falling in what the FTC dubs as “endorsers” and “adver­tis­ers.” (Accord­ing to TechCrunch, the FTC has responded and clar­i­fied this some­what, which I will come back to in a moment.)

In its new rul­ings, they make two pow­er­ful points. Points I agree with. At least, in intent. TechCrunch did a great job flesh­ing out the changes and its impli­ca­tions. The most impor­tant of which is the fact that the FTC can fine you $11,000 per infraction.

But these two biggest changes, which also may become prob­lem­atic, are…

1) Authen­tic­ity

We must be authen­tic in our claims and tes­ti­mo­ni­als. That’s com­mon sense, and I applaud the rul­ing. But also we must show they are atyp­i­cal, and to but­tress any claim or tes­ti­mo­nial with one that the con­sumer can rea­son­ably expect from using the product.

This, in itself, opens a huge can of worms.

If a prod­uct is new, untested, or not used as intended by the user — which is, sad to say, what the typ­i­cal user fails to do most of the time and over which we have no con­trol — then how can we share what we believe the user will rea­son­ably expect?

Let’s say you sell a diet pill. There is only one way to con­sume it. Plus, there’s only one result. You either lose weight or you don’t. Sim­ple. And in this case, you can carry out sci­en­tific analy­sis to mea­sure the results in order to dis­cover what is typical.

For instance, you sim­ply get 100 peo­ple to take your pill, mea­sure their results, and post the aver­age. And you can make them aware of the aver­age result. Easy, peasy.

But in the case of a mar­ket­ing or business-​​building train­ing pro­gram, which teaches mul­ti­ple strate­gies, mul­ti­ple con­cepts, for mul­ti­ple types of busi­nesses, in mul­ti­ple mar­kets, the prob­lem is that there is no “one size fits all” of using this prod­uct. It’s impossible.

(And most how-​​to or do-​​it-​​yourself infor­ma­tion prod­ucts fall in that category.)

Every sin­gle user of that train­ing pro­gram will have a dif­fer­ent result. There is no such thing as “typ­i­cal.” In fact, by the very exis­tence of such a train­ing pro­gram, all results are atyp­i­cal. So the ques­tion is, how do you com­ply with the new legislation?

That said, if you do offer a one-​​size-​​fits-​​all prod­uct, or one with a sin­gu­lar, mea­sur­able result, then can you sim­ply say, “If used as directed, you should get [typ­i­cal result]?”

Accord­ing to the FTC, you no longer can.

The older rule said that hav­ing a blan­ket dis­claimer (some­where, such as a link at the bot­tom of a sales page), to show that results are atyp­i­cal and that indi­vid­ual results may vary, is no longer pos­si­ble. The FTC says we “no longer have this safe harbor.”

The next prob­lem­atic issue is the one of lia­bil­ity. If I’m an affil­i­ate and point to or reprint tes­ti­mo­ni­als given to me by the affil­i­ate ven­dor, and they are “atyp­i­cal,” am I there­fore liable? Accord­ing to the FTC, I am. And that makes sense. In the­ory.

But in prac­tice, it’s a poten­tial night­mare wait­ing to hap­pen. (I’ll come back to this in the sec­ond point below, as it is an impor­tant one we need to look into and can­not ignore.)

2) Dis­clo­sure

If the endorser has a rela­tion­ship with the spon­sor, they must dis­close it. Even if it’s a pay­ment “in kind” or any mate­r­ial con­nec­tion between endorser and adver­tiser, such as an exchange of expo­sure, free prod­ucts or ser­vices, even con­tests and joint ventures.

(How about if it’s just buy­ing them a beer? But I digress.)

Again, this makes sense. But does that mean we have to tell every­one when an affil­i­ate link is an affil­i­ate link? What about other media, such as social media like Twit­ter? (The FTC did men­tion “social media,” too.) How can you do this in 140 char­ac­ters or less?

What will be inter­est­ing is to see how the FTC clar­i­fies these rul­ings (on a “case-​​by-​​case basis,” they say). But lia­bil­ity is an impor­tant issue and not to be taken lightly.

For exam­ple, let’s say one of my less-​​than-​​ethical affil­i­ates blogs about me. They lie in their endorse­ment or review, exag­ger­ate some of the claims I make, or sim­ply fail to indi­cate their affil­i­ate rela­tion­ship with me. All of which are things I have lit­tle con­trol over.

Now, here’s the rub.

The new rule stip­u­lates that the adver­tiser and endorser are both liable. Does “adver­tiser” mean “ven­dor?” That is, the affil­i­ate pro­gram owner? Mean­ing, are we, as ven­dors, also liable for what our affil­i­ates say, sell, pro­mote, or blog about?

Again, it makes sense that we should. To a degree. But what if the affil­i­ate goes rogue, and uses unac­cept­able prac­tices to bump up their sales? Sure, they broke the terms of their affil­i­ate agree­ment. We can can­cel their accounts and for­feit their commissions.

But the dam­age is done. And believe me, the gov­ern­ment has a long memory.

Here’s my ques­tion. When the FTC says that the “adver­tiser” and “endorser” are liable, do they mean exclu­sively? Or inclu­sively? In other words, do they mean that either one is liable, specif­i­cally the one who engaged in uneth­i­cal (and now, ille­gal) practices?

Or do they mean both are liable, regard­less of who’s at fault?

My friend, Armand Morin, in a per­sonal exchange, said this…

The way I read it as well is that the ven­dor is ulti­mately respon­si­ble. If you have a rogue affil­i­ate and they do not dis­close that it’s a pro­mo­tion and they are being paid to do so, then you are the respon­si­ble party as well as they are.

It reads, though, that the ($11,000) fine comes to to the com­pany and not the actual affil­i­ate. I may be wrong on this, but it looks that way. Bot­tom line, it’s not a good thing.

Either way, “this is a game-​​changer,” says Armand. And I agree.

This could lit­er­ally mean a ton of affil­i­ate pro­grams shut­ting down, if this is the case. For some mar­keters, their entire busi­nesses, which rely heav­ily on affil­i­ate pro­mo­tions, would die — or at best, be forced to make huge over­hauls to their affil­i­ate systems.

Because it’s now too risky to oper­ate an affil­i­ate program.

Or in an attempt to com­ply with the new rules, they must carry out an expen­sive, labor-​​intense appli­ca­tion and review process, where they must vet, qual­ify, and mon­i­tor every sin­gle affil­i­ate. And do so with hun­dreds, even thou­sands, of exist­ing ones.

Logis­ti­cally, it’s another nightmare.

Nev­er­the­less, it remains to be seen. Clar­ity is going to be key. Some peo­ple have blogged about their con­cerns and need for clar­ity. For exam­ple, this blog­ger posted a rather inter­est­ing, and some­what sar­cas­tic, open let­ter to the FTC. And it makes sense.

Sure, it has less to do with affil­i­ate mar­ket­ing, but some ques­tions are rel­e­vant — and applic­a­ble — to our indus­try as well. For instance, the third ques­tion in that open let­ter can be eas­ily extrap­o­lated to the affil­i­ate space just as well. It says…

If an unpaid blog­ger at the Huff­in­g­ton Post “endorses” a con­sumer prod­uct with­out meet­ing the FTC guide­lines for dis­clo­sure of “mate­r­ial con­nec­tions” to the mak­ers of that con­sumer prod­uct, who’s liable: the blog­ger or the Huff­in­g­ton Post?

How­ever, in the TechCrunch post linked ear­lier, the author posted a response from the FTC, which did not appear on the orig­i­nal blog post. The FTC clar­i­fied a few points, but at the same time they opened up sev­eral new ques­tions. Here was their response…

Update: The FTC responds

When asked if the FTC views blog­gers equally and whether or not it rec­og­nizes lev­els of author­ity on par with tra­di­tional media, Mary Engle, asso­ciate direc­tor for adver­tis­ing prac­tices, clar­i­fied its posi­tion and per­spec­tive, “All blog­gers aren’t the same and we are not say­ing that all blog­gers are mar­keters. Most of them are ordi­nary folks mus­ing or sound­ing off. The ques­tion as we put it in the notice we pub­lished today is whether, viewed objec­tively, the blog­ger is being spon­sored by the adver­tiser. (We list a num­ber of fac­tors to con­sider.) Inde­pen­dent prod­uct review­ers, whether offline or online, would not be viewed as spon­sored by the com­pany whose prod­ucts they are reviewing.”

Engle fur­ther observed the dis­tinc­tion between expert and con­sumer blog­gers, “But if blog­gers reg­u­larly receive free prod­ucts from a com­pany, the blog audi­ence might view their reviews dif­fer­ently than if they went out and bought the prod­ucts on their own. Under those cir­cum­stances, blog­gers should dis­close they got the prod­ucts from the com­pany. This is con­sis­tent with the WOMMA code of ethics. And, com­pa­nies who use blog­gers to gen­er­ate buzz about their prod­ucts by send­ing free mer­chan­dise should have a pol­icy that their blog­gers should disclose.”

I think this clar­i­fies it some­what, because those who cre­ate blogs and, on occa­sion, have prod­uct reviews such as affil­i­ate mar­keters who are, accord­ing to the FTC, “inde­pen­dent prod­uct review­ers,” are not the ones who are tar­geted in this case.

But are affil­i­ate mar­ket­ing ven­dors still safe?

Granted, the FTC appears to be aim­ing for blogs where “the blog­ger is being spon­sored by the adver­tiser.” And that “inde­pen­dent prod­uct review­ers, whether offline or online, would not be viewed as spon­sored by the com­pany whose prod­ucts they are reviewing.”

But it’s still a lit­tle muddy. For exam­ple, is affil­i­ate mar­ket­ing con­sid­ered “spon­sored adver­tis­ing?” Or is an affil­i­ate mar­keter an “inde­pen­dent prod­uct reviewer?” I think — and hope — the FTC will be clar­i­fy­ing its posi­tion soon. I know they will as we go along.

We’ll just have to wait and see, I guess.

But for some peo­ple, wait­ing, tak­ing the risk, and pos­si­bly becom­ing the tar­get of the FTC who wishes to make an exam­ple out of them, may be too much to bear.

Update: To those who think my intent is to fear­mon­ger, be alarmist, or bring non-​​issues to the fore­front (as some peo­ple pointed out that the FTC is not going after affil­i­ate mar­keters but sin­gling out the “rogues”), please think again.

Update #2: The folks over at Fast­Com­pany inter­viewed FTC rep­re­sen­ta­tives to clar­ify some of its rul­ings, and it did make some of it a lit­tle clearer to appease cer­tain fears. The gist from the inter­view comes down to three impor­tant clarifications:

1) Complaint-​​Driven

The FTC stated they won’t have review­ers scour­ing the web on a reg­u­lar basis search­ing for vio­la­tors. They will work mostly on a case-​​by-​​case basis, based on com­plaints. They will rely more heav­ily on edu­ca­tion and vol­un­tary com­pli­ance than prosecution.

2) Three-​​Strike Process

They will not fine offend­ers at first. Again, pros­e­cu­tion won’t be their first aim. They will instead fol­low a three-​​step process with which they give offend­ers some time to redress and com­ply. Even with the most fla­grant offend­ers and “wost-​​case scenarios.”

They will start by issu­ing a warn­ing. If that doesn’t work, then they will send a cease and desist. And finally, if all else fails, then they will fine the offender up to $11,000.

3) (Per­ceived) Authority

Casual affil­i­ate links or prod­uct reviews are fine. What the FTC seems to be really going after are blogs that are more exten­sive, either as rec­og­nized author­i­ties them­selves, or per­ceived as author­i­ties by blog­ging about one par­tic­u­lar prod­uct or business.

I’m not a lawyer. But my guess is, if your blog is all about reviews but has mul­ti­ple affil­i­ate links, you should be fine. But if you’re an author­ity, or if your blog is all about a par­tic­u­lar prod­uct or busi­ness, you must clearly dis­close your rela­tion­ship and compensation.

For instance, TechCrunch does reviews on a reg­u­lar basis. They are con­sid­ered an author­ity. So they are expected to dis­close. Same with blogs ded­i­cated to entire prod­ucts, such as those Acai Berry blogs or Google Money blogs.

Remem­ber the Wal-​​Mart “trip around Amer­ica” fiasco, where a cou­ple was blog­ging about their expe­ri­ences by dri­ving to Wal-​​Marts from state to state? The flak that fol­lowed was because they failed to dis­close they were being paid by Wal-​​Mart.

Their blog was entirely focused on their trav­els. Hence, it had per­ceived authority.

The bottom-​​line?

If you own an affil­i­ate pro­gram, I think most of your affil­i­ates are safe. But if you have one affil­i­ate who decides to set up an entire blog or web­site ded­i­cated to a sin­gle prod­uct or busi­ness, they must dis­close their rela­tion­ship as there is per­ceived authority.

That makes per­fect sense. While these clar­i­fi­ca­tions help a lot, and now a clearer pic­ture is emerg­ing, some ques­tions still remain unan­swered. We’ll just have to wait and see.

Update #3: My good friend Jim Edwards grilled FTC Direc­tor Richard Cle­land on the new laws com­ing into effect on Decem­ber 1st. Absolutely golden infor­ma­tion. If you’re con­fused or wor­ried about these new laws, you must watch this video. It’s excellent.

About the Author

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