For consumer testimonials, the general rule is that an advertiser cannot pay or otherwise compensate a person to give an endorsement without disclosing the material connection. Bloggers who receive compensation—or even free products from advertisers—may now have to disclose that connection with the advertiser if they provide a positive review of those products. Similarly, an employee of an electronic game manufacturer who posts messages promoting the manufacturer's product on a third-party message board must disclose his relationship with the manufacturer. "Street team" programs in which members gain points every time they talk to their friends about a particular advertiser's products could also run afoul of the FTC Guides.
Comments on this issue to the FTC are open for two more days until January 30th. However, the debate can certainly rage on here as long as we'd like.
Paid and unpaid placements
As a long time proponent of the WOMMA ethics code, I'm in favor of full disclosure as it relates to paid placements. A recent Izea campaign for Kmart got Chris Brogan in some hot water with his readers, but as I've said before it's not unethical as he did disclose that he was compensated financially.
Unpaid placements, however are another story. If I pitch a product or story to a blogger and they choose to write about it then they clearly felt strongly one way or another about it. Does it matter that they got it for free? What about bloggers that pick up a press release, video, advertisement or other materials from a company's web site? Are they liable for not disclosing that they found it on a company's site (copyright issues aside)?
Additionally, as someone who has tackled this issue head on through WOMMA the conclusion is simple: I don't control a blogger's blog nor control what they do or do not write. Now the government is going to try and mandate what bloggers write? I smell a revolt...
Another matter that is clearly not cut and dry is street teams. Can this be expanded to anyone with a financial interest in a company? For example, let's say that I'm an Apple shareholder and I convince a friend that they should buy a Mac. Technically I am being financially rewarded for doing so. Even worse, suppose we're out in public. Too murky to regulate, IMO. You may recall this report from Dr. Walter Carl where consumers really don't care about disclosure when it comes to offline agents -- just 5% said there was a negative backlash when they found out someone was being compensated. I'm not going to say it's all on the consumer. But the argument can be made that they really don't care if someone's being compensated and that they use their best judgment to determine that person's credibility.
So... what's the answer?
Clearly, there are several verticals online where transparency is not the policy. How many times have you looked at the reviews on iTunes, gaming and travel sites and wondered if they were real? What about the astroturfing I uncovered in the beauty blogosphere? Ultimately the companies engaging in unethical practices are those that suffer. Consumers lose trust with that company or brand and stop buying the product. That's how you punish unethical companies, not through blanket government regulation over entrepreneurial individuals trying to run a web site.
Similarly, if a blogger's readers truly feel duped then their brand and business will suffer through decreased readership.