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Nader Group Criticizes Pay-for-Placement Search Engines

An advocacy group founded by Ralph Nader is alleging that some pay-for-placement search engines are violating consumer rights.

In a complaint filed with the Federal Trade Commission Monday, Portland, Or.-based Commercial Alert charged that eight search engines are deceiving consumers by not adequately disclosing that their search engine results are paid ads.

Companies named in the complaint include AltaVista, AOL Time Warner Inc., Direct Hit Technologies, iWon, LookSmart Ltd., Microsoft Corp. and Terra Lycos.

According to the group, consumers could be misled into believing that the results from a search are organized by relevancy, when, in actuality, marketers who pay the most for search keywords are listed first. The complaint states that such listings "look like information from an objective database selected by an objective algorithm. But really they are paid ads in disguise."

The complaint added that such deception could be likely since search engines are "now a commonplace part of the quest for information and knowledge" and users are frequently new to the Internet and might not recognize ads as such.

"The failure to disclose that an ad is an ad ... can ultimately affect consumers' purchasing decisions, by diverting their attention to the advertisers," reads the complaint. "...There is an implied representation to search engine users that listings are not skewed by marketing or commercialism. Consumers are accustomed to search engine protocols based on editorial integrity, and have not been told of the departure from these protocols. In effect, this is a high-tech case of 'bait and switch.'"

The allegations are especially troubling since they attack one of the few relatively healthy segments of the online marketing industry. Indeed, despite widespread cutbacks in clients' marketing budgets, paid-placement search engines continue to enjoy relative success, with many advertisers routinely allocating a slice of their online marketing budgets to search engine placements.

For example, industry leader GoTo.com -- which is not named in the complaint -- has seen growing returns from its business, which specializes in providing the technology behind paid, keyword-based listings to publishers and search engines. The firm has been reporting steadily growing revenues since going public in 1999, with breakeven projected in fourth quarter.

Additionally, cash-strapped Web portals are turning to the service in growing numbers, as sales of mainstream Internet advertising continue to flounder.

But while Pasadena, Calif.-based GoTo.com's engine powers several of the sites named in the complaint -- specifically, AOL-owned Netscape.com, iWon, DirectHit, Terra Lycos and AltaVista -- and it competes in the same market as technology provider LookSmart, the firm isn't included in Consumer Alert's complaint. Instead, the advocacy group's primary targets are publishers who purposefully label paid ads as "featured" or "partner" listings.

"These search engines have chosen crass commercialism over editorial integrity," said Commercial Alert's executive director Gary Ruskin, who penned the complaint. "We are asking the FTC to make sure that no one is tricked by the search engines' descent into commercial deception. If they are going to stuff ads into search results, they should be required to say that the ads are ads."

In his letter to the FTC, Ruskin asked the government agency to investigate whether the group's companies are violating federal prohibitions against deceptive practices.

The FTC has been increasingly wary of the excesses of dot-com and technology marketers as of late. In recent months, the agency cracked down on ads from Microsoft, Netpliance and Juno Online, among others.