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THE CHALLENGES NATIVE ADVERTISING POSES:
EXPLORING POTENTIAL FTC RESPONSES
AND IDENTIFYING RESEARCH NEEDS
Colin Campbell
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Assistant Professor, Department of Marketing, School of Business,
University of San Diego, 5998 Alcala Park, San Diego, California 92110
Email: colincampbell@sandiego.edu Phone: +1.216.647.2003
Pamela E. Grimm
Associate Professor, Department of Marketing and Entrepreneurship
Kent State University, 475 Terrace Dr., Kent, Ohio, USA 44242
Email: pgrimm@kent.edu Telephone: +1 330 672 1262 Fax: + 1 330 672 5006
Acknowledgements:
We wish to acknowledge funding for data collection 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. We also wish to thank Jagdish Agrawal for his comments and suggestions
while writing the paper.
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Corresponding author
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THE CHALLENGES NATIVE ADVERTISING POSES:
EXPLORING POTENTIAL FTC RESPONSES
AND IDENTIFYING RESEARCH NEEDS
Abstract
Native advertising is a new form of online advertising that appears in many settings such as
blogs, social media, and entertainment and news publishers. Native ads typically blend with their
surrounding context, stem from sources or placements that don’t signal advertising, lack overtly
persuasive or sales-focused messaging, and have less clear material outcomes. Such
characteristics raise ethical concerns since native ads are more difficult for consumers to identify,
as well as challenge concepts that are central to current deceptive advertising policy. Native
advertising is an FTC 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 paper we trace the evolution of regulation relevant to
native advertising. We identify shortcomings and propose possible remedies the FTC or industry
could adopt to both prevent consumer harm as well as detect and enforce against infractions. We
also develop an associated agenda for future research needed to more fully inform public policy
and industry response in this arena.
Keywords: advertising regulation, native advertising, FTC, deception, influencer advertising
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Native Advertising is on the Rise
Native advertising refers to a relatively new form of online advertising that blends into its
online context by mirroring the format of surrounding non-advertising content. Native
advertising is an umbrella term that refers to many different ad types such as those appearing in
keyword search (e.g. Google AdWords), on publisher websites (e.g. The New York Times,
Forbes), and in social media (e.g. Instagram, Facebook, YouTube). Native advertising is on the
rise, with U.S. spending expected to grow by 36.2% in 2017 to reach $22 billion (Beer 2017),
and for growth 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 what we term article-style native ads, those ads that mimic the style of online articles.
Influencers, individuals who post to their social media followers in exchange for compensation,
are also increasing in prevalence (Agrawal 2016). With native advertising attracting such sizable
ad dollars, the format is also attracting attention from regulators due to its potentially deceptive
nature. Native advertising is a current enforcement priority for the FTC’s Division of Advertising
Practices (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. Emerging research on native advertising suggests consumers may fail to
recognize native ads as advertising, leading them to respond more positively to them (Boerman,
Willemsen, and Van Der Aa 2017; Evans et al. 2017; van Reijmersdal et al. 2016; Wojdynski
and Evans 2016). This echoes similar challenges posed by advertorials and infomercials (Kim,
Pasadeos and Barban 2001; van Reijmersdal, Neijens, and Smit 2005), as well as product
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placement or embedded advertising, where the key regulatory concern is also 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,
2017e) seem to be only minimally effective. This includes “Advertising”, which results in ad
recognition of only 12% (Wojdynski and Evans 2016), “Sponsored”, which studies report boosts
ad recognition relative to a control by either 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, both consumer groups
(Maheshwari 2016) as well as market research (Main 2017; Swant 2016) find poor compliance
with disclosure requirements among brands, publishers, and influencers alike. Repeated FTC
(2017b, 2017c) warning letters to influencers provide further evidence of non-compliance.
Deceptive advertising is not a new phenomenon (Fair 2013; Petty and Andrews 2008). It
has appeared in a variety of forms over an extensive period of time (see Web Appendix A). A
large body of FTC and academic work addresses the topic. This includes the regulations that
direct the FTC, as well as the numerous statements (FTC 1983, 2015a), clarifications (FTC 2000,
2013a) and business guides (FTC 2009, 2015b) issued by the agency over the past decades,
including several specific to native advertising (FTC 2015b, 2017d, 2017e). Understanding of
native advertising is also informed by a rich set of academic work on masked marketing and
deception. This includes 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
building more 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
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highly relevant to native advertising yet pre-dates the ad form, Petty and Andrews (2008)
develop a typology of marketing practices that ‘mask’ the format or source of a communication.
Petty and Andrews (2008) conclude that while existing regulation largely addressed the masked
marketing techniques identified at the time of their article, they also specifically note 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 various online media forms it has spawned has
enabled online marketing to rapidly evolve, often in ways that test, probe, and possibly exploit
existing regulation. This is particularly evident with native advertising forms that disguise both
an ad’s format and true source, thus representing an intensification of the masking practices
outlined by Petty and Andrews (2008). While the broad principles and underlying intent of
existing regulation remains reasonable, changes in how media and advertising are generated,
disseminated, and reacted to are blurring boundaries and challenging traditional
operationalization of concepts central to deception policy.
In this paper 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 regulation relevant to native advertising. Specifically, we review the FTC
documents and cases which form the basis of their current approach to regulating and enforcing
clear and conspicuous guidelines in native advertising. Based on current regulations and 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
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deception. We end by charting a research agenda to assist in informing further development of
public policy and regulation relevant to native advertising.
Native Advertising Presents Distinct Challenges for the FTC
Native advertising, along any single dimension, may seem very similar to existing forms
of potentially deceptive advertising such as advertorials or product placements. However, native
advertising doesn’t simply challenge a single boundary, but instead takes advantage of
ambiguities that exist along multiple dimensions. In this section we briefly describe how native
advertising pushes the envelope of existing regulations in new ways compared to previously
examined forms of covert and embedded advertising (Cain 2011; Petty and Andrews 2008).
These differences are also outlined in Table 1.
First, the internet has led to an explosion of different online media channels through
which consumers can view a tremendous variety of text, audio, video, and image-based content.
This variety is also mirrored in online advertising and its associated disclosures, which likely
challenges consumer ability to learn 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 to consumer and advertising content mixing together to a
much greater extent than was possible with more traditional media platforms. While television
and print advertisers on these mediums sometimes push the boundary with non-advertising
content through ad forms such as infomercials or advertorials, it is still generally apparent to
consumers that the content on traditional media forms does not originate from another consumer.
On social media and video sharing sites such as YouTube, advertisements and consumer-
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generated content are intermixed. The potential for this to cause problems is most evident with
influencers, consumers paid to endorse and promote products to their followers, and the growing
trend of micro-influencers, 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 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 very notions of persuasion and
claim that are at the heart of what is used to assess deception. While 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 successful native advertisement as one which has a ‘storytelling’ or
subtle quality (Maheshwari 2016). An article-style native ad might mention a product or service,
but 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. While recent guidance from the FTC (2017e)
indicates that images can contain an implicit claim, guidance is understandably opaque. Indeed,
both Petty and Andrews (2008) and Cain (2011) note that FTC advice generally focuses on
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visual claims that are more concrete in nature (e.g. indicating a food is “heart-healthy”). Many of
the visual claims influencers and celebrities make in their native ads are not concrete, but instead
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 it much less likely that more immediate
behavioral effects such as purchase, which were more traditionally used to assess materiality
(FTC 1983), take place. Instead, effects are likely limited to earlier stages in 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, it is valuable that the FTC (2015a) recently expanded their elucidation of
materiality to also include effects such as increased interaction with an ad. Since 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 – something that digital tracking tools such as cookies
enable. This suggests that the FTC’s operational definition of materiality may need further
updating.
In sum, 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,
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native advertising tests the scope of many of the concepts that previously were relatively clear to
assess. Before turning to address possible solutions, we next review current regulation 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. We do so by first reviewing earlier foundational FTC documents and
working towards those that are more recently released. The FTC’s 1983 Policy Statement on
Deception is a foundational document that describes how the FTC interprets and enforces
regulations regarding deception in advertising. The document provides insight into the
Commission’s interpretation of the FTC Act and also references specific supporting cases. FTC
(1983) understanding of deception is based on a three-part definition. 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, materiality is also presumed (FTC 1983). We summarize these criteria in Table 2, 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. Minimal reference in
the statement is made to deception involving omission of source. While native advertising fits
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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. Further clarification of the Commission’s stance on
false or misleading claims was provided 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 2013a)
takes into account the emergence of smart phones 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, deception due to omission
of an ad’s true source is not a focus of either of the Dot Com Disclosure (2000, 2013a)
documents.
Native Advertising: Keyword Search
While 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 more
applicable to the challenges posed by native advertisements and is notable in that it shifts
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 requirements apply to keyword search advertising. One of the principles
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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) felt compelled to remind search
engine companies of these principles and that they should be adhered to in any new
environments in which paid search results may appear.
Native Advertising: 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 (2009) issued guidance on endorsement,
but focused on disclosure of material connections for celebrities appearing outside of a typical
advertising context, or for consumers providing testimonials in the context of clearly identifiable
advertising. While the guidance did 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, make them
attractive to advertisers, either as paid influencers or as incentivized reviewers. In response, the
FTC (2017e) clarified their guidance on endorsement and testimonials to include consumer
sources as well as online contexts such as blogs, forums, reviews, and social media.
The FTC’s (2017e) 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 them. FTC guidance and
actions unambiguously convey that existing clear and conspicuous disclosure guidelines apply
equally to content stemming from ‘consumers’ who are compensated in some way. This was
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communicated to more than 90 influencers, including celebrities, athletes, and their associated
advertisers, in a recent letter from the FTC’s Associate Director (FTC 2017b). A second follow-
up letter was sent to 21 influencers for continued non-compliance (FTC 2017c). The letters
reminded these influencers of the need to ensure their social media posts clearly disclose paid
relationships with any products featured in their posts. This also suggests that the FTC
recognizes that consumers are much less likely to recognize social media posts from celebrities
as advertising than traditional ads featuring those same celebrities.
Native Advertising: Multiple Types
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 an Enforcement Policy Statement on Deceptively Formatted Advertisements along with
a companion guide for businesses (FTC 2015a, 2015b). Expanding on earlier guidance related to
keyword search advertising (2002, 2013c), the documents (FTC 2015a, 2015b) focus on
potential deception due to an ad’s misleading format. The policy statement and companion guide
for business (FTC 2015a, 2015b) 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. FTC guidance (2015a) specifically encompasses paid, persuasive
communications which appear to come from a source other than an advertiser. This typically
means content that appears to stem from a publisher or a consumer, and takes into account an
ad’s overall similarity to surrounding non-advertising content. This statement reiterates the
FTC’s (1983) stance that deception is evaluated based on an ad’s ‘net impression.’ The FTC’s
(2015a, p. 10) policy statement specifically notes:
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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.
The FTC’s (2015a) policy statement is notable for three reasons. First, while it
reconfirms longstanding practice that consumer expectations of media content are considered
when assessing deception, it assumes materiality in the case of native ads appearing on news
publishers’ sites. The statement does so by designating as “…material any misrepresentations
that advertising content is a news or feature article…” (FTC 2015a, p. 15). Such specific mention
of native ads appearing on publisher sites may be driven by the low likelihood of consumers
expecting ads on these sites to imitate articles (Wojdynski and Evans 2016). This reflects
historical and cultural norms dictating clear separation between news and advertising. In
contrast, materiality is not presumed in contexts where consumers might more readily expect
native advertising.
Second, this policy statement (FTC 2015a) on deception rests upon the way in which the
FTC defines advertising. In an included note, the FTC states “…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
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product placement is only of concern 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 the recently settled case against Lord & Taylor
(FTC 2016a). The merchant was accused of engaging in two forms of deceptive advertising.
First, a native advertising article appeared on an online publisher’s site but failed to disclose its
paid nature. The mere fact that the article mimicked news enables the FTC to assume materiality
under their 2015a policy statement. This appears to be the first instance of the FTC taking action
against an inadequately disclosed native advertising article. Additionally, Lord & Taylor paid 50
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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 since
consumers were assumed to be unaware of the paid nature of the posts. The action is important
since, similar to a recent case involving Warner Brothers (FTC 2016b), 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 response to native advertising can be considered from both prevention
and enforcement perspectives. We first discuss prevention since in an ideal world deception
would never take place and instead would be prevented.
Policy Responses: Prevention
Native advertising takes advantage of ambiguity in existing operationalization of many of
the concepts that are central to deception. While the overarching regulations governing deceptive
advertising appear sound, the FTC likely needs to be more definitive in the guidance documents
they produce for business. This includes specifying rules that unequivocally require disclosure in
certain situations, as well as developing clearer criteria to determine when disclosure might
otherwise be necessary. We also encourage the FTC to continue their publication of hypothetical
case situations (e.g. FTC 2000, 2013a) and guides (FTC 2009, 2015b, 2017e). In Table 3 we
outline responses we believe may address the challenges posed by native advertising.
Given the ambiguities inherent to native advertising and the online environment in which
it appears, we believe the FTC should make several clarifications and assumptions. To start, a
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claim should be assumed present in the case of any online communication that mentions or
shows a product and for which associated consideration was provided, irrespective of whether or
not explicit written or spoken language is present. This eliminates 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 FTC (2009, 2017e) policy 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, a more definitive statement of this
policy 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)
recent revision to consider as material not just 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 might include increased online searches, or
website or store visits, both of 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 assesses materiality at
the level of a campaign or set of related ads, rather than a single ad. Finally, we also advocate
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. While we again
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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 traditional distinction between the meaning of
advertising and sponsorship. It would benefit the FTC to either formally acknowledge consumers
now equate ‘sponsored’ with ‘advertising’ and that distinction between the two terms no longer
holds, or instead actively enforce traditional use of the phrases. 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 learn
disclosures. In addition, manipulation of digital content is relatively easy and, when applied
systematically using software, virtually costless. This makes the burden of including disclosure
much lower than what similar requirements would have cost in print or analog contexts. For
these reasons, we believe the balance of costs to benefits has shifted such that a more
prescriptive FTC policy is reasonable given the clear public interest (c.f. Cain 2011). Echoing
similar 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 or very limited number of
disclosures to appear across all native advertising formats. This 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 (DAA 2017) requires use of the ‘Ad Choices’ blue triangle
by member brands. Since some native advertisements are more visual in nature, it would likely
be more effective if recommended standard disclosures were also visual in nature. Consumers
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would learn these disclosures and be able to more quickly and easily identify advertising content,
irrespective of the advertising platform on which it appears.
Extending an idea originally proposed by the FTC (2013a), a standard disclosure could
also be embedded in URLs, along the lines of The New York Times embedding ‘paidpost’ in the
URLs of their native ads. This would be nearly costless to implement and would also assist third-
party web browser plug-ins such as AdDetector, which adds a large red banner above native
advertising (Perlberg 2014). The convention would also help with the challenge posed by sharing
of native advertising since 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 as advertising their posted content when they have been compensated.
While the FTC (2017b, 2017c, 2017e) already suggests 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 directly done by brands. While some
sites such as Facebook and Instagram now enable influencers to ‘tag’ business partners in posts,
the software feature is not universal. The ability to self-designate content as advertising would
address the growing phenomenon of consumer-controlled influencer audiences. While
influencers are most associated with social media native advertising on platforms such as
Instagram, consumers are creating a variety of types of content online. This includes blogs,
reviews, videos, and even written articles (e.g. medium.com). It is likely that at least some of this
content is already financially motivated but not disclosed, or at least not disclosed in a consistent
manner. Consumers’ ability to self-designate content as advertising would not only ease
compliance, but also holds the potential to benefit platforms. Opportunities for self-designation
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may shift more responsibility for disclosure to content producers and might also allow platforms
to more accurately apply algorithms they use to determine optimal levels of advertising
exposure.
Policy Responses: Detection and Enforcement
When shifting to consider enforcement, detection is a first step. While deceptive claims
are relatively easy to spot, by its very 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 could be facilitated by crowd-sourcing mechanisms similar to
existing tools 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 also evolve such that detection of
suspected influencer advertising could become automated.
While 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 publisher use of software code to reduce
fraudulent ad sales simply by announcing they would only run their ad products 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 only include those platforms adhering to a higher disclosure
standard, this would incentivize more platforms to want to meet such standards and raise the
overall disclosure standard within the industry. While somewhat counterintuitive, such action is
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likely to benefit larger advertisers since communications from well-known brands are already
likely to be more readily identified as advertising (Jeziorski and Moorthy 2017). Smaller brands
may be profiting disproportionately from native advertising since the absence of a recognized
brand name or logo means 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 (ASME) already suggests use
of specific disclosure terms for both print and online environments, but adherence by publishers
is voluntary (ASME 2015). Likewise, the Digital Advertising Alliance (DAA 2017) already
requires its members use the ‘Ad Choices’ blue triangle on their ads to not only 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 also motivate change in
industry practice. While 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), though such precedent exists in traditional media. FTC action toward ad platforms has
already been predicted (Barr 2015) and would likely motivate their participation in industry-wide
efforts to create common standards.
Industry Counterpoint
21
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We recognize that some of the suggestions we have offered might be contentious to
industry, something that is evident in existing industry feedback. Prior to the FTC’s (2013b)
workshop held on native advertising, an Interactive Advertising Bureau (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 these differences preclude use of a standard disclosure. While 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. While it is true text may need more
adjustment depending on ad format, a more visual standard disclosure would likely need less
adaptation. This might include the ‘Ad Choices’ blue triangle, which is already in use by
members of the DAA (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. There is no reason to believe the similar adaptability would not be possible with a
standard visual disclosure.
Following 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 and feel that, given native advertising’s
differences, it seems 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
22
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concern that proposed disclosure phrasings are “overly prescriptive, especially absent any
compelling evidence to justify some terms over others.” However, there is growing evidence 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), though reported effects
are slight. This is likely due to the newness of native advertising and the multitude of different
terms currently being used. Industry research already suggests the wide variety of hashtags used
by influencers is creating confusion (Sterling 2017). We believe these are reasons why
prescriptive disclosure is needed rather than not.
The IAB’s (2015) statement cited the IAB’s (2014) own research finding 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 mentioning that in the same study only 41% of respondents 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 recognition rates can vary
significantly across native ad formats (Boerman, Willemsen, and Van Der Aa 2017; Evans et al.
2017; Wojdynski and Evans 2016). Additionally, the IAB (2014) study only tested recognition of
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.” While any regulation should be implemented in a manner that is as limited in harm as
possible (Cain 2011), protection of industry profit is not itself a reason to avoid introducing
regulation when there is a reasonable need. It is indeed possible that inclusion of disclosure may
cause consumers to more readily recognize native advertising, reducing its effectiveness, and
23
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lowering ad revenue for some sites. However, if such a scenario occurs it would suggest the
initial effectiveness of the ads was likely due to consumer deception, confirming the very need
for disclosure.
Research Opportunities to Inform Development of Public Policy on Native Advertising
While 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 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) as well as specific studies exploring differential consumer response 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 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 on
FTC ad copy testing principles that are likely relevant to 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 (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). While an important beginning, this research is limited in the ad forms, disclosure
24
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formats, and specific contexts investigated, with demonstrated disclosure efficacy and ad
recognition levels varying widely.
Previously, we outlined the specific ways in which native advertising presents difficulties
for existing deception-related policy. These are summarized in the second column of Table 3 and
include challenges to existing operationalization of what constitutes a claim, the role of celebrity
in identifying advertising, the manner in which materiality is evaluated, and how clear and
conspicuous guidelines 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 of the issues
we identify present research opportunities for academics. We also outline additional research
questions raised by the problems and related potential policy responses we list. These include a
mixture of questions 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 also detect deception.
Several major themes are evident across the questions and challenges presented in Table
3. First, it is clear that 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. Research is also needed that develops insight into how
consumers process native advertising and any associated disclosures. For instance, how does the
format (e.g. textual vs. visual) of a specific native ad execution affect how consumers process an
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? Development of such
general theoretical insight is particularly useful since it can be applied to new forms and formats
25
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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, since
the nature of celebrity has likely changed and the meaning of terms such as ‘sponsorship’ seems
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 includes assessments of ads when viewed in isolation, in concert
with other related native or non-native ads for the same product, and over time.
A final theme evident in the questions presented in Table 3 surrounds the pragmatics of
both preventing deception as well as detecting and enforcing violations. Based on the
proliferation of different formats of online media, and the ease through which forms and formats
can emerge and evolve, we advocate the FTC prescribes standard disclosure formats and
conventions for native ads. This 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 it might place an unreasonable burden on advertisers or infringe on their
free speech rights.
From an enforcement perspective, native advertising also presents practical issues related
to detection. Native ads can take on a variety of different formats and appear on any number of
different sites, apps, and services online. Unlike print or broadcast advertising, online advertising
enables a vast number of different ad variations to be quickly created and run by almost anyone.
Native ads can also leverage incredibly precise online targeting data to potentially only appear to
26
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certain, possibly vulnerable, consumers. Methodologies are needed that enable publishers and
regulators alike to sift through the millions of ads appearing online to identify violations.
Research is needed to assess the efficacy of the crowd-sourcing and machine-learning techniques
we propose 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 very nature
continues to evolve, research needed to inform public policy development is also likely to
change. This might also include evolving or even relaxing policy as consumer awareness of
native advertising grows. For this reason, we encourage the FTC (2013b, 2016c) to continue
their ongoing efforts to bring together industry, academics, and regulators in workshops designed
to find solutions to the challenges posed by native advertising.
27
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Table 1: DIFFERENCES BETWEEN TRADITIONALLY-EXAMINED COVERT ADS
AND NATIVE ADVERTISING
Dimension
Covert and Embedded
Advertising Forms (Petty
and Andrews 2008; Cain
2011)
Emergent Forms of Native
Advertising
Media forms where ads
appear
Principally print and
broadcast media
A wide variety of different
forms of online advertising
Number of disclosure formats
in use
Fairly standard conventions
for disclosure
Varied and often changing
forms of disclosure
Content that ads mimic or
appear in the context of
Ads appear in the format of
entertainment or editorial
content
Ads appear in the format of
entertainment, editorial or
consumer-generated content
Claims (persuasion)
Can involve either explicit or
implicit claims
Often involves implicit
claims
Material effect: marketer
objective of the
communication
Purchase, as well as
awareness or interest, or
further interaction with the ad
or advertising brand
Often awareness or interest,
or further interaction with the
ad or advertising brand
Material effect: time-frame
before purchase
Can be immediate or longer-
term
Tends to be longer-term
Material effect: ability to
attribute a purchase to an ad
Often attributable to a single
ad
Often difficult to attribute to a
single ad
37
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Table 2: OVERVIEW OF FTC CRITERIA USED IN IDENTIFYING DECEPTIVE
ADVERTISING
According to the FTC’s Policy Statement on Deception (FTC 1983) as well as their Enforcement
Policy Statement on Deceptively Formatted Advertisements (FTC 2015a), advertising is
considered materially deceptive if an ad meets all of the following conditions:
1. Does an ada mislead a consumer either through ad formatting, omission of information
(including source), or express or implied false statements?
2. Is a significant minority of an ad’s target audience misled?
3. 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?b
Notes:
a Deception importantly depends on a communication first being deemed an advertisement.
Communications which do not persuade in a manner beneficial to an advertiser (i.e. promoting
their product or service) do not appear to be considered advertising
b Materiality is presumed in some cases such as those involving health, safety, or express claims
(FTC 1983). Relevant to native advertising, misrepresentations that an ad is a news or feature
article are automatically considered material (FTC 2015a, p. 15).
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Table 3: NATIVE ADVERTISING: POLICY CHALLENGES, RESEARCH OPPORTUNITIES, AND
POTENTIAL POLICY RESPONSES
Category
Specific Policy Challenges and Research Opportunities
Posed by Native Advertising
Potential Policy
Responses
Claim
Policy Challenges and Research Opportunities:
Where is the threshold at which a communication is deemed to
be making an explicit or implicit claim? What criteria can be
used to assess this? Should regulators err on a more or less
encompassing set of criteria?
Similarly, what criteria can be used to gauge when more
visually-based communications are seen as making a claim?
Further Research Opportunities:
In the context of native advertising, what do consumers use to
form inferences of an implicit or visually-based claim?
How do consumers process visually-based claims? How does
this impact the ensuing effect of the ad?
To what extent does the format of a native ad’s claim (visual vs.
textual) affect how an associated disclosure should be
formatted? In other words, do native ads with visual claims have
higher ad recognition when a visual (rather than textual)
disclosure is used?
Given the rise of visually-
based communication and
increasing use of graphics
such as emojis, we suggest
adoption of a more
stringent standard than the
FTC currently uses for
product placements:
specifically, any
communication mentioning
or showcasing a product
and for which related
payment or material
consideration was provided
should be assumed to be
making a claim.
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Category
Specific Policy Challenges and Research Opportunities
Posed by Native Advertising
Potential Policy
Responses
Celebrity
and
Reasonable
Consumer
Expectations
Policy Challenges and Research Opportunities: When can
consumers reasonably be assumed to recognize online content as
advertising? Does this decision occur at a platform level (e.g.
that most posts on Instagram featuring a product are ads)? Or is
it person-specific and dependent on the content a celebrity
normally posts (e.g. that most posts by Kim Kardashian that
feature a product are ads)?
In an online environment, does the presence of a celebrity
trigger recognition of content as advertising? If so, at what point
is a consumer considered a celebrity?
Further Research Opportunities:
What are baseline levels of ad recognition across different
formats of native advertising? On which formats (or platforms)
do consumers most expect to encounter native advertising? To
what extent does this vary based on a particular source (e.g.
celebrity or influencer)? Are there differences in expectation
between predominantly consumer generated vs. non-consumer
generated media?
To what extent have consumers learned the native ad disclosure
terminologies employed by different online publishers or by
celebrities and influencers themselves (e.g. #ad)?
Given the blurring between
celebrities and consumers,
we suggest that all native
advertisements,
irrespective of source,
should include disclosure.
Similar to how search
engines visually
distinguish between
organic and paid search
results, we also suggest
that social media sites
allow users to self-
designate their posts, or
possibly their entire
accounts, as advertising.
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Category
Specific Policy Challenges and Research Opportunities
Posed by Native Advertising
Potential Policy
Responses
Materiality
Policy Challenges and Research Opportunities:
How can materiality be assessed in situations where a native ad
has effects earlier in the decision-making process (e.g.
awareness, consideration), or when exposure to a set of native
ads is required to generate an effect on purchase?
Likewise, should the time period used in assessing the effect of
native ads be extended?
Should other forms of native advertising beyond just news or
feature articles be held to higher standards of materiality?
Further Research Opportunities:
How can the subtle and potentially longer-term effects of native
ads be measured, especially in complex and interactive online
environments? What research methodologies and approaches are
necessary?
How can the marginal or interactive effect of native ads that
operate in tandem with other ads (native or not) be assessed?
How can reasonable time periods to assess the impact of native
ads be developed? Along what factors (e.g. product category)
will the time periods vary?
Expand the scope of
materiality to include not
just increased interaction
with an ad, but also
indicators of awareness or
interest (e.g. website or
store visits, online
searches, etc.).
Assess the effectiveness of
native ads at the campaign
level rather than that of an
individual ad
Extend the time period
over which materiality is
assessed to reflect the
length of a reasonable
consumer decision making
process for the advertised
product.
Advertising
vs.
Sponsorship
Policy Challenges and Research Opportunities:
The term ‘advertising’ refers to paid persuasive
communications, while the term ‘sponsorship’ typically refer to
communications that are not persuasive in nature. Has
widespread use of ‘sponsored’ in online disclosures blurred the
meaning of the term with ‘advertising’? If not, then proper use
of the term needs to be more strictly enforced.
Further Research Opportunities:
What meaning do consumers attach to the terms ‘advertising’
and ‘sponsorship’? To what extent do they perceive a distinction
and does it have any effect on consumer response? If a
distinction is not perceived, what new terms might be used to
signal true sponsorship to consumers?
Decide which terms can be
used to refer to
advertisements (where the
communication features or
advocates for a sponsor’s
products or services) and
which terms can be used to
refer to sponsorships or
non-advertising content
(where the communication
does not feature or
advocate for a sponsor’s
products or services).
Enforce use of these terms
in line with their
definitions.
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Category
Specific Policy Challenges and Research Opportunities
Posed by Native Advertising
Potential Policy
Responses
Clear and
Conspicuous
Policy Challenges and Research Opportunities:
How can consumers easily identify native advertising which
comes in a multitude of different, and ever evolving, forms?
Further Research Opportunities:
What drives differences between recognition of different native
ad formats? Specifically, which contextual factors (e.g.
webpage/setting, identified source) and native ad execution-
related factors (e.g. form of the ad, visual vs. textual nature of
the content, degree to which it is visually differentiated from
editorial content, type of advertising message/appeal, presence
and format of disclosure) affect recognition of native
advertising? In particular, how might a specific native ad
execution, in conjunction with disclosure characteristics, aid or
detract from consumers’ ability to recognize the content as
advertising? Which consumer-level factors (e.g. information
processing, type of access: mobile vs. computer) affect ad
recognition?
To what extent would standardized disclosures ease consumer
recognition of native advertising across different ad platforms
and media vehicles? If so, what form should standard
disclosures take (e.g. textual, visual, combination)? How easily
and quickly can consumers learn a new standardized disclosure,
and what can be done to speed learning? Might disclosure
characteristics that incorporate different (or dual) forms of
modality impact understanding of the native ad as advertising in
situations where the native ad is either heavily visual, auditory,
or some combination of both?
Use of a single or limited
number of standard
disclosure forms (e.g.
standard logo) and
conventions (e.g. URL
addresses, color schemes)
across all native ads. Such
standards should also
facilitate social media sites
detecting and properly
applying disclosure to
native ads that are shared
on their sites.
Enabling consumers to
self-identify content as
advertising in order to have
platform-level disclosures
applied to their content.
Detection
and
Enforcement
Policy Challenges and Research Opportunities:
Given that native advertising is, by definition camouflaged, how
can infractions be detected? Of particular concern are
influencers and micro-influencers, whose ads are
indistinguishable from other consumer-generated content.
Further Research Opportunities:
To what extent can machine learning techniques, such as those
used to detect fake reviews (e.g. fakespot.com), be re-purposed
or developed for native advertising detection? What other
techniques can be used to enable the FTC to more readily detect
undisclosed native advertising?
How can industry self-regulation not only be encouraged but
also effectively monitored?
Enabling crowd-sourced
and machine-learning
based identification and
labelling of content
suspected to be advertising.
Industry self-regulation
efforts that force online
media and social media
sites to adopt higher
disclosure standards.
FTC warnings and
enforcement actions
directed at online media
and social media sites
rather than individual
advertisers.
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