The FTC Wants to Regulate Word Of Mouth. Should They? Can They?

(originally posted on Friday, February 5, 2010)

Ronald Reagan is elected President. The US men’s hockey team beats the Soviet Union in Winter Olympics XIII. Pac Man is released to the public and begins swallowing millions of dollars in quarters. John Lennon is assassinated. The FTC updates its rules regarding the use of endorsements and testimonials in advertising.

What do these events all have in common? They all happened in 1980. That’s right, the last time the FTC updated their rules and regulations for advertising was almost 30 years ago. Given the advancements in media development, particularly the explosion of social media over the last 1-2 years, the FTC decided to integrate new media into its oversight purview.

The meat and potatoes of the FTC’s plans are pretty simple. The same rules that apply to traditional media now apply to social media. Any blogger, tweeter, poster, etc. needs to disclose any sort of compensation or corporate relationship to their audience. Meaning for example, you can’t pay or compensate a blogger to endorse a product without disclosure (I suspect this has something to do with income taxes as well). For the vast blogosphere this is meaningless, but many bloggers have hundreds of thousands, if not millions, of readers every day. This makes them bona fide media outlets. So the FTC wants them to play by the rules like everyone else.

But social media is different. It is user-community policed and regulated. It provides the user free access to publishing power. It is both a personal interaction and a media interaction. Facebook, Twitter, Blogs, Flickr, YouTube and the rest of the spectrum of social media outlets are controlled by the people, right?

For large companies and international brands these new guidelines can be a welcome change. Now the Wal-Marts and Sears and Coca-Colas of the world have something to go by when stepping into the social media market. Until 2009 there had been mostly skepticism on the power of social media marketing, but now there are projections showing explosive growth in this area over the next 2-3 years. These new guidelines might help grease the skids to result in a huge influx of dollars into social media marketing budgets.

However, there are many who believe these guidelines are too vague, and too hard to enforce. Social media creates a conversational form of marketing whereby thoughts and opinions are constantly flowing back and forth to create the power of peer review. It sounds more complicated than it really is when you consider that social media is nothing more than modern day word of mouth. Word of mouth has always been the best advertising, but now it is perhaps the most visible and most interesting and most creative form of advertising. That’s what scares marketers and advertisers–the customers control the message to a large degree because they now have a global voice through the internet. People are now the media, and this is a good thing for marketing.

The Weinstein Organization (TWO) believes that Social Media Marketing (SMM) gives marketers the ability to personalize and microcast your marketing message to specific touch-point customers, which motivates and empowers them to help spread the word about you and your brand. Peer group actions are the new analytics for brand quality and response measurement. And it is the viral nature of social media marketing at its most effective that all marketers strive for. Viral is word of mouth. Good pub or bad, viral is the holy grail action of SMM.

So TWO wants to know: Can the FTC regulate word of mouth? Can the FTC impose the same guidelines on bloggers and tweeters as they do on celebrities and athletes who endorse products?

SMM may be considered the most honest form of advertising in years to come, simply because it is peer-endorsed. Marketers who excel at finding the right target audience catalysts to drive their message from friend-to-friend, instead of hiring someone to do it scattershot to the masses, will dominate the competition.

And the marketing agencies who lead their clients into SMM will invent new techniques the FTC hasn’t even dreamed of yet.