Late last year the FTC fined Adteractive over $600,000 for deceptive advertising practices. At issue were advertisements for that promised free Ipods and other hot products, but in reality required consumers to fill out offers from advertisers (many of which required paying money) before getting the product.

Long before the FTC settlement, Google aggressively purged such ads (known as “incentivized offers”) from the ranks of the AdWords search results. Adteractive, for example, went from spending hundreds of thousands of dollars a month on incentivized ads on Google to next to nothing. I know this first hand, as I was managing this spend at the time. If you read Google’s AdWords blog postings about Quality Score, the very first sites they list as having bad quality score are “Data collection sites that offer free gifts, subscription services etc., in order to collect private information.”

This decision by Google (and by Yahoo, who actually acted prior to Google) was no doubt based largely on legal liability issues. In a similar situation, both Google and Yahoo agreed to pay over $10 million each to settle claims arising from online gambling revenue (notice that a search for “poker” on Google today brings up zero AdWords results). A good rule of thumb in civil lawsuits is to always go after the “deep pockets” – the companies with lots of money. If the FTC has decided that incentivized advertising is deceptive, you would think then that relatively small companies like Adteractive would only be the tip of the iceberg. Companies like Google and Yahoo could be much more valuable targets. So by preemptively banning incentivized sites, Google could at least argue that it made a good faith effort to close down such deceptive advertising.

Surprisingly, though, a review of the Google ad network shows that – despite the Quality Score penalties established a few years ago – incentivized advertising is not only still on the network, but it appears to be thriving. A search for “free iPod” brought up 15 advertisers; “free Xbox” had 31. Each of the ads is almost identical. Here’s a typical offer for an iPhone:

iPhone 4 Free – No Catch. No Catch New iPhone Free Worth $597 Go Get it Now While Stocks Last.

These are exactly the types of ads that the FTC is now fighting (and on top of the deceptive claim, the iPhone is now $399, not $597!). To give you an idea of the type of advertisement we’re talking about here, when you click on the ad, you are redirected to Read the find print and you’ll soon realize that you need to fill out eight offers – two silver, two gold and four platinum to get your free iPhone.

As with all of these programs, prior to getting to any offers, you need to go through a long “survey” which includes around 100 advertisements. Then you get to the silver, gold and platinum offers, which seem innocent enough – in the case of TopConsumerGifts, it’s things like a NetFlix or Columbia House DVD trial. So in theory you could fill out eight trial subscriptions to these various offers and then get your gift, right? Well, not so fast my friend. The small print in the terms and conditions note: “You will not be eligible to receive a Gift in this Promotion if, within 60 days of your Sponsor Offer Initial Transaction Date, you cancel your participation in more than two Sponsor Offers you have completed as a part of the Program Requirements.”

In other words, for at least six of eight offers, you need to get past the 30 day trial and actually pay for the offer. Assuming that the average offer costs about $30 a month, you are basically required to spend $180 ($30 times six) on things you don’t want to get your “free iPod.” If you don’t follow the terms and conditions to the letter, you don’t get your gift, and even if you do follow all the rules precisely, “Company may, at its sole discretion, terminate any account and deny any Gift without prior notice for . . . any other reason at the reasonable discretion of the Company.”

These ads are all over the Google Content (AdSense) Network. And a few days ago I was listening to a sports radio station and I heard an ad for “” offering a free Xbox. Judging from the timing of the ad (non-drive time, remnant), I wouldn’t be surprised to learn that this ad was served up via Google Audio Ads. I’ve also noticed that whenever I log on to my “My Yahoo” page, I get “targeted” with Free Xbox display ads.

Something is not right here. Either Yahoo and Google’s lawyers have decided that the legal risk of allowing incentivized advertisers is worth the revenue, or a major smackdown from the FTC is around the corner.

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David Rodnitzky
David Rodnitzky is founder and CEO of 3Q Digital (formerly PPC Associates), a position he has held since the Company's inception in 2008. Prior to 3Q Digital, he held senior marketing roles at several Internet companies, including (2000-2001), FindLaw (2001-2004), Adteractive (2004-2006), and Mercantila (2007-2008). David currently serves on advisory boards for several companies, including Marin Software, MediaBoost, Mediacause, and a stealth travel start-up. David is a regular speaker at major digital marketing conferences and has contributed to numerous influential publications, including Venture Capital Journal, CNN Radio, Newsweek, Advertising Age, and NPR's Marketplace. David has a B.A. with honors from the University of Chicago and a J.D. with honors from the University of Iowa. In his spare time, David enjoys salmon fishing, hiking, spending time with his family, and watching the Iowa Hawkeyes, not necessarily in that order.