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Recently the FTC fined Adteractive (my former employer) $650,000 for deceptive advertising practices. At issue were ads that offered consumers a “free iPod” or other such desirable items, but in reality required consumers to try or buy products prior to getting their free gift. Sample messaging from the FTC press release announcing the settlement included: “Test and keep this Flat-Screen TV,” “Test it – Keep it – Microsoft Xbox 360,” and “Congratulations! Claim Your Choice of Sony, HP or Gateway Laptop.”

In a related story, WebLoyalty, a company that offers consumers $10 off online purchases in exchange for trying out a continuity rewards program, is in the middle of a class-action, again being sued for deceptive advertising. As an article on the suit notes: “You type in your e-mail address to take advantage of the offer and the next thing you know, wham! You just unwittingly transferred your credit card number to a company you’ve never heard of and enrolled yourself in a dubious “rewards” program charging you $10 per month in perpetuity.”

We live in a society overwhelmed by ads. Most people aren’t at all shocked to see an ad about shampoo that makes the act of using the shampoo brand as erotic as having sex. And every day we encounter ads that are either outright lies or highly deceptive. To wit:

  • Newspaper circulars that promise an outrageously low priced computer, until you read the fine print: “limit one per store. No rain checks.”
  • Airline magazine ads that rank “the best steakhouses in America,” ads that are paid for by the steakhouses listed in the fake rankings.
  • Movie ads with glowing reviews from sources like “Wireless Magazine” and “The Movie Minute” – fictitious reviews paid for by the movie studio.
  • Infomercials that claim a product is “75% off retail” when it is in fact never sold at retail in the first place.
  • Offers that are “free with rebate” that have very complex rebate forms that the seller knows will likely be successfully completed by a small percentage of buyers.
  • TV news shows that promote a particular brand and then mention at the very end of the credits that the brand paid for the positive coverage.

Americans are lied to in advertising many times a day. But here’s the good news – at least at a subconscious level, we know we are being lied to, and we’ve developed the ability to process out the outrageous lies from the more run-of-the-mill ones. We understand that using a particular shampoo won’t be like having sex, that professional athletes don’t actually eat the fast food they hawk, and that most infomercials are about 5% accurate in their depiction of the product for sale. We take all this information, throw out most of it, and then make our conclusions based on whatever is left over.

If we really wanted to crack down on false advertising, about 95% of every ad we currently see would have to be banned. Product placement would be gone. Rebates would be gone. Paid testimonials would be gone. But I think we need to have a little bit more faith in the intelligence of Americans. Milton Friedman said it best: “there’s no such thing as a free lunch.” At this point in our nation’s history, anyone who sees a “free iPod“, “free with rebate”, or “free tickets to a show with timeshare presentation” advertisement and actually believes it to be free cannot be saved by any regulation or lawsuit.

At the same time, we members of the advertising industry need to consider what happens to self-regulated industries when they fail to effectively regulate themselves. Just ask the financial industry after Enron, or the meat packing industry after “The Jungle.” For that matter, ask the “free iPod” advertisers what happened to them (Google and Yahoo banned them).

For Internet advertising, there’s a fine line between deceptive advertising and ‘mere puffery.’ Though I believe most Americans have developed the ability to understand the difference between the two, the window of opportunity for the online advertising community to define and regulate this line is closely quickly. I’d much rather have our industry make this determination, that the FTC in Washington or the American Trial Lawyers Association.