February 26, 1999

Caveat Emptor on the Web: Ad and Editorial Lines Blur

By SAUL HANSELL and AMY HARMON

oes your baby have diaper rash? You could search for solutions on an Internet site called Baby Center. Looking for a Mexican restaurant in Los Angeles? The Los Angeles Times site has listings. How about a place to buy a camcorder? CompareNet, a consumer guide site, lists online stores.

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The answers appear almost instantly: Johnson & Johnson baby powder; El Cholo restaurant; Netmarket, an online store. Those might appear to be reliable recommendations, because each of those Internet sites has a staff of editors writing what is put forward as objective information. But in each search, with little or no disclosure, the sites given favorable placement are those of paying advertisers.

Skewed searches are just one of the many ways that advertising is being woven into the very fabric of the World Wide Web:

-- On CNNfn, the travel page listed on the financial news site's main menu blends CNN travel articles with reservation services and promotions from a sponsoring travel agency.

-- A page on hair loss in America Online's health section features three prominent links. Two lead to articles in online publications; the other, in the same format, goes to a site selling treatments for baldness.

-- The site for the youth-oriented television series "Dawson's Creek" has stories of its characters getting their hair done at the Dep Capeside Salon, filled with paid promotion of Dep hair products.

American media companies have traditionally aspired to distinguish between paid advertising and features created by producers or editors with no objective other than to appeal to their audience. But on the Internet, with bookstores becoming literary reviews and news outlets turning into travel agents, it is getting hard to find a source of information that does not have a financial stake in what users do with what they publish.

A prominent example arose this month when Amazon.com, the online bookstore that grew popular in part because of its many book reviews submitted by readers and its own literate staff, admitted that in some cases its most prominent review treatment -- under headings like "What We're Reading" and "Destined for Greatness" -- was being accorded to books whose publishers had paid for the favor.

Many of the leaders of Internet companies say the traditional lines between advertising and editorial content just do not apply online.

Trusting an Internet site to navigate the World Wide Web, in short, is like following a helpful stranger in Morocco who offers to take you to the best rug store. You may well find what you are looking for, but your guide will get a piece of whatever you spend.

"Anyone going online should assume that there is an advertising influence on most of the content they see," said Gordon M. Tucker, the chief executive of the E-greetings Network, which gives away electronic greeting cards hoping to make money selling gifts. "A smart consumer today is a skeptical consumer."

Nonetheless, many of the leaders of Internet companies say the traditional lines between advertising and editorial content just do not apply online. "This medium is very different from magazines, where the rules of the road have been codified over the years," said Barry M. Schuler, the head of America Online's flagship online service. "Our users do not care what the financial relationship is between us and the provider of the content they see. They care about whether it is convenient and does what they want it to."

Other Internet executives worry the industry has become so greedy that it is hurting itself in the long run.

"I often look at sites and say it's just hard to tell where a piece of information came from," said Richard Gingras, the editor in chief of At Home Network, a high-speed Internet service. "People still do not trust the Internet, and they are not ever going to if they feel that the sites they go to are not being straight with them."

But such long-term thinking is hardly possible among small Internet companies scrambling to find revenue that might justify the values that Wall Street has placed on their stocks. Users are loath to pay any subscription fees for information on the Internet. So the money to be made is from selling products or selling ads. And users are losing interest in small rectangular banner advertisements.

Fewer than half as many people click on banner ads now than did so only a year ago, said Michael Golden, a senior vice president for Organic Media, an online advertising agency, and so Internet sites are offering other forms of advertising that is more closely tied to their editorial content.

"It's really competitive, and nobody is making any money, so people do whatever it takes to survive," he said. "It is inevitable that online content will be affected by the people who are paying for it, the advertisers."

The question of what is advertising and what is editorial is most complicated on popular sites like Yahoo and Excite, which started simply as ways to search the Internet and have grown to include a variety of content and services intended to make them portals to cyberspace. The sites have always maintained that those searches were objective and that companies could not pay to be listed first, despite enormous demand.

But where there is demand, it will be filled, especially by revenue-hungry start-ups. Many search services have started putting all sorts of links to advertisers above and to the side of the actual search results.

On Yahoo the line between objective information and advertising is just that: it is light blue and streaks across its front page. Below that line is Yahoo's vaunted index of Internet sites, selected by its staff of surfers, who sometimes also write reviews of the sites.

Above the line, however, are links to other parts of Yahoo's service, many of which are run by "partners," meaning sites that pay a fee to display their wares and often a commission on any sales that result.

Someone looking to make airplane reservations who clicked on the Travel entry in the below-the-line index would eventually find a list of all the online travel services. But if the user's eye was first caught by the words "Travel Agent" above the line, clicking there would lead to Travelocity, the travel affiliate of AMR Corp., which has paid to be the official travel service of Yahoo. (Never mind that Yahoo's own reviews say that Travelocity's competitor, Preview Travel, has a better site.)

Do users understand the difference? "A large majority do," argued Tim Brady, Yahoo's vice president for production. "But it's tough to do something that everyone clearly understands."

MIXED MESSAGES Advertising on the Internet is moving beyond colorful rectangular banners. Now ads are also interspersed with and hard to distinguish from sitesŐ editorial content. Here, for example, are the results of a search for digital cameras on Lycos. •  A banner advertisement for a digital camera available online •  A paid link to Netmarket, an online store that sells digital cameras •  A paid link to Barnesandnoble.com, generating search for books about digital cameras •  A link to a list of Web sites about digital cameras, ranked by users •  A link to a site listing online auctions of digital cameras •  Paid links to sites (Netmarket, AT&T, CDNow) selling products related to search topic •  The actual results of the search: links to Web sites that mention digital cameras

Moreover, he contended that users would rather have fewer options and more help -- or as he put it, "Is it better for us to display a list of travel services and send people off to fend for themselves or to work with one to make the travel experience as good as possible?"

Service to users is the justification used by many news and information sites that have started placing links from sponsors on related articles. Many news sites now put an advertisement on each article offering books from Amazon or Barnes & Noble related to the topic of the article. Often a site receives a commission on every sale. The New York Times has such links on its online book reviews.

"The editorial people who write for the book review and work on it in the electronic area never even consider the advertising side," said Martin A. Nisenholtz, president of The New York Times Electronic Media Co. "There is no ambiguity about how the link is applied within the framework of the site." Nonetheless, as The Times like other news organizations seeks to expand its revenue from transaction fees, it is developing formal guidelines to ensure that its journalistic independence is not compromised.

Sometimes the commercial influence on sites is disclosed, but indirectly. The local guides produced by Ticketmaster Online-Citysearch, including the one with The Los Angeles Times, tell users that restaurants are ranked in order of the size of their Internet sites. But it does not say that those sites are paid advertisements on Citysearch, and thus the listings are presented with the highest bidders first.

"We did a bunch of user testing and the consumers preferred to have the businesses that have the most information come up at the top," said Charles Conn, Citysearch's chief executive, noting that users can click to reorder the results alphabetically.

There is a similar tilt to advertisers on many sites offering consumer advice. The problem faced by these sites is that while they are meant to benefit consumers, their users would not pay for them.

CompareNet, which means to offer shopping guides to products ranging from electronics to cars, has decided that its section on what to buy is independent and objective, but the section on where to buy is for sale to advertisers.

"We do not disclose we are getting paid by the retailers in our where-to-buy section," Trevor D. Traina, president of CompareNet, said. "Our whole shtick is we just helped you find the perfect product. We will list every TV set even if we have never spoken to the manufacturer. Then we will show you a handful of quality retailers that we stand behind."

Of course, different standards may apply to sites that offer independent editorial content and merchants. It is hardly deceptive, after all, for a store to try to sell its wares. Yet questions arise as commerce sites become more like magazines, with Amazon publishing reviews and Garden Escape publishing an extensive site of horticulture help.

Meanwhile, sites like CD Now, a music store, and Cyberian Outpost, a computer dealer, routinely charge manufacturers to promote products on their front screens and other prominent parts of their site. These companies argue they are no different from any store in the mall.

"Whether it is music or dishwashers, manufacturers often provide financial incentive for retailers to put their products in prominent places," said Jason Olim, the chief executive of CD Now. "For us, it's the home page. For the appliance store, it's near the front door."

And many media and legal experts say that consumers and commerce can happily coexist so long as paid links are differentiated from those that are independently determined.

Jodi Bernstein, director of the Federal Trade Commission's bureau of consumer protection, which has established a group meant to watch for deceptive advertising on the Internet, said the agency wanted to make sure that standards evolve for the Internet as they have on television or radio.

"There used to be huge complaints about an endorser who purported to be a doctor and wore a white coat around the neck," she said. "The law would have required them to say as they do now, 'I'm not a doctor, but I'd like to tell you about so and so.' That's the reason for the Internet group."

One extreme approach is taken by Goto.com, a search service started by Bill Gross, the entrepreneur who founded Citysearch. It favors advertisers in its search result, with the highest bidder listed first. But there is no question of deception: the amount paid for each listing is printed on every screen. This is useful, the service argues, the same way that people sometimes choose to patronize the plumbers who take out the biggest advertisements in the yellow pages, presuming them to be most established.

Yet Schuler of America Online argues that the Internet is self policing and users have shown no desire for either more regulation or more disclosure. Internet users, especially America Online members, are quick to yell when they see something they dislike, and he claims there are few complaints about commercial links on the service.

"The gray area," he said, "is the frontier: information-supported commerce. You're reading all sorts of information and recipes about paella, and right there is an opportunity to buy a paella pan."

"Our guiding principle on the frontier is whether a majority of people find it useful," he said. "If we help people buy the paella pans they want, we are achieving the potential of the medium."