This is part one in a two part series examining the requirements of disclosure and compliance management on the world of affiliate marketing.

I’ve been following the talk in the blogosphere lately regarding the recent FTC ruling that people engaging in “word of mouth marketing” practices must disclose the the relationships that they are compensated to promote.

One of the first reactions to this announcement was the controversial PayPerPost who announced that they now officially require disclosure by bloggers who write posts promoting their clients that they are being compensated to do so. This definitely moves PayPerPost closer to legitimacy in the eyes of many of their critics.

But how does the FTC’s announcement about the affiliate marketing world.

Scott Karp writes that if something is not crystal clear its an ad, then it is deceptive marketing. This cuts to the point of the FTC’s announcement. The difference between an advertisement and word of mouth marketing or paid promotion is in essence whether the consumer knows that they are being marketed to. I think the gist of Scott’s argument, and the FTC announcement is that if you are marketing something you need to let the consumer know you are marketing to them, and without that disclosure it is deceptive.

So, clearly, this does have ramifications in the world of affiliate marketing. The business model for affiliate marketers is to drive traffic to advertisers and to be paid for that traffic and often that consideration is based on the consumer making an purchase. But how does affiliate marketing differ from other forms of advertising?

• When watching television at night, you don’t see a disclaimer prior to each commercial break, stating “what is about to appear on your television is intended to make you buy stuff.” The reason you don’t see that disclaimer is that consumers are savvy enough to realize they are being marketed to in that circumstance.
• When a consumer visits an affiliate marketing website, do they know that there is a financial relationship between the website and the products or services that are promoted or reviewed on that website? If you think the consumer does not, then a disclaimer is necessary.

So, assuming you agree that some sort of disclosure is necessary, what kind of disclosure should be provided? Should we include:

• Disclosure in the Terms of Service of the website
• Disclosure on every page of the website in the footer
• Disclosure next to every link that is an affiliate marketing link

The answer to this remains to be seen. Ultimately it depends on the sophistication level of consumers to understand that they are being marketed to. There are some great interpretations of the new ruling as it applies to affiliate marketing here, here, and here.

I believe that the disclosure requirement (however it eventually is applied) is a good thing for affiliate marketing. It enables affiliate marketers to engage their website visitors on the level, and it encourages affiliate marketers to add value to the conversation, which is what we advocate through siteMighty. The affiliate marketing business model works best when you add value to your users by enabling them to make the best purchase decisions. This is done in many ways, through presenting products in categories, editors reviews, user reviews, and aggregating information that may otherwise be difficult to collect on the web.

I believe most successful affiliate marketers are already doing this and the FTC disclosure requirement will be a non-issue for them as they are succeeding by providing value to their users, not deceiving them.

Part two of this series examining threats to affiliate marketing and affiliate compliance will be presented next week.