IAC Toolbars and Traffic Arbitrage in 2013

Beginning in 2005, I flagged serious problems with IAC/Ask.com toolbars — including installations through security exploits and through bundles that nowhere sought user consent, installations targeting kids, rearranging users’ browsers to invite unintended searches, and showing a veritable onslaught of ads. IAC’s practices have changed in various respects, but the core remains as I previously described it: IAC’s search advertising business exists not to solve a genuine user need or provide users with genuine assistance, but to prey on users who — through inattention, inexperience, youth, or naivete — stumble into IAC’s properties.

Crucially, IAC remains substantially dependent on Google for monetization of IAC’s search services. A rigorous application of Google’s existing rules would put a stop to many of IAC’s practices, and sensible updated rules — following the stated objective of Google’s existing policies — would end much of the rest.

In this piece I examine current IAC toolbar installation practices (including targeting kids and soliciting installations when users are attempting to install security updates), the effects of IAC toolbars once installed (including excessive advertising and incomplete uninstall), and IAC’s search arbitrage business. I conclude by flagging advertisements with impermissibly large clickable areas (for both toolbars and search arbitrage), and I call on Google to put an end to Ask’s practices.

IAC Toolbar Installation

IAC’s search toolbar business is grounded in placing IAC toolbars on as many computers as possible. To that end, IAC offers 50+ different toolbars with a variety of branding — Webfetti (“free Facebook graphics”), Guffins (“virtual pet games”), religious toolbars of multiple forms (Know the Bible, Daily Bible Guide, Daily Jewish Guide), screensavers, games, and more. One might reasonably ask: Why would a user want such a toolbar?

IAC ad promises 'free online television' but actually merely links to material already on the web; promises an 'app' but actually provides a search toolbar. IAC ad promises “free online television” but actually merely links to material already on the web; promises an “app” but actually provides a search toolbar.

IAC ad solicits installations via 'virtual pet' ad distinctively catering to kids.IAC ad solicits installations via “virtual pet” ad distinctively catering to kids.

Other IAC Guffins ads specifically invite 'kids' to install. (Screenshot by iSpionage) Other IAC Guffins ads specifically invite “kids” to install. (Screenshot by iSpionage)

IAC Guffins offer features multiple animated cartoon images, distinctively catering to kids.

The Television Fanatic toolbar is instructive. IAC promotes this toolbar with search ads that promise “free online television” and “turn your computer into a TV watch full TV episode w free app.” It sounds like an attractive deal — many users would relish the ability to watch free live broadcast television on an ordinary computer, and it would not be surprising if such a service required downloading some sort of desktop application or browser plug-in. But in fact Television Fanatic offers nothing of the sort. To the extent that Television Fanatic offers the “free online television” promised in the ad, it only links to ordinary video content already provided by others. (For example, I clicked the toolbar’s “ABC” link and was taken to http://abc.go.com/watch/ — an ordinary ABC link equally available to users without Television Fanatic. That’s a far cry from IAC’s promise of special access to premium material.

Meanwhile, IAC’s Guffins toolbar distinctively targets kids. IAC promotes Guffins via search ads for terms like “virtual pet”, and the resulting ad says Guffins offers “puppy, cats, bunny, dragons & more” which a user can “feed, play, [and] care for.” The landing page features four animated animals with oversized faces and overstated features, distinctively attractive to children. Under COPPA factors or any intuitive analysis, IAC clearly targets kids. Indeed, ad tracking service iSpionage reports Guffins ads touting “Free Kids Games Download”, “Free Kids Computer Games”, “Play Kids Games Online”, and more — explicitly inviting children to install Guffins. Of course kids are ill-equipped to evaluate IAC’s offer — less likely to notice IAC’s disclosures of an included toolbar, less likely to understand what a search toolbar even is, and less able to evaluate the wisdom of installing such a toolbar in exchange for games.

While IAC’s ads often promise an “app” (including as shown in the ad screenshots at right), IAC actually offers just toolbars — add-ins appearing within web browsers, not the freestanding applications that the ads suggest. That’s all the more deceptive: IAC enticed users with the promise of genuine distinct programs offering exceptional video content and rich gaming. Instead IAC provided browser plug-ins that claim valuable screen space whenever users browse the web. And far from providing exclusive content, IAC toolbars send users to material already on the web and driving traffic to IAC’s advertising displays (as detailed in the next section). That’s strikingly inferior.

IAC’s toolbar installation practices stack up unfavorably vis-a-vis applicable Google policies, industry standards, and regulatory requirements. Google’s Software Principles call for “Upfront disclosure” with no suggestion that an app may promise one thing in an initial solicitation, then something else in a subsequent landing page. (IAC is obliged to comply with Google’s rules because IAC toolbars show ads from Google, as discussed in the next section.) Meanwhile, the Anti-Spyware Coalition specifically flags installations targeting children, allowing bundling by affiliates, and modifying browser settings as risk factors making software a greater concern. Even decades-old FTC rules are on point, disallowing “deceptive door openers” that promise one thing at the outset (like IAC’s initial promise of “free online television”) but later deliver something importantly different (a search toolbar).

Web searches reveal numerous user complaints about IAC toolbars. Consider search results for “televisionfanatic”. A first result links to product’s official site. Second is a Sitejabber forum with 20 harsh reviews. (17 reviewers gave Television Fanatic just one star out of five, with comments systematically reporting surprise and annoyance at the toolbar’s presence.) The third result advises “How to uninstall a Television fanatic toolbar”, and the fourth is multiple Yahoo Answers discussions including a user asking “Is television fanatic toolbar a virus?” and others repeatedly complaining about unintended installation. Clearly numerous users are dissatisfied with Television Fanatic.

So too for DailyBibleGuide. In a Q1 2011 earnings call, IAC CEO Greg Blatt touted the DailyBibleGuide toolbar as a new product IAC is particularly proud of. But a Google search results for “DailyBibleGuide” include a page advising “do not download Dailybiblestudy, Dailybibleguide, or Knowthebible extension.” There and elsewhere, users seem surprised to receive IAC’s toolbars. Reading users’ complaints, it seems their confusion ultimately results from IAC’s decision to deliver bible trivia via a toolbar. After all, such material would more naturally be delivered via a web page, email newsletter, or perhaps RSS feed. IAC chose the odd strategy of toolbar-based delivery not because it was genuinely what users wanted, but because this is the format IAC can best monetize. No wonder users systematically end up disappointed.

By all indications, a huge number of users are running IAC toolbars. The IAC toolbars discussed in this section all send users to mywebsearch.com, a site users are unlikely to visit except if sent there by an IAC toolbar. Alexa reports that mywebsearch.com is the #41 most popular site in the US and #71 worldwide — more popular than Instagram, Flickr, Pandora, and Hulu.

Some of IAC’s browser configuration changes remain in place even if a user removes an IAC toolbar. I installed then uninstalled an IAC Television Fanatic toolbar and received a prompt instructing “Click here for help on resetting your home page and default search settings.” The resulting page specified four different procedures totaling 16 steps — far more lengthy than the initial installation. I can see no proper reason why uninstall is so difficult. Indeed, IAC’s incomplete uninstall specifically violates Google’s October 2012 requirement that “During the uninstall process, users must be presented with a choice that gives them the option of returning their browser’s user settings to the previous settings.” Google’s Software Principles are also on point, instructing that uninstall must be “easy” and must disable “all functions of the application” — whereas IAC’s automated installer does not undo all of IAC’s changes, and IAC’s manual 16-step process is the opposite of “easy.”

The Special Problems of IAC Ask Toolbar Installed by Oracle’s Java Updates

Oracle Java security updates install Ask Toolbar by default, with just a single click in a multi-step installer. Java security update installs Ask Toolbar by default — a single click in a multi-step installer.

Ongoing Oracle Java updates also install the IAC Ask Toolbar. I discuss these installations in this separate section because they raise concerns somewhat different from the IAC toolbars discussed above. I see five key problems with Oracle Java updates that install IAC toolbars:

First, as Ed Bott noted last week, the “Install the Ask Toolbar” checkbox is prechecked, so users can install the Ask toolbar with a single click on the “Next” button. Accidental installations are particularly likely because the Ask installation prompt is step three of five-screen installation process. When installing myriad software updates, it’s easy to get into a routine of repeatedly clicking Next to finish the process as quickly as possible. But in this case, just clicking Next yields the installation of Ask’s toolbar.

Second, although the Ask installation prompt does not show a “focus” (a highlighted button designated as the default if a user presses enter), the Next button actually has focus. In testing, I found that pressing the enter or spacebar keys has the same effect as clicking “Next.” Thus, a single press of either of the two largest keys on the keyboard, with nothing more, is interpreted as consent to install Ask. That’s much too low a bar — far from the affirmative indication of consent that Google rules and FTC caselaw call for.

Third, in a piece posted today, Ed Bott finds Oracle and IAC intentionally delaying the installation of the Ask Toolbar by fully ten minutes. This delay undermines accountability, especially for sophisticated users. Consider a user who mistakenly clicks Next (or presses enter or spacebar) to install Ask Toolbar, but immediately realizes the mistake and seeks to clean his computer. The natural strategy is to visit Control Panel – Programs and Features to activate the Ask uninstaller. But a user who immediately checks that location will find no listing for the Ask Toolbar: The uninstaller does not appear until the Ask install finishes after the intentional ten minute delay. Of course even sophisticated users have no reason or ability to know about this delay. Instead, a sophisticated user would conclude that he somehow did not install Ask Toolbar after all — and only later will the user notice and, perhaps, proceed with uninstall. Half a decade ago I found WhenU adware engaged in similar intentional delay. Similarly, NYAG litigation documents revealed notorious spyware vendor Direct Revenue intentionally declining to show ads in the first day after its installation. (Direct Revenue staff said this delay would “reduce the correlation between the Morpheus download [which bundled Direct Revenue spyware] and why they are seeing [Direct Revenue’s popup] ads” — confusion that DR staff hoped would “creat[e] less of a path to what they [users] should uninstall.”) Against this backdrop, it’s particularly surprising to see IAC and Oracle adopt this tactic.

Fourth, IAC makes changes beyond the scope of user consent and fails to revert these changes during uninstall. The Oracle/IAC installation solicitation seeks permission to install an add-on for IE, Chrome, and Firefox, but nowhere mentions changing address bar search or the default Chrome search provider. Yet the installer in fact makes all these changes, without ever seeking or receiving user consent. Conversely, uninstall inexplicably fails to restore these settings. As noted above, these incomplete uninstalls violate Google’s Software Principles requirement that an “easy” uninstall must disable “all functions of the application.”

Finally, the Java update is only needed as a result of a serious security flaw in Java. It is troubling to see Oracle profit from this security flaw by using a security update as an opportunity to push users to install extra advertising software. Java’s many security problems make bundled installs all the worse: I’ve received a new Ask installation prompts with each of Java’s many security updates. (Ed Bott counts 11 over the last 18 months.) Even if the user had declined IAC’s offer on half a dozen prior requests, Oracle persists on asking — and a single slip-up, just one click or keystroke on the tenth request, will nonetheless deliver Ask’s toolbar.

A security update should never serve as an opportunity to push additional software. As Oracle knows all too well from its recent security problems, users urgently need software updates to fix serious vulnerabilities. By bundling advertising software with security updates, Oracle teaches users to distrust security updates, deterring users from installing updates from both Oracle and others. Meanwhile, by making the update process slower and more intrusive, Oracle reduces the likelihood that users will successfully patch their computers. Instead, Oracle should make the update process as quick and easy as possible — eliminating unnecessary steps and showing users that security updates are quick and trouble-free.

Toolbar Operations and Result Format

Once a user receives an IAC toolbar, a top-of-browser stripe appears in Internet Explorer and Firefox, and IAC also takes over default search, address bar search, and error handling. That’s an intrusive set of changes, and particularly undesirable in light of the poor quality of IAC’s search results.

If a user runs a search through an IAC toolbar or through a browser search function modified by IAC, the user receives Mywebsearch or Ask.com results page with advertisements and search results syndicated from Google. The volume of advertisements is remarkable: On a 800×600 monitor, the entire first two screens of Mywebsearch results presented advertisements (screen one, screen two) — four large ads with a total of seven additional miniature ads contained within. The first algorithmic search result appears on the third on-screen page, where users are far less likely to see it. At Ask.com, ads are even larger: fully seven advertisements appear above the first algorithmic result, and three more ads appear at page bottom — more than filling two 800×600 screens.

IAC obtains these advertisements and search results from Google, but IAC omits features Google proudly touts in other contexts. For example, Google claims that its maps, hotel reviews, and hotel price quotes benefit users and save users time — but inexplicably IAC Mywebsearch lacks these features, even though these features appear prominently and automatically for users who run the same search at Google. In short, a user viewing IAC results gets listings that are intentionally less useful — designed to serve IAC’s business interest in encouraging the user to click extra advertisements, with much less focus on providing the information that IAC and Google consider most useful.

The ad format at IAC Mywebsearch and Ask.com makes it particularly likely that users will mistake IAC ads for algorithmic results. For one, IAC omits any distinctive background color to help users distinguish ads from algorithmic results. Furthermore, IAC’s voluminous ads exceed beyond the first screen of results for many searches. A user familiar with Google would expect ads to have a distinctive background color and would know that ads typically rarely completely fill a screen — so seeing no such background color and similar-format results continuing for two full screens, the user might well conclude that these are algorithmic listings rather than paid advertisements.

Traffic Arbitrage

IAC buys traffic from Google and other search engines. The resulting sequence is needlessly convoluted: A user runs a search at Google, clicks an IAC ad purporting to offer what the user requested], then receives an IAC landing page with the very same ads just seen at Google. For example, I searched for [800 number look up] at Google and clicked an Ask ad. The resulting Ask page allocated most of its the above-the-fold space to three of the same ads I had just seen at Google! This process provides zero value to the user — indeed, negative value, in that the extra click adds time and confusion. But IAC monetizes its site unusually aggressively — for example, regularly putting four ads at the top of the page, where Google sometimes puts none and never presents more than three. Of course these extra ads serve IAC’s interest: By pushing a fraction of users to click multiple ads, IAC can more than cover its costs of buying the traffic from Google in the first place.

Longstanding Google rules exactly prohibit IAC’s search arbitrage. Google’s AdWords Policy Center instructs that “Google AdWords doesn’t allow the promotion of websites that are designed for the sole or primary purpose of showing ads.” Google continues: “One example of this kind of prohibited behavior is called arbitrage, where advertisers drive traffic to their websites at low cost and pay for that traffic by earning money from the ads placed on those websites”

Why isn’t Google enforcing its rules against arbitrage? An October 2012 Search Engine Land article quotes a reader who wrote to Google AdWords support, where a representative replied with unusual candor: “Since Ask.com is considered a Google product, they are able to serve ads at the top of the page when the search query is found to be relevant to their ads.” Of course Ask.com is not actually “a Google product” — it’s a Google syndicator, showing Google ads in exchange for a revenue share, just like thousands of other sites. But with IAC reportedly Google’s biggest advertising customer, special privileges would be less than surprising. Meanwhile, Google lets IAC do Google’s dirty work — showing extra ads to gullible users — which could let Google collect additional ad revenue from those users’ clicks. Still, that’s no help to users (who get pulled into extra page-views and less useful pages with more advertisements) or advertisers (whose costs increase as a result). And once the public recognizes Google’s role in authorizing this scheme, selling all advertising, and funding the entirety of IAC’s activity, Google ends up looking at least as culpable as IAC.

Ads with Oversized Clickable Areas

IAC ad promises 'free online television' but actually merely links to material already on the web; promises an 'app' but actually provides a search toolbar. Contrary to standard industry practice and Google rules, IAC makes the entire ad — including domain name, ad text, and large whitespace — into a clickable link. Notice the large clickable area flagged in the red box.

IAC ad promises 'free online television' but actually merely links to material already on the web; promises an 'app' but actually provides a search toolbar. At Google, only the ad itself is clickable. Not the much smaller red box.

IAC’s ads also flout industry practice and Google rules as to the size of an ad’s clickable area. Both in arbitrage landing pages and in toolbar results, IAC’s search result pages expand the clickable area of each advertisement to fill the entire page width, sharply increasing the fraction of the page where a click will be interpreted as a request to visit the advertiser’s page.

See the screenshot at right. (To create the red-outlined box showing the shape of the clickable area, I clicked an empty section of the ad and began a brief drag, causing my browser to highlight the ad’s clickable area in red as shown in the screenshot.)

Ask is an outlier in converting whitespace around an ad into a clickable area. Every other link on Ask.com landing pages — every link other than an advertisement — follows standard industry practice with only the words of the link being clickable, but not the surrounding whitespace. Indeed, at Google, Bing, and Yahoo, white space is never clickable. At Google and Bing, only ad titles are clickable, not ad domain names, or ad text. (See Google screenshot at right, showing the limited clickable area of a Google ad.) At Yahoo, only ad titles and domain names are clickable, not ad text or white space.

IAC has taken intentional action to expand its ads’ clickable area to cover all available width. As W3schools explains, “A block element is an element that takes up the full width available.” To expand ad hyperlinks to fill the entire width, Ask tags each ad hyperlink with the CSS STYLE of display:block.

<a id=”lindp” class=”ptbs pl20 pr30 ptsp pxl” style=”display:block;padding-bottom: 0px;” …

Google’s rules prohibit IAC’s expanded clickable areas. Google requires that “clicking on space surrounding an ad should not click the ad.” Yet IAC nonetheless makes a clickable area out of the area surrounding each ad, extending all the way to the right column.

IAC’s expanded ads invite accidental clicks. Accidental clicks are particularly likely from the inexperienced users IAC systematically targets for toolbar installations, and also from users searching on tablets, phones, and other touch devices. These extra clicks waste users’ time and drive up advertisers’ costs — but every such click yields extra revenue for IAC and Google.

What Comes Next

Google should enforce its rules strictly. No doubt IAC can offer Google some short-term revenue via extra ad-clicks from unsophisticated or confused users. But this isn’t the kind of business Google aspires to, and Google’s public statements indicate no interest in such bottom-feeding. Indeed, a fair application of Google’s existing AdWords rules would disallow both IAC’s toolbar ads (using AdWords to solicit installations) and IAC’s search arbitrage ads (using AdWords to send users to IAC pages presenting syndicated AdWords ads). Meanwhile, numerous Google AdSense rules are also on point, including prohibiting encouraging accidental clicks, prohibiting site layout that pushes content below the fold, and limiting the number of ads per page. So too for Software Principles requiring up-front disclosure as well as “easy” and complete uninstall.

As a publicly-traded company, IAC should benefit from the oversight and guidance of its outside directors. But the New York Times commented in 2011 that “IAC’s board is filled with high-powered friends of Mr. Diller,” calling into question the independence and effectiveness of IAC’s outside directors. Of particular note is Chelsea Clinton, who joined IAC’s board in September 2011. Ms. Clinton’s prior experience includes little obvious connection to Internet advertising or online business, suggesting that she might need to invest extra time to learn the details of IAC’s business. Yet she also has weighty commitments including ongoing doctoral studies, serving as an Assistant Vice Provost at NYU, and reporting as a special correspondent for the NBC Nightly News — calling into question the time she can devote to IAC matters. The Times questioned why IAC had brought in Ms. Clinton, concluding that “This is clearly an appointment made because of who she is, not what she has done.” Indeed, Ms. Clinton’s background means she will be held to a particularly high standard: if she fails to stop IAC’s bad practices, the public may reasonably ask whether she has done her duty as an outside director.

Recent research from Goldman analyst Heath Terry flags investor concerns at IAC’s tactics. In a December 4, 2012 report, Terry downgraded IAC to sell due to vulnerability from Google policy changes. A January 9, 2013 follow-up noted IAC changing its uninstall practices to comply with Google policy as well as slowdown in arbitrage. Terry flags some important factors, and I share his bottom line that IAC’s search practices are unsustainable. But the real shoe has yet to drop. If Google is embarrassed at IAC’s actions — and it should be — Google is easily able to put an end to this mess.

I prepared a portion of this article at the request of a client that prefers not to be listed by name. The client kindly agreed to let me include that research in this publicly-available posting.

The Right Remedies for Google’s AdWords API Restrictions

Last week the FTC closed its 21-month investigation of Google after Google made several small concessions, among them dropping certain restrictions on use of Google’s AdWords API — rules that previously limited how advertisers and tool-makers may copy advertisers’ own data from Google’s servers. Removing the restrictions is a step forward for advertisers and for competition. But the FTC could and should have demanded more from Google in order to address the harm resulting from seven years of these restrictions.

I first flagged Google’s AdWords API restrictions in my June 2008 senate testimony and in greater detail in PPC Platform Competition and Google’s “May Not Copy” Restriction. In short, the restrictions prohibited making and sharing tools to quickly copy and synchronize ad campaigns across multiple ad platforms — effectively compelling small to midsized advertisers to use Google only, for lack of tools to manage their campaigns on multiple platforms. Google enforces this prohibition with a system of tool passwords and audits — letting Google swiftly and completely disable any tool that Google deems impermissible. Indeed, any tool-maker found offering a noncompliant tool would immediately lose all access to Google’s AdWords API, as to all of its tool-using subscribers, a devastating blow that kept tool-makers under Google’s thumb.

As I pointed out, these AdWords API restrictions let Google charge prices higher than competing platforms: Thanks to these restrictions, a small to midsized advertiser would struggle to buy some placements from Yahoo or Microsoft, even if those vendors offered lower prices. Higher advertising costs directly harm advertisers, and higher prices get passed to consumers (according to the relative elasticity of supply and demand). I also pointed out harms to others in the advertising ecosystem: Competing ad platforms struggle to attract advertisers, hence showing less relevant advertising (discouraging users from clicking ads) and enjoying less auction pressure to push prices upward. Meanwhile, I noted, the AdWords API restrictions give Google that much more leverage in its negotiations with publishers: by weakening other ad platforms’ monetization, Google can more easily win deals for publishers’ inventory, granting publishers lesser compensation for the content they post.

Strikingly, Google has never seriously defended the AdWords API restrictions. In June 2008, Doug Raymond, Product Manager for AdWords API, argued that advertisers are free to export their data in other ways, e.g. as a CSV text file. But that far-inferior manual export is ad-hoc, time-consuming, and error-prone — a poor fit for high-priced online advertising. Indeed, this manual approach is a sharp contrast from a modern automation API, and a far cry from what Google offers in other contexts.

By all indications, competition regulators share my concerns. In a November 2010 press release, the European Commission flagged “restrictions on the portability of online advertising campaign data” as its fourth concern in reviewing Google’s conduct, a concern most recently reiterated in December 2012 remarks by EC Competition Commissioner Joaquín Almunia. Last week’s statement by FTC Chairman Leibowitz is in accord: “Some Commissioners were concerned by the tendency of Google’s restrictions to raise the costs of small businesses to use the power of internet search advertising to grow their businesses.”

So everyone but Google agrees that the AdWords API restrictions are improper, and even Google has little to say in its defense. Indeed, despite abandoning most other aspects of its investigation, the FTC did pursue this matter. But the FTC reports only that Google is to remove AdWords API restrictions and that, the FTC indicates, ends the FTC’s concern on this subject. I am surprised by such a narrow remedy. The AdWords API restrictions have been in place for more than five years. Were it not for these restrictions, advertisers for five years would have enjoyed lower prices. For five years, third-party publishers would have received higher payment for their ad space. For five years, consumers would have seen more relevant ads at competing ad platforms, perhaps helping to increase competitors’ market shares and put a check on Google’s dominance. Moreover, for five years competing ad platforms would have enjoyed higher advertising revenues and higher ad click-through rates. It’s all well and good for Google to remove the API restriction going forward. But that does nothing at all to address past harm to advertisers and others.

Three Appropriate Remedies

What remedies would be appropriate for Google’s seven years of improper AdWords API restrictions? Let me offer three suggestions:

First, after years of improper conduct in this area, Google should expect to pay monetary damages. Google’s AdWords API restrictions inflated the prices charged to advertisers. Google should disgorge these ill-gotten gains via pro-rata refunds to advertisers.

Second, Google’s changes should be formal binding commitments formalized in a consent agreement. The 1969 Report of the American Bar Association Commission to Study the Federal Trade Commission recognized that voluntary commitments were ineffective, and the FTC largely discontinued voluntary commitments after that report. Indeed, FTC Commissioner Rosch last week noted that the FTC’s voluntary commitment approach lets Google offer a statement of its current intent, which Google could reverse or alter at any time. Moreover, an order would have required the FTC to take a clearer position on whether Google’s conduct violated the law: An order would have required the FTC to file a complaint, which in turn requires a finding by the FTC that there is reason to believe a violation has occurred. This formality would offer a useful confirmation of the FTC’s view — either the FTC believes a violation occurred, or it does not, but the voluntary commitment process lets the FTC avoid a public statement on this subject. Finally, orders are also vetted with third parties to make sure they will be effective. Microsoft’s Dave Heiner immediately offered several gaps in the FTC’s approach on AdWords API restrictions. I would have offered additional feedback had I been asked.

Finally, the FTC’s investigation surely found documents or records confirming the intent and effect of Google’s AdWords API restrictions. The FTC should at least describe those documents — if not release them in full. Describing or releasing these documents would let concerned parties determine what private claims they may have against Google. If the documents confirm meritorious claims, victims can pursue these claims through private litigation (here too, as Commissioner Rosch suggested).

Google’s AdWords API restrictions were a direct assault on competition — indefensible rules serving only to hinder advertisers’ efforts to efficiently use competing search engines, without any plausible pro-competitive justification. On this clear-cut issue, the FTC should have pursued every remedy permissible under its authority. Fortunately it’s not too late for state attorneys general and the European Commission to insist on more.

Advertising Disclosures: Measuring Labeling Alternatives in Internet Search Engines

Edelman, Benjamin, and Duncan S. Gilchrist. “Advertising Disclosures: Measuring Labeling Alternatives in Internet Search Engines.” Information Economics and Policy 24, no. 1 (March 2012): 75-89.

In an online experiment, we measure users’ interactions with search engines, both in standard configurations and in modified versions with clearer labels identifying search engine advertisements. In particular, for a random subset of users, we change “Sponsored links” or “Ads” labels to instead read “Paid Advertisements.” Relative to users receiving the “Sponsored link” or “Ad” labels, users receiving the “Paid Advertisement” label click 25% and 27% fewer advertisements, respectively. Users seeing “Paid Advertisement” labels also correctly report that they click fewer advertisements, controlling for the number of advertisements they actually click. Results are most pronounced for commercial searches and for vulnerable users with low education and little online experience.

Google Tying Google Plus and Many More

Disclosure: I serve as a consultant to various companies that compete with Google. But I write on my own — not at the suggestion or request of any client, without approval or payment from any client.

This week Google announced Google Search Plus Your World (“Google Search Plus” for short). Reaction has been critical. Danny Sullivan says Google Search Plus “pushes Google+ over relevancy,” and he offers compelling examples demonstrating this favored treatment. Meanwhile, EPIC executive director Marc Rotenberg argues that Google is “using its market dominance in a separate sector [search] … to fight off its challenger Facebook” — essentially, alleging that Google is tying Google+ to Google Search, forcing users to accept the former if they want the latter.

As Danny and Marc point out, Google is favoring its own ancillary services even when other destinations are objectively superior, and Google is using its dominance in search to compel users to accept Google’s other offerings. But this problem is much bigger than Google Search Plus: Google has used similar tying tactics to push dozens of its products for years. I’m working on a detailed article with numerous examples plus relevant antitrust analysis. But with Google Search Plus prompting so much interest, I wanted to flag other areas where Google has invoked these tactics.

This piece proceeds in three parts: I evaluate the competitive implications of Google favoring its own services, including the special benefits Google grants to its own services. I show how Google penalizes those who decline to participate in its tied offerings, including using tying to force others to submit to Google’s will even in areas where Google is not yet dominant. Finally, I briefly survey the legal implications and propose a promising but lightweight remedy to begin to curtail the harmful effects of Google’s tying.

My takeaway: Google’s tying tactics should not be permitted. Google’s dominant position in search requires that the company hold itself to a higher level of conduct, including avoiding tying its other products to its dominant search service. Google has repeatedly crossed the line, and antitrust enforcement action is required to put a stop to these practices.

The Competitive Implications of Favoring Google’s Own Services

I’ve found more than a dozen Google services receiving favored placement in Google search results. Consider Google Blog Search, Google Book Search, Google Checkout, Google Health, Google Images, Google Maps, Google News, Google Realtime, Google Shopping, and Google Video. Some have developed into solid products with loyal users. Others are far weaker. But each enjoys a level of favored placement in Google search results that other services can only dream of.

Google uses premium placements and traffic guarantees to address the “chicken and egg” problem that undermines the launch of many online businesses. For example, many retailers might be pleased to be listed (and even be willing to pay to be listed) in a review site or product search site that has many readers. But finding those readers cost-effectively requires algorithmic search traffic, which a new site cannot guarantee — hindering the site’s efforts to attract advertisers. So too for books, local search, movies, travel, and myriad other sectors. Ordinary sites struggle to overcome these challenges — for example, buying expensive pay-per-click advertising to drive traffic to their sites, or beginning with a period in which they have undesirably few participants. In contrast, anyone assessing the prospects of a new Google service knows that Google can grant its services ample free traffic, on demand and substantially guaranteed. Thus, the success of a new Google service is much more predictable — reducing Google’s barriers to expansion into new sectors. Indeed, if partners recognize that Google can send such traffic whenever it chooses to do so, they may even be willing to join before Google turns on the spigot.

Conversely, Google’s ability to favor its own service dulls the incentive for others to even try to compete. Who would risk capital, energy, and talent in building a new image search engine when Google presents Google Image Search results automatically? A new entrant might be 20% better, by whatever metric, but Google’s automatic provision of a “good enough” option dulls users’ interest in finding a best-of-breed alternative. The problem is particularly acute because the top-most result enjoys 34%+ of all clicks — so when Google takes that position for itself, there’s far less for everyone else.

Google also grants its ancillary services the benefit of certain placement. Ordinary sites have little assurance of what algorithmic search traffic they will receive. They may rank highly for some terms and worse for others. Furthermore, rankings often vary over time, including sudden changes for no apparent reason. As a result, most sites struggle to build business plans around algorithmic search traffic; indeed, companies have laid off staff after unexpected drops in algorithmic search traffic. In contrast, Google’s own services can feel confident in the traffic they will receive from Google — allowing them to plan budgets, advertising sales, hardware requirements, and overall strategy.

By all indications, free traffic from Google Search has played a valuable role in launching many Google businesses. For example, Google Maps usage remained sluggish until Google started to present inline Google Maps directly within Search Results, a practice that began in earnest in 2007. As Consumer Watchdog’s 2010 “Traffic Report” shows, this change precipitated a sharp increase in Google Maps’ market share: Traffic to Google Maps tripled while traffic to competing map sites fell by half.

So too for Google’s launch of Google Finance. service. For example, as of December 2006, Hitwise reported that fully 57% of traffic to Google Finance came from Google Search. By 2009, just 29% of Google Finance traffic came from other Google properties. By providing its ancillary services with additional traffic, when desired and in large quantities unavailable to others, Google gives its ancillary services a greater chance of achieving widespread usage and attracting users and advertisers.

The Special Benefits Google Reserves for Its Own Services

When Google presents its ancillary services within search results, it gives its services distinctive layout and format benefits unavailable to other sites. For example, Google Maps appears with an oversized full-color embedded map, whereas links to other map services appear only as plain hyperlinks. So too for links to Google Shopping, which often feature tabular reports of product pictures, vendors, and prices, whereas competing comparison shopping search engines receive only bare text. Until June 2011, Google Checkout advertisers enjoyed a special logo adjacent to their AdWords ads — particularly valuable since image advertisements were essentially nonexistent throughout that period. But advertisers who chose other streamlined checkout tools (like Paypal) got no such benefit. Favored treatment extends to the most obscure Google services. Even Google Health listings received a distinctive layout and colored image.

Furthermore, when Google favors its own ancillary services, it sometimes bypasses the algorithms that ordinarily allocate search results. By all indications, Google staff manually override algorithmic results, manually specifying that specific Google services are to appear in specific positions for specific keywords. Of course no other site enjoys such overrides.

Google also seems to exempt its own services from the “host crowding” rules that ordinarily assure source diversity. In 2007, Google’s Matt Cutts stated that a single page of results will feature “up to two results” from a single host, though he added that for a domain that “is really relevant” Google “may still return several results from that domain” (emphasis added). But it seems Google waives this rule for its own services. In April 2011, Aaron Wall flagged a search yielding five separate Google Books results among the ten links shown in the first page of Google Search. A commenter found another search term for which nine separate results all pointed to Google Books. (I have a screenshot on file.) On one view, Google Books indexes the work of multiple authors and publishers, and diversity among those authors and publishers provides adequate representation of alternative viewpoints. Yet other repositories also aggregate material from independent authors (consider books at Amazon, or any of thousands of online discussion forums), but only Google seems to enjoy an exception from “host crowding” rules.

Google Effectively Penalizes Those who Decline to Participate In Its Tied Offerings

I joined Google Plus not because I wanted to participate, not to take a look around, but because I perceived that Google would grant my site preferred placement — more algorithmic traffic — if I linked my Google Plus account to my web site and online publications. It’s hard to figure out whether I was right. But SEO forums are full of users who had the same idea. So Google can force users to join Google Plus to avoid receiving, or expecting to receive, lower algorithmic search ranking. Certainly myriad sites added Google +1 buttons (giving Google both data and real estate) not because they genuinely wanted Google buttons on their sites, but because they feared others would overtake them in search results if they failed to employ Google’s newest service.

If an airline declines to participate in Google Flights, its listings are labeled 'no booking links available.' Google fails to offer a more helpful link or booking shortcut, even though it could easily do so.If an airline declines to participate in Google Flights, its listings are labeled “no booking links available.” Google fails to offer a more helpful link or booking shortcut, even though it could easily do so.

Google uses similar tying tactics to compel use of its other services. Consider airlines negotiating terms for appearance in Google Flight Search. If Southwest Airlines prefers not to be included in Expedia, it can easily stay out (and in fact it has). Better yet, a diligent airline can negotiate with various travel sites to seek improved terms — playing one travel site against another to reduce fees. But Google’s dominant position impedes any such negotiation. There’s only one Google Flight Search at the top of Google search results, and any airline that refuses Google’s terms is left behind: Google presents a “no booking links available” bubble, even though Google could easily send bookings to an airline web site without any commercial relationship with the site and without requiring payment from the site. (For an example, click to browse Southwest flights Boston-BWI in May — simple HTML and JavaScript, essentially a “deep link.”)

At the very least, Google could link to an airline’s home page in the bottom right, where the “Book” link usually appears; the bottom-right corner is the standard location for a button to continue a multi-step process, and that’s the location where Google has trained users to look to proceed with booking. In contrast, Google’s bottom-left links are easily overlooked. With so many better options available to Google, Google’s decision to withhold this link looks like intentional punishment for any airline that rejected Google’s terms.

Google links to the 'owner site' only at the far bottom of the drop-down -- putting all advertisers in more prominent positions.Google links to the “owner site” only at the far bottom of the drop-down — putting all advertisers in more prominent positions.

Meanwhile, by effectively compelling participation, Google enjoys high revenue from competing bidders. Consider the drop-down lists Google now shows with hotel listings, presenting advertisements for multiple booking services. A user can enter desired dates to receive a price quote from each booking service, with one-click access to the chosen vendor. But some users prefers to book with a hotel directly — perhaps to reduce booking complexity (less finger-pointing if something goes wrong) or enjoy loyalty program benefits. (Users may also know that hotels pay substantial commissions to the web sites that gather reservations, and some users may wish to spare hotels those costs.) If a consumer clicks the “owner site” link, the consumer will find that his booking dates are discarded, requiring reentry. And even though the “owner site” is the single most authoritative listing for a given property, Google puts all booking services above — here too, favoring advertising revenue over user convenience. It’s an experience savvy hotels would decline completely if Google offered that choice. Instead, Google makes this drop-down compulsory, and there’s no way a hotel can opt out.

To its credit, Twitter has recognized the value of the data it holds and has declined to let Google harvest that data on terms Google dictates. But when Twitter complained about Google’s favored treatment of Google Search Plus, Google responded: “We are a bit surprised by Twitter’s comments about Search plus Your World, because they chose not to renew their agreement with us last summer.” Google’s response completely misses the point. For one, as Danny Sullivan points out, Google fails to use Facebook and Twitter content it knows about (without needing a data license). Furthermore, Google equally fails to use content from thousands of other sources — from smaller social networks, for example. Instead, Google favors its own service.

Over and over, Google has tied its services in various combinations to compel (or attempt to compel) others to bend to its will.

  • Google told Yelp it had to let Google present Yelp reviews in Google Places if Yelp wanted to remain in ordinary Google Search. That is, Google tied its dominant search service (where Yelp wanted to stay visible) to its upstart Places service (which Yelp did not care to support).
  • Google’s contradictory statements left newspapers believing for years that they had to participate in Google News if they wanted to remain in Google Search. (See e.g. the multiple contradictory postscripts in Danny Sullivan’s August 2009 posting about newspapers’ concerns — indicating that even he struggled to understand Google’s true policy. I have other inconsistent statements on file.) For newspapers, then, Google also effectively tied its dominant search service (where newspapers absolutely wanted to be listed) to Google News (which newspapers tended to view skeptically). By the time Google clearly stated that newspapers could exit Google News while staying in Google Search, Google News had achieved enough traction that leaving was a much less desirable choice.
  • For years, Google’s YouTube offered filtering technology (to identify and remove copyrighted works) only to companies that granted licenses to YouTube, on the terms YouTube sought, but not on companies that refuse Google’s terms. To get the filter — the only quick, effective way to block infringing content — rights-holders had to accept Google’s license terms.

I’ll have more examples in my forthcoming paper.

On one level, these are standard “all-or-nothing” tactics: Google has something others want, and Google only provides the desired service if it gets it way. But the impact is clear: Google’s multiple mutually-reinforcing tying arrangements extend Google’s position of dominance, forcing prospective business partners to bend to Google’s will, and enlarging Google’s control over ever more sectors.

Legal Implications

When Google presents its ancillary services in its search results, it engages in classic “tying” behavior, raising concern under US and European antitrust law. Certainly Google’s search service is dominant, and US and EU investigations have already held as much — triggering the heightened duties of those with a dominant position.

Yet Google offers its search results only with its own ancillary services. In particular, Google gives no mechanism for users to obtain Google Search with others’ ancillary services or with no ancillary services at all. This tactic has already led Google to dominance in blog search, book search, image search, maps, news, and product search, and it is amply clear how this tactic could soon lead Google to dominance in reviews, local search, and travel search (satisfying the “dangerous probability” test in Verizon v. Trinko note 4). Is Google likely to succeed in social? It seems network effects offer somewhat greater protection to Facebook and Twitter than they do to review sites or travel search sites. But when Google uses the same tying strategy to claim a leg up in myriad sectors, it’s no great stretch to view the strategy with equal skepticism wherever it arises.

In Remedies for Search Bias, I offered several suggestions to blunt the worst of these practices. Most relevant: Google should let users swap its own services for competitors’ offerings. Consider users’ ability to choose their preferred web browser, media player, email program, and myriad other applications — choices that facilitates continued competition and innovation in all these areas. Yet a user at Google.com has zero ability to eschew Google Maps for Mapquest, or to replace Google Places reviews with Yelp. The first time a user runs a search calling for a review, Google could ask the user for his preferred review provider, and an unobtrusive drop-down box would let the user make changes later. Similar prompts would appear, as needed, for other key sectors — limited, of course, to areas where Google seeks to promote an offering of its own. I was thrilled when, in a little-noticed remark last summer, Danny Sullivan endorsed this approach (“hey eric: how about letting people choose their shopping, local, etc. one box provider?”). It’s an elegant and straightforward solution, sidestepping the most complicated questions of “regulating search” but putting an important check on Google’s abuse of its dominant position in search.

Revisiting Unlawful Advertisements at Google

Last week, Google’s 10-Q disclosed a $500 million charge “in connection with a potential resolution of an investigation by the US Department of Justice into the use of Google advertising by certain advertisers.” Google initially declined to say more, but a Wall Street Journal report revealed that the charge resulted from Google’s sale of advertising to online pharmacies that break US laws.

While Google has certainly profited from selling advertisements to rogue pharmacies, that’s just one of many areas where Google sells unlawful advertisements. Here are six other areas where I’ve also seen widespread unlawful AdWords advertisements:

  • Advertisements charging for something that’s actually free. I’ve documented scores of AdWords advertisements that attempt to trick users into paying for software that’s widely available for free — charging for RealPlayer, Skype, WinZip, and more.
  • Advertisements promising “free” service but actually imposing a charge. I have also flagged dozens of advertisements promising “100% complimentary” “free” “no obligation” service that actually comes with a monthly charge, typically $9.99/month or more. Promising “free” ringtones, these services rarely ask users for their credit card numbers. Instead, they post charges straight onto users’ mobile phone bills — combining carrier-direct billing with deceptive advertising claims in order to strengthen the illusion of “free” service.
  • Copyright infringement – advertisements touting tools for infringing audio and video downloads. For example, in 2007 media companies uncovered Google selling advertisements to various download sites, typically folks charging for Bittorrent clients. These programs helped users download movies without permission from the corresponding rights-holders, which is a double-whammy to copyright holders: Not only did labels, studios, artists, and filmmakers get no share of users’ payments, but users’ payments flowed to those making tools to facilitate infringement.
  • Copyright infringement – advertisements touting counterfeit software. For example, Rosetta Stone in six months notified Google of more than 200 instances in which AdWords advertisers offered counterfeit Rosetta Stone software.
  • Advertisements for programs that bundle spyware/adware. At the peak of the spyware and adware mess a few years ago, distributors of unsavory software used AdWords to distribute their wares. For example, a user searching for “screensavers” would receive a mix of advertisements — some promoting software that worked as advertised; others bundling screensavers with advertising and/or tracking software, with or without disclosure.
  • Mortgage modification offers . Consumers seeking mortgage modifications often receive AdWords advertisements making deceptive claims. A recent Consumer Watchdog study found AdWords advertisers falsely claiming to be affiliated with the US government, requiring consumers to buy credit reports before receiving advice or help (yielding immediate referral fees to the corresponding sites), and even presenting fake certification logos. One prominent AdWords advertiser had previously faced FTC litigation for telemarketing fraud, while another faced FTC litigation for falsely presenting itself as affiliated with the US government. Other advertisers suffer unsatisfactory BBB ratings, and some advertisers falsely claim to have 501(c)(3) non-profit status.

Google’s Revenue from Deceptive Advertisements

Google does not report its revenues for specific sectors, so it is generally difficult to know how much money Google receives from particular categories of unlawful advertisements or from particular unlawful practices. That said, in some instances such information nonetheless becomes available. For example, the Wall Street Journal reported that Google charged $809,000 to one company advertising tools for unauthorized audio and video downloads. In 2006, I estimated that Google charged more than $2 million per year for advertisements distributing spyware and adware shown when users search for the single keyword “screensavers.” Scaling up to other keywords pushing spyware and adware, I suggested Google collects $25+ million per year for advertisements distributing spyware and adware.

Importantly, when AdWords advertisements deliver users into unlawful sites, the majority of the profits flow to Google. Consider a keyword for which several advertisers present similar unlawful offers. The advertisers bid against each other in Google’s auction-style advertising sales process — quickly bidding the price to a level where none of them can justify higher payments. If the advertisers are similar, they end up bidding away most of their profits. Indeed, most of these advertisers have low marginal costs, so their profit approaches their revenue, and Google even collects the majority of their revenue. In 2006 I ran an auction simulation to consider bidder behavior with 10 bidders and 20% standard deviation in per-click valuations; I found that in this situation, advertisers on average paid 71% of their revenue to Google. Drawing on litigation documents, the WSJ reports similar values: EasyDownloadCenter and TheDownloadCenter collected $1.1 million from users, but paid $809,000 (74%) to Google for AdWords advertising. Consumer Watchdog’s revenue estimates, drawn from Google’s own traffic estimation tools, reveal that an advertiser would need to pay more than $6 million per year to capture all the clicks from searches for “credit repair” and “bad credit.”

The Scope of Google’s Involvement — and Resulting Liability

Multiple sources have revealed Google’s far-reaching involvement in facilitating and supporting deceptive advertisements. For example, Google staff supplied EasyDownloadCenter and TheDownloadCenter with keywords to reach users, including “bootleg movie download,” “pirated,” and “download harry potter movie.” Similarly, plaintiffs in Goddard v. Google alleged that not only did Google show deceptive advertisements for “free ringtones” and similar searches, but Google’s own systems affirmatively suggested that advertisers target the phrase “free ringtones” (deceptive, since the advertisers’ service weren’t actually free) when advertisers requested only the word “ringtones.” Google’s involvement also extends to financing. For example, the WSJ reports that Google extended credit to EasyDownloadCenter and TheDownloadCenter — letting them expand their advertising effort without needing to pay Google in advance (as most advertisers must). In short, Google knew about these deceptive advertisements, profited from them, and provided assistance to the corresponding advertisers in the selection of keywords, in the provision of credit, and otherwise.

One might naturally expect that Google is liable when its actions cause harm to consumers — especially when Google knows what is occurring and profits from it. But the Communications Decency Act potentially offers Google a remarkable protection: CDA § 230 instructs that a provider of an interactive computer service may not be treated as the publisher of content others provide through that service. Even if a printed publication would face liability for printing the same advertisements Google shows, CDA § 230 is often interpreted to provide that Google may distribute such advertisements online with impunity. Indeed, that’s exactly the conclusion reached in Goddard v. Google, finding that even if Google’s keyword tools suggests “free ringtone” to advertisers and even if Google is aware of fraudulent mobile subscription services, Google is not liable to affected consumers.

The broad application of CDA § 230 immunity has attracted ample criticism. For example, a 2000 DOJ study concluded that “substantive regulation … should, as a rule, apply in the same way to conduct in the cyberworld as it does to conduct in the physical world.” Yet CDA § 230 unapologetically invites Google to show all manner of unlawful advertisements that would create liability if distributed by traditional publishers. And if Google can turn a blind eye to advertisers using its ad platform to defraud or otherwise harm users, advertisers will do so with impunity. For Google to escape liability is all the more puzzling when Google reaps most of the profits from advertisers’ schemes.

CDA § 230 includes several important exceptions. For example, the CDA does not immunize violations of criminal law — and rogue pharmacies implicate various criminal laws, giving rise to the liability for which Google now expects to pay $500 million. But this exception may be broader than critics yet realize. For example, large-scale copyright infringement and distribution of counterfeit goods may also create criminal liability for the underlying advertisers, hence excluding Google from the CDA safe-harbor for the corresponding advertisements.

Ultimately, I stand by my 2006 conclusion: “Google ought to do more to make ads safe.” Since then, Google’s revenue and profit have more than doubled, giving Google that much greater resources to evaluate advertisers. But I wouldn’t say Google’s users are twice as safe — quite the contrary, deceptive and unlawful advertisements remain all too widespread. Kudos to the Department of Justice for holding Google accountable for unlawful pharmacy advertisements — but there’s ample more work to be done in light of Google’s other unlawful advertisements.

In Accusing Microsoft, Google Doth Protest Too Much

In Accusing Microsoft, Google Doth Protest Too Much. HBR Online. February 3, 2011.

Google this week sparked a media uproar by alleging that Microsoft Bing “copies” Google results. But is that actually the best characterization of what happened? In fact Google’s engineers intentionally clicked bogus listings they had previously inserted into Google’s results, and they did this on computers where they had specifically authorized Microsoft to examine their browsing in order to improve Bing.

Strikingly, Google’s own Matt Cutts previously endorsed the use of Toolbar and similar data to improve search results — calling this approach “a good idea.” And Google’s own Toolbar Privacy Policy allows Google to perform the same analysis Bing used. So I don’t have much sympathy for Google’s allegations of impropriety. Quite the contrary: With Bing’s small market share, this data is important in improving Bing search results and building a viable competitor to Google’s dominant search offering.

Details, including what exactly happened, Google’s prior statements, and Google’s widespread use of others’ intellectual property:

In Accusing Microsoft, Google Doth Protest Too Much

Measuring Bias in “Organic” Web Search with Benjamin Lockwood

By comparing results between leading search engines, we identify patterns in their algorithmic search listings. We find that each search engine favors its own services in that each search engine links to its own services more often than other search engines do so. But some search engines promote their own services significantly more than others. We examine patterns in these differences, and we flag keywords where the problem is particularly widespread.

Even excluding “rich results” (whereby search engines feature their own images, videos, maps, etc.), we find that Google’s algorithmic search results link to Google’s own services more than three times as often as other search engines link to Google’s services.

For selected keywords, biased results advance search engines’ interests at users’ expense: We demonstrate that lower-ranked listings for other sites sometimes manage to obtain more clicks than Google and Yahoo’s own-site listings, even when Google and Yahoo put their own links first.

Details, including methodology, analysis, and policy implications:

Measuring Bias in “Organic” Web Search

Bias in Search Results?: Diagnosis and Response

Edelman, Benjamin. “Bias in Search Results?: Diagnosis and Response.” Indian Journal of Law and Technology 7 (2011): 16-32.

I explore allegations of search engine bias, including understanding a search engine’s incentives to bias results, identifying possible forms of bias, and evaluating methods of verifying whether bias in fact occurs. I then consider possible legal and policy responses, and I assess search engines’ likely defenses. I conclude that regulatory intervention is justified in light of the importance of search engines in referring users to all manner of other sites, and in light of striking market concentration among search engines.

Adverse Selection in Online ‘Trust’ Certifications and Search Results

Edelman, Benjamin. “Adverse Selection in Online ‘Trust’ Certifications and Search Results.” Electronic Commerce Research and Applications 10, no. 1 (January-February 2011): 17-25.

Widely used online “trust” authorities issue certifications without substantial verification of recipients’ actual trustworthiness. This lax approach gives rise to adverse selection: the sites that seek and obtain trust certifications are actually less trustworthy than others. Using an original dataset on web site safety, I demonstrate that sites certified by the best-known authority, TRUSTe, are more than twice as likely to be untrustworthy as uncertified sites. This difference remains statistically and economically significant when restricted to “complex” commercial sites. Meanwhile, search engines create an implied endorsement in their selection of ads for display, but I show that search engine advertisements tend to be less safe than the corresponding organic listings.