Industry watchdog Check My Ads has formally requested the Federal Trade Commission (FTC) to investigate X (previously Twitter) for potentially deceptive ads. Following X’s introduction of a new ad format in October, Check My Ads argues that the lack of consistent labeling poses a threat to users, leaving them vulnerable to scams. With Elon Musk’s significant restructuring of X, concerns arise about advertisers facing compliance issues and transparency challenges. If the FTC proceeds with an investigation, potential consequences for X include substantial fines and a further decline in valuation, adding to the company’s existing legal battles.
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Unmasking the Deceptive Ads
Check My Ads contends that X’s failure to consistently label these advertisements poses a serious risk to users, leaving them susceptible to scams. The policy and partnerships director at Check My Ads, expressed concern, stating,
“If those ads aren’t disclosed, I think you’re going to see scams just rise very rapidly on the platform.” – Sarah Kay Wiley
The complaint further alleges that even if users manage to identify an unlabeled piece of content as an ad, understanding why they are being targeted and how their data is being used becomes challenging. Wiley highlighted issues with broken hyperlinks when users attempt to seek information about why they are targeted with specific ads, exacerbating the lack of transparency.
NEW: We’ve officially filed a complaint with the @FTC about X’s unmarked ads.
Big thanks to EVERYONE who shared sketchy ads with us. It’s been a pleasure doing business with you.🤝 pic.twitter.com/SnUSpqtvAy
— Nandini Jammi (@nandoodles) November 15, 2023
Musk’s Impact on X’s Advertising Landscape
Elon Musk’s acquisition of X in October 2022 marked a pivotal moment for the platform, formerly known as Twitter. Advertising played a pivotal role, constituting over 90 percent of the company’s revenue. However, Musk’s subsequent restructuring, which included laying off more than half of the workforce responsible for content moderation, raised concerns among advertisers.
“The transparency of online advertising is the bedrock of user trust in digital platforms, and any compromise in labeling poses a grave risk to the ecosystem.” – Digital Advertising Expert.
The fear that their content might be associated with inappropriate, violent, or racist speech prompted worries within the advertising community. Despite X’s claims of a rebound in advertiser interest, a study by Media Matters for America in October found that advertisers were spending 90 percent less compared to the period before Musk’s takeover.
Liability for Advertisers and Transparency Concerns
Check My Ads suggests that X’s new advertising format could pose a liability for advertisers, potentially leading to compliance issues if their content is not properly labeled. The watchdog group emphasized that X’s promotional materials for advertisers assert that their posts are labeled as ads, a claim disputed by the unfolding situation. Screenshots of these materials were included in Check My Ads’ complaint to the FTC, indicating potential misinformation given to advertisers.
Complicating matters further, X has expanded its ad reach by accepting advertisements from third-party ad exchanges like Google Ads and InMobi. This shift in approach, moving away from direct dealings with advertisers, raises transparency concerns. Wiley explains, “It’s really hard for advertisers to trace where their ad spend is actually going.”
— Elon Musk (@elonmusk) June 7, 2022
Potential Repercussions for X
An FTC investigation into X could further challenge the company, whose valuation has seen a drastic decline since Musk’s acquisition. If pursued, the investigation may take a year or more to conclude, according to Christopher Terry, an associate professor of media law at the University of Minnesota. However, if the complaint is upheld, the consequences for X could be severe.
| Key Points | Details |
|---|---|
| Watchdog Group | Check My Ads |
| Request to FTC | Investigation into X’s deceptive ads |
| Concerns | Lack of ad labeling, the potential for user scams |
| Musk’s Impact | Restructuring, layoffs, and advertiser worries |
| FTC’s Authority | Potential fines of up to $44,100 per violation |
The FTC holds the authority to fine a company up to $44,100 per violation, potentially resulting in substantial penalties for X. Terry anticipates that, in such a scenario, a consent decree, settling for a significant monetary amount, is likely. The government’s use of consent decrees as a tool for legal action has been evident in past cases, with the FTC seeking substantial fines, such as the $5 billion settlement with Facebook in 2019 over privacy violations.
It’s important to note that X is already subject to a 2011 consent decree related to consumer information protection. Any violation of this decree could have serious implications. X is presently challenging a $150 million fine added to the consent decree last year, indicating the legal battles the company is already facing.
As X faces potential scrutiny from the FTC over its advertising practices, the implications for the company are substantial. Advertisers are left in a precarious position, uncertain about the proper labeling of their content and the transparency of ad spend. The unfolding events could shape the future of advertising on the platform and raise broader questions about online advertising regulations.
FAQ:
Q: Why is Check My Ads urging the FTC to investigate X?
A: Check My Ads is concerned about X’s new ad format potentially violating laws against deceptive advertising.
Q: What impact could an FTC investigation have on X?
A: The consequences may include substantial fines and a further decline in X’s valuation.
Q: How has Elon Musk’s ownership affected X’s advertising landscape?
A: Musk’s restructuring has raised concerns among advertisers about content moderation and association with inappropriate speech.
Q: What is a consent decree, and how does it apply to X?
A: A consent decree is a legal agreement; X is already subject to one related to consumer information protection, with potential financial implications.
Q: Why are advertisers worried about X’s new advertising format?
A: The lack of proper labeling and transparency in X’s new format raises concerns for advertisers about potential compliance issues and ad spend transparency.