Posted October 29, 2010 6:54 am by with 8 comments

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Foursquare founder Dennis Crowley took a lot of ribbing yesterday for a comment he made to a blogger at an NYU panel discussion. The panel was called “The Case for Media Optimism,” and Crowley stated that he thought referral fees would be the next big thing in social media marketing.

For example, if someone Tweets about a new movie and 500 of his friends follow a link to buy a ticket for the movie, then the original referrer gets a kickback for each ticket. When asked if Foursquare was working on this idea, Crowley said it was on a long list of ideas under consideration.

Here’s where it gets sticky. Jeff Bercovici from asked Crowley how he would get around the FTC ruling that required full disclosure when an endorsement was offered on social media in return for payment of some kind (cash, product or service.)

Bercovici writes:

Crowley was surprised. He hadn’t known that was the case, he said. He made a note to bring up the issue with Foursquare’s legal team, and thanked me for alerting him to a potential complication that could influence their decision about whether to move forward.

Gawker and other outlets picked up on the statement and replied with jeering remarks about Crowley’s intelligence and his ability to run a major company.

But the truth is, the FTC ruling may not apply in Foursquare’s case. Here’s the important section from the FTC’s “Guides Concerning the Use of Endorsements and Testimonials in Advertising.”

The Commission does not believe that all uses of new consumer-generated media to discuss product attributes or consumer experiences should be deemed “endorsements” within the meaning of the Guides.

Rather, in analyzing statements made via these new media, the fundamental question is whether, viewed objectively, the relationship between the advertiser and the speaker is such that the speaker’s statement can be considered “sponsored” by the advertiser and therefore an “advertising message.”

In other words, in disseminating positive statements about a product or service, is the speaker: (1) acting solely independently, in which case there is no endorsement, or (2) acting on behalf of the advertiser or its agent, such that the speaker’s statement is an “endorsement” that is part of an overall marketing campaign?

The way I read that, a person who decides to talk about a movie to their friends, then after the fact, gets a $15 Fandango gift certificate as a thank you, doesn’t constitute an endorsement and thus isn’t covered by the rule.

If Foursquare says to a member, we’ll give you a Fandango gift certificate if you checkin from your local theater and give a glowing report of the movie — that’s an endorsement and has to have a disclaimer.

Offering social media kickbacks for positive results is not a contract between the company and the user. It’s not a paid endorsement. Giving me a DVD for free in return for a review on my blog, is an endorsement.

So anyone who plans on poking fun at Crowley for not having the right answer to the question should think about this. He founded a multi-million dollar social media company that grew to 4 million users in just over a year. What have you done lately?

  • You wrote: “Gawker and other outlets picked up on the statement and replied with jeering remarks about Crowley’s intelligence and his ability to run a major company.”

    I think you missed the next line, which should have been:

    “But all was forgotten when Gawker realized that Crowley in fact doesn’t run a major company, but rather a company called foursquare.”

    Maybe you can issue a correction or something.

  • Here’s what the real trouble is. Crowley’s generation is completely ignorant of meanings of words. They regularly describe things as being ‘retarded’ when it is one of the most hurtful words one can used for obvious reasons. I have pointed this out to ‘younger’ people and THEY act offended because you are telling them they are wrong. Crowley uses the term “kickback” which is also common amongst the 35 and under crowd but that term has a hugely negative connotation (mob related back room deals with shady politicians kind of pictures painted by its use). A commission is what he is really saying but isn’t versed enough to know the difference. It just shows they have never been told what is right or wrong because it would hurt their self-esteem. Oh brother.

    As a result you have a generation of people who think their stuff doesn’t stink when quite often it stinks real bad. Heck, even the doctor who started the self esteem movement admits he screwed up royally because he helped create a generation of arrogant people who think everything they say is right and then can’t accept it when they are called on it!. Yikes.

    • Hi Frank,

      Although I believe the spirit of your comment is probably dead-on, I feel I must point out that language, like everything else, evolves.

      Just think of the huge number of new definitions attached to words over the last 10 years. Heck, just think of the new words, period!

      You have obviously adopted some of these meanings because you are an engaged participant in the conversation.

      I’m not condoning using “retarded” the way it is currently being used by youth, I’m just pointing out that the meaning of words is in a constant state of flux.

      • @Kristopher – I have no problem with change but change without any regard for what the past meaning of a word is doesn’t constitute change but rather ignorance and arrogance. If it offends some then why make the ‘change’?

        Thanks for checking in because your point is well taken and a good addition to a conversation that can get pretty deep pretty quickly.

        • Alex

          Of course, using words like “retarded” are offensive.

          But I also find it a bit unfair when someone like Crowley tries to give an honest answer to a challenging question, and he is then pounced on for not knowing the details of an FTC ruling. He’s smart in saying, I’d have to check with our Legal Dept. He perhaps used bad word choice in saying ‘kickback.’

          I also find it a bit ironic that you make very good points about people’s word choice … then you write “Your stuff doesn’t stink.”

  • Cynthia

    My point – and maybe I didn’t make it that well is how quick we are to jump on people when they don’t have all the answers. Even if this really was a problem – it was a mention in passing about a subject that they obviously hadn’t given a lot of serious thought to – they were just brainstorming.

    As for the term Kickback – bad connotation or not, it’s a proper word for what he’s proposing. Commission may sound more business like but the end result is the same – I get a monetary thank you for helping a company sell a product.

  • Does that mean they are gonna start paying kickbacks TWITTER? For using them? and kickback in the business would means CASH!

  • I agree with your stance on Crowley, the world of Social Media is definitely uncharted territory and not everyone knows all there is to know about the legalese that is associated with Social Media. I do feel like this new realm of media is like opening Pandora’s box though. Who knows the long term implications this will have on the marketing world.