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To: Matthew L. Jones who wrote (19988)	2/12/1999 7:33:00 AM
From: Glenn D. Rudolph	Respond to of 27307

By Owen Thomas Red Herring Online February 11, 1999 Call it the Payola scandal of the Web. USA Networks, Lycos form e-commerce giant Idealab launches Free-PC.com Another pair joins wireless promenade They may pale besides revelations in the '50s that record companies paid off disc jockeys to get their songs played on the radio, but reports that Amazon.com (AMZN) took advertising dollars for purported editorial picks have unsettled online consumers. The controversy has also raised questions about which other companies might be paying to play on the Web. Amazon's response was fast and vigilant. CEO Jeff Bezos said in a statement that the company was being held to a higher standard than real-world bookstores -- but that it was OK. It's common for booksellers to take payments from book publishers to promote books on high-traffic locations in stores, for example. Amazon claimed its practice of featuring books based partly on publishers' payments was similar to this offline practice. Spokesperson Bill Curry says the company began taking "co-op support" in the first half of 1998. Starting next month, Amazon will note in its book picks which ones it received payment for. "The editor picks have always guided -- not guided, but determined -- the recommendations," says Mr. Curry. PAY TO PLAY As Internet portals gain higher status, the integrity of their Web sites have grown more serious. Companies like Yahoo (YHOO) -- which once denied it had any editors on staff, and which Brill's Content lambasted last summer for its unclear deals -- are now talking of drawing an "editorial line" that they won't cross. "Never have we felt that there is any confusion from our users that we're bringing the best content forward," says Yahoo chief operating officer Jeff Mallett. "We've always felt from day one that we are consumer advocates; we have to be very clear to our consumers what we are offering them." Yahoo maintains that its product decisions for sites like Yahoo Finance are made independent of any business concerns. "There is a team of decision-makers who decide 'I'm going with the Reuters financial news; the Motley Fool is good,'" says Mr. Mallett. But those decisions can, apparently, be swayed by financial concerns. CBS MarketWatch.com (MKTW) disclosed in regulatory filings that it had agreed to pay Yahoo $1.6 million over a 12-month period following MarketWatch's public offering to have its stories featured on Yahoo Finance. David Sze, vice president of network programming and strategy for Excite (XCIT), a Yahoo competitor, says his site has struggled with similar issues. For example, it directs search users to Amazon to look for books related to their query. "We do have an editorial scheme that says we believe that Amazon is a very good transaction site," says Mr. Sze. "That's the first cut: Does this partner make the cut of quality?" Mr. Sze says that Excite strives to make clear who its content and commerce partners are, but that it depends on a certain level of sophistication on the part of its users. "You've got to assume some level of understanding and experience on the Web," he says. "We have to assume that people know what an [advertising] banner is." A BANNER YEAR In other areas, e-commerce sites are struggling with issues of co-op advertising -- joint marketing efforts where vendors pay to get premium placement for their products. MotherNature.com CEO Michael Barach says that featuring a few brands prominently may help in categories like vitamins, where there's a plethora of offerings. "Some consumers really know what they want," says Mr. Barach. "For a lot of customers, the more you show them, the more confused they are, and the less they buy." Paying for placement is fine in situations where users are confronted by a wide set of choices, says Mr. Barach. But, he adds, Amazon crossed a line when it let advertising support affect personalized recommendations. "When you're presenting something to a large group, paid placement is acceptable," says Mr. Barach. "When it's one-to-one, it's different. They're in uncharted territory. I'm not sure there's a standard." MotherNature competitor GreenTree Nutrition, however, has taken a strong stand against co-op advertising. "We don't accept advertising dollars from the manufacturers whose products we sell," reads a statement on GreenTree's Web site. "This way, we can be on YOUR side." As Web portals and e-commerce vendors develop, they'll likely have to make stronger and clearer stands about what drives placements and partnerships on their sites. "The more you look, the more we're like a traditional media company," says Mr. Mallett. That may very well be -- like a traditional media company, with traditional potential conflicts of interest. The New York Times, which first wrote about Amazon's undisclosed relationships with advertisers, now finds its prestigious list of best-selling books competing with Amazon's real-time listings of top sellers -- and its online site features book listings by Amazon competitor Barnesandnoble.com.