TikTok's emergence as an increasingly popular social media app for younger audiences has made it a hot target for advertisers who are always looking to follow the eyeballs.
Mae Karwowski, CEO of the influencer marketing agency Obviously, estimates that at least 75% of brands that reach out to her are interested in adding TikTok as a place to advertise. But just because brands want to be there doesn't mean TikTok, which is owned by China's ByteDance, is ready for them.
Like Instagram, TikTok has big influencers who are partnering with brands such as Chipotle, Skittles and Nickelodeon to help them reach their target audience. Influencers promote the products through video endorsements and are supposed to include a caption that says #ad, #spons or even #tiktokpartner, in accordance with Federal Trade Commission requirements.
Karwowski said the problem facing TikTok is there are many small e-commerce players on the app unfamiliar or unconcerned with the laws, and there are influencers who are brand new to the business side. Karwowski said she makes sure that her clients properly disclose their affiliations, but has seen examples where that's not the case, leaving advertisers and influencers susceptible to potential FTC violations.
"A lot of creators have never worked with a brand before," said Karwowski. "So when you're marketing on TikTok, you're getting in on the ground floor of something."
Laura Perez, director of communications at ByteDance, said that TikTok's policy is to remove any post it finds that doesn't clearly indicate sponsorship. However, she acknowledged that deceptive marketing still happens on the app.
"I think it comes down to education," Perez said. "People who are new to sponsorship maybe don't know all the ins and outs, but we do work closely with our brand partners to educate them on the correct processes."
For e-commerce clothing boutique Princess Polly, TikTok's userbase provides the perfect target audience, because 41% are between the ages 16 and 24. Search for "Princess Polly" on the app, and it's clear that the brand has recruited influencers to reach users. Models show off various outfits, with captions in the videos that read, "Princess Polly haul coming soon," and "Here are some of my favorite outfits from Princess Polly."
The videos include a discount affiliate code in the captions for consumers, but many don't have an explicit indication that the videos are effectively commercials. On its website, Princess Polly promotes its affiliate program, saying that it offers gifted clothing and that partners "receive commission on fashion forward apparel, accessories, footwear and more!"
Princess Polly didn't respond to requests for comment.
Richard Newman, a lawyer at Hinch Newman who focuses on advertising compliance and e-commerce, said that the relationship has to be made clear to give potential customers essential information before they make a purchasing decision.
"Influencers and marketers are required to clearly and conspicuously disclose their relationships to brands when promoting products through social media," Newman said in an interview. "The FTC's Endorsement Guides provide that if there is a material connection between the endorser and advertiser, that connection should be disclosed."
For TikTok, the advertising loophole is yet another matter of concern as the company expands in the U.S. Last month, Reuters reported that the U.S. government started a national security review of ByteDance's $1 billion acquisition of the social app Musical.ly two years ago. Musical.ly was rebranded as TikTok, and Reuters reported that U.S. lawmakers are "concerned the Chinese company may be censoring politically sensitive content, and raising questions about how it stores personal data."
Separately, a California college student accused TikTok of transferring private user data to services in China even though the company says it doesn't store data there.
Meanwhile, consumers and influencers keep on using the app. Ryan Berger, a founding partner of HYPR Brands, an influencer marketing service, said influencers on TikTok can make between a couple thousand dollars and a couple hundred thousand dollars.
Berger said he sees plenty of brands pursuing covert tactics, like those used by Princess Polly. He said they're making a calculated bet that the FTC won't notice because the agency is focused on large brands.
"Smaller companies know that people may not even see their ad, and in a lot of cases no one does," Berger said.
Newman agreed, adding that, "there is always a segment of the digital marketing community that weighs such risk and ultimately chooses cash over compliance."
Instagram and parent company Facebook have created business tools so they can avoid facilitating dishonest marketing. In their branded content guidelines, they require all necessary FTC disclosures to be clearly stated and for business partners to be tagged in their sponsored posts. Once tagged, users will see that it's a sponsored post.
TikTok is in the process of testing a marketplace to match influencers with brands that the company says should help streamline the process and make sponsorships easier to regulate.
"Anything posted through the marketplace would be marked with #ad and go through the same type of review process as advertising," Perez said.