AI Washing, AKA, Stop Calling Your Chatbot AI

Every earnings call sounds like a Silicon Valley fever dream. "AI-driven this," "machine learning-powered that," "neural network-enhanced the other thing." FactSet analysis shows S&P 500 companies are dropping "AI" mentions at rates far exceeding the five-year average. But here's the uncomfortable truth hiding behind the buzzword bonanza: most of these companies wouldn't recognize actual artificial intelligence if it optimized their supply chain while writing their quarterly reports.

We're witnessing the largest case of collective marketing fraud since the dot-com bubble, and it's time to call it what it is: AI washing—a systemic pattern of deception that's not just misleading customers but actively undermining trust in one of the most transformative technologies of our time.

The $400,000 Wake-Up Call

The Securities and Exchange Commission fired the first shots in March 2024, fining investment advisors Delphia and Global Predictions a combined $400,000 for what SEC Chair Gary Gensler called "false and misleading statements about their use of artificial intelligence." These weren't minor marketing missteps—they were fundamental lies about their core capabilities.

Delphia claimed it "put[s] collective data to work to make [its] artificial intelligence smarter so it can predict which companies and trends are about to make it big and invest in them before everyone else". The reality? During a 2021 SEC audit, Delphia admitted it had not used any client data and had not created any algorithms to use client data. They were selling AI-powered investment advice while running what was essentially a traditional portfolio management operation with better marketing copy.

Global Predictions claimed to be the "first regulated AI financial advisor" and said its technology incorporated "expert AI-driven forecasts". When the SEC asked for documentation to substantiate these claims, Global Predictions couldn't produce any. Because there wasn't any.

The FTC followed with Operation AI Comply in September 2024, announcing enforcement actions against five companies that used AI claims to "supercharge deceptive or unfair conduct that harms consumers." This isn't about creative marketing anymore—it's about fraud.

The Anatomy of Institutional Deception

AI washing follows a predictable playbook that should make every marketer's skin crawl:

The Semantic Shell Game: Companies describe basic automation, rule-based alerts, or simple algorithms as "AI-powered" or "machine learning-enabled." If your technology doesn't learn, adapt, or improve through experience, it's not AI—it's software with a marketing degree.

The Development Sleight of Hand: Using AI tools in your development process doesn't make your product "AI-powered." As one FTC warning makes clear: "Using an AI tool in the development process does not make a product offering 'AI-powered'". If I use spell-check to write this article, that doesn't make it "AI-generated content."

The Aspirational Con: Companies advertise AI capabilities they intend to build someday, marketing future features as current realities. This isn't forward-thinking—it's fraud with a roadmap.

The Proprietary Smokescreen: Describing basic integrations with open-source models as "proprietary AI algorithms" or claiming "secret AI sauce" when there's no proprietary technology involved.

Why This Matters More Than Your Marketing Budget

The consequences of AI washing extend far beyond misleading a few investors or customers. MMC Ventures found that 40% of 2,830 purported AI startups showed no evidence of AI material to their company's value proposition. When nearly half of "AI companies" aren't actually using AI in any meaningful way, we have a market failure of spectacular proportions.

Market Distortion: Legitimate AI companies that have invested millions in research and development are forced to compete with companies that simply relabeled their existing products. This diverts investment away from genuine innovation and toward marketing theater.

Trust Erosion: Every overhyped chatbot wrapper and every "AI-powered" rebrand of basic automation makes it harder for consumers and businesses to identify genuinely transformative AI applications. Trust is critical to the successful adoption of a new technology. AI has yet to garner mass trust, and AI washing actively undermines the credibility needed for widespread adoption.

Regulatory Backlash: When regulators lose patience with industry self-regulation, they tend to overcorrect. The SEC's $400,000 fines are just the beginning. The FTC's maximum civil penalty amounts have increased to $53,088 for certain violations, and we're likely to see significantly larger penalties as enforcement ramps up.

Innovation Stagnation: Resources flowing to AI washing companies mean less funding for legitimate AI research. When investors can't distinguish between real AI and marketing AI, the entire ecosystem suffers.

The Ethical Imperative

This isn't just about legal compliance—it's about professional ethics. Every marketing professional who knowingly participates in AI washing is contributing to a culture of deception that damages the entire industry. When we allow "AI-powered" to become synonymous with "slightly better than before," we're not just misleading customers—we're cheapening the value of genuine technological breakthroughs.

SEC Enforcement Director Gurbir Grewal warned: "If you are rushing to make claims about using AI in your investment processes to capitalize on growing investor interest, stop. Take a step back, and ask yourselves: do these representations accurately reflect what we are doing or are they simply aspirational?"

The test is simple: Can you explain specifically how your AI works, what it does, and what data it uses? Can you demonstrate measurable improvements in performance that result from AI capabilities rather than traditional software enhancements? If the answer is no, you're not marketing AI—you're marketing lies.

The Road Back to Credibility

Real AI companies don't need to oversell their capabilities because the technology speaks for itself. When you have genuine AI creating measurable value, you can be specific about how it works and honest about its limitations. Companies like Unilever can show exact productivity improvements from their digital twin implementations. Organizations using predictive analytics can demonstrate forecasting accuracy improvements. Legitimate AI applications generate data that supports their claims.

The solution isn't to stop marketing AI—it's to stop marketing fake AI. Companies should prioritize transparency and honesty in their marketing strategies. Clearly defining what constitutes AI in their products, providing evidence of AI implementation, and setting realistic expectations can help build trust and credibility.

Every marketer has a choice: contribute to the AI washing epidemic or demand better from your industry. The technology is too important, and the potential too significant, to let marketing malpractice undermine genuine progress.

The AI revolution is real. The marketing around it, unfortunately, often isn't. Time to choose which side of history you want to be on.

Ready to implement authentic AI strategies that deliver measurable results instead of marketing hype? Contact Winsome Marketing's growth experts to discover how legitimate AI applications can transform your business without the ethical compromises.