Category: sem agencies

Will 2010 be tough for UK SEM agencies?

How many SEM agencies in the UK have a sustainable business model? That may seem like an odd question given that search is undoubtedly the most successful advertising medium of recent years, but it would seem that the agency sector isn’t necessarily sharing in the medium’s growth.

Last week saw the adminstration then MBO of Latitude. Less widely reported, but no less relevant, was Tradedoubler’s completion of a rights issue that essentially paid for the write-down of The Search Works acquisition in 2007. While I understand that it’s business as usual at both firms, this has led many people to ask just how robust the sector is.

Will Cooper posed this question on Friday on the NMA web site. It’s his opinion that despite Google’s Best Practice Funding subsidy ending over a year ago there are still some agencies who haven’t adapted their business models. Will sounded confident of that opinion when I spoke to him on Monday. Unfortunately, I think he’s right.

I first raised my concerns on this blog back in September 2007. One post highlighted a firm blantantly using discounts as a hook to gain new clients. Selling on price instead of value like this rarely has a happy ending in the long run.

It would seem there are more agency administrations, restructurings and buyouts to come.

Who Owns an Adwords Account: the Client or the Agency?

Quite a fuss has been generated by an article in the latest issue of Marketing Week. In it, VCCP Search claim to be the first SEM agency to allow its clients to retain intellectual property rights over their search accounts.

This is a pretty outrageous statement. Many SEMs from other agencies (including myself) say that this is rubbish; lots of agencies do this and have done for years. Earlier today Patrick Altoft wrote on Blogstorm about it, and this post is an extension of what I said there.

At Efficient Frontier we’ve always let clients retain their search engine accounts. We’ve always seen the accounts as the client’s property to begin with, and never ours. We’ve done that since the company started in 2002.

The big issue here is allowing clients to keep the same accounts if they wish to change agencies. With click-through rate and quality score history being so essential, starting a new account can cost thousands as you try to build that history back up. This can negatively affect the search engines as well as the advertisers, so it’s odd that Google don’t have a well established policy for this already. Transferring Yahoo and Microsoft accounts of course is not possible; a new one must be set up.

There are some notable players that don’t transfer accounts, or at least kick up a hell of a fuss, both SEM specialists and larger network media agencies alike. I’m not going to name names, but looking back at the last 12 months’ of EF’s new business wins would produce some very interesting reading on who’s professional about it and who’s not.

It’s also rather curious that Marketing Week described as an ‘effort to retain clients’. Seems like this kind of change makes it easier for the clients to leave!

My advice to any advertiser is that you should:

  • have access to your SE accounts (not just get reports, but have logins so you can see what’s going on)
  • have the right to retain the SE account should you wish to move agency
  • own the billing relationship with Google (it is a little known fact that to claim Best Practice Funding, advertisers didn’t need to bill through an agency, just putting the account in the agency’s MCC was enough. Many SEM agencies’ revenue figures were grossly inflated because of this, but more about that in another post.)

Any agency worth its salt will be confident of the work that it does for a client and will have no qualms about you looking under the hood.

So this is all a bit of a mess. The article doesn’t read like much more than a press release. There’s been no attempt to canvas opinion from other agencies. But whether this is bad PR, bad journalism or both, it’s raised an important issue in the SEM space that has previously held many advertisers back.

A Closer Look at Tradedoubler’s Search Business

Right now I’m very interested to see how search is holding up in the current financial mire (see my previous post on Google UK’s 2008 performance and Efficient Frontier’s Q4 report). Tradedoubler’s Q4 2008 financial results came out yesterday and as they are a listed company there is a fair bit of disclosure. In particular they break out search numbers from their total performance.

As Tradedoubler is listed on the Swedish stock exchange, they report in Krona. Currently 1 SEK is worth about 8.5 pence. Here’s the data table I’ve pieced together in both SEK and GBP:

  Q4 07 Q1 08 Q2 08 Q3 08 Q4 08
SEK (millions) Gross Profit 20.1 24.4 19.6 20.5 17.5
Margin 6.8% 6.5% 6.3% 9.8% 10.1%
Revenue 295.6 375.4 311.1 209.2 173.3
EBITDA n/a 5.8 3.4 3.6 -0.7
GBP (millions) Gross Profit 1.5 2.0 1.7 1.7 1.4
Margin 6.8% 6.5% 6.3% 9.8% 10.1%
Revenue 22.5 30.2 26.4 17.5 14.2
EBITDA n/a 0.5 0.3 0.3 -0.1
  FX rate 0.076245 0.08057 0.084715 0.08387 0.081835

For the exchange rate I’ve used mid-market quarterly averages supplied by Oanda.com.

I’m no financial analyst, but this isn’t a pretty picture. Revenues (i.e. billings) in Q4 were down 41% year-on-year, and it looks like costs haven’t shrunk in line which is why EBITDA has dipped into the red. It will be interesting to see what impact the removal of Google kickbacks has when the Q1 2009 report comes out in April.

Looks like 2009 is going to be a tough year for search.

Organising a Paid Search Marketing Team

Yesterday I noticed this question on LinkedIn:

What is the best structure for a Paid Search Marketing team?

  • How have you defined the roles within your teams?
  • Have you split your team into specialists or generalists?
  • Are you outsourcing some of your responsibilities?

I am particularly interested in what your experiences are in structuring a large Paid Search Marketing team within an agency. This could be either a specialist SEM or full service media agency. Rian Carstens, Head of Search EMEA, MediaEdge:CIA

As Efficient Frontier in the UK has grown 3 times in size over the last 18 months, this is a question I've been asking my self repeatedly.  Here's the answer I gave: Continue reading →

SES Chicago on European SEM

A colleague, James Beriker, spoke at SES Chicago on Monday about search marketing in Europe.  I like this excerpt, courtesy of the aimClear blog:

Many agencies charge clients nothing and keep commissions. Other agencies share some of the commission with the client. This will end at the end of 2008 making the market more accountable to actual ROI. The net result is a window of opportunity for SEM agencies in Europe as useless middlemen are blown out of the space.

Roll on 2009!

Goodbye and good riddance to Best Practice Funding

The most predictable announcement in Search Marketing leaked out earlier today, when Google announced that they are to end their Best Practice Funding (BPF) after next year.

The BPF was introduced in 2006 after Google scrapped the 15% agency discount. It was brought in with the right intentions: partly as a parachute payment but mainly to incentivise search marketing within agencies and to provide them with funding for skills and technology.

Unfortunately it's been horribly abused by some advertisers and agencies. Too much business is won by the size of an agency's BPF % and not by the quality of the services that they offer. It's been holding back the whole sector.

The BPF turned out to be a subsidy that could be used to hide poor service and inadequate technology. Like any subsidy, it distorted the market and retarded progress. My only complaint is that Google has kept it going through 2008; it should have been scrapped at the end of this year.

Netimperative Search Marketing roundtable

I attended a Netimperative Search Marketing roundtable last week to discuss bid management and the future role of agencies in search. It was a good debate but though we started on topic, we roamed through the full spectrum of digital media leaving no pixel unturned.

There seemed to be a sense that as Yahoo was moving to the opaque Panama platform, bid management software was on its death bed. And for traditional, rules-based management systems I agree. They’ve been dying a slow death ever since Google’s market position became so dominant. However, that doesn’t mean technology can’t be applied to manage and optimise bids on opaque marketplaces. It just has to be a whole lot more sophisticated.

There’s a write up and a recording of the session here.

Internet World

I spent part of last week at Internet World, a three day event at Earls Court Exhibition Centre. More accurately it was at ‘Earls Court 2′, a name entirely without imagination. Surely ‘Earls Court: The Reckoning’ or ‘Earls Court Strikes Back’ would have given it a bit more umph. Anyway, it is a vast indoor arena that was stuffed full of every kind of online technology and marketing company that you could imagine.

Although I’m not a big fan of exhibitions, they are a good chance to catch up with old colleagues and business partners, and to get a measure of what the digerati are thinking. I also contributed to a panel on search on Thursday morning, together with Amanda Davie (i-level), Hedley Aylott (Summit Media) and Jonty Kelt (DoubleClick).

I picked up on that advertisers and agencies are still struggling to manage large, complex search campaigns. One person remarked that search required the most work of all the media they planned, and was the least profitable. Another expressed dissatisfaction with the tool he was currently using, questioning what it really did to make his team efficient and effective. Both of these comments came from agencies.

Paid search management still has a long way to go.