Why cheap search is a false economy

Graham Everitt, Search Consultant at Reform, discusses the commoditisation of search marketing services, the questions it is asking of the current market, and explains what practitioners need to do to cement their relationships with their clients.

Tuesday, 16 March 2010

The recent trend in agencies outsourcing search to cheaper suppliers and the squeezing of agency commissions signals the possible commoditisation of search skills in the near future. Recessional market forces have led clients to look more closely at their outgoings versus their returns, and to look for value not only in the results of search activity but in their commercial relationships with suppliers.

Search agencies are lamenting the low commissions that they are being driven down to when pitching for new business, and more clients are thinking about whether they are able to run search in house. At SES London, the search industry annual conference, an owner of an India-based outsourcing firm stated that SEO was seen as the biggest growth area for outsourcing businesses in India over the next five years, and there is growing popularity in outsourcing delivery work to foreign companies both for agencies and clients.

The options for clients

Outsourcing abroad is a very cheap option, with practitioners available from as little as $5 per hour. Work can either be outsourced for ongoing projects, or for piece-by-piece deliverables.

Taking search in-house is attractive to many big spending clients, with the average cost of employing an account management team much lower than the circa 10 per cent agency fees that were the norm until recently. It also allows for clients to truly own their own data and buying relationships which has a great comfort factor if search underpins online sales acquisition.

Search technology has really moved on in the last few years, with suppliers such as Search Ignite or Marin developing technology with the specific aim of improving workflow for practitioners and reducing the time spent on non-strategic, implementational work. Suppliers like Efficient Frontier have come to market with discreet structures with proprietary algorithms that claim to be able to virtually replace the human element.

Cheaper agency relationships are another option, and clients may be tempted to re-negotiate deals with their agency, or seek alternative agencies with lower price points. This is evidenced by the dramatic increase in search pitches held since January 2009.

The implications

This is clearly a cause for concern for those search agencies who have built their offering around well trained search experts and who believe that the key to success in search is human rigour, decision making and the marriage of search knowledge with the understanding of their clients’ business needs. Dropping commission levels will make them wary of their time input, force them to question their own campaign management processes and techniques, and competition from cheaper options abroad will encourage them to analyse which aspects of their work they allocate costly human resource to. Similarly, the question of whether clients are better off managing search in house will encourage the questioning of data ownership and financial processes – are search agencies an agent of the media owner, or are they a representative of their client?

The implications are that it will go one of two ways; either efficiency will be driven and shared between the client and the agency, or we will see a massive shift away from the human resource-based agency business and towards simple processes for buying media from search engines.

How agency practitioners can regain the trust of the market

It’s an interesting time for the search market, with lots of big accounts changing hands and some in-depth questions being asked of the prevalent “agency” business model. Unlike other media channels, search agency relationships cannot be largely funded through media owner discounts, so it is only natural that questions are being asked. Agencies have effectively been deserted by the media owner, and are having an identity crisis: are they still an agent of the search engines, or are they a representative of the client? If search agencies fail to question their own business models and refocus on client needs, they will continue to be questioned on value and cheap delivery will win over.

However, if agencies respond positively and become true client focused businesses, we will see a streamlining of business processes; a cost effective distribution of resource and effort that sees the commoditisable, implementational aspects of account management recognised as such and allocated to the appropriate supplier, and the refocus of human resource on the strategic, decision making aspects. This will allow clients once again to see the huge value of search as a tool for business growth.