For Google to say that the abolition of agency commissions is entirely separate from best practice funding is surprising. But to ignore the effect it will have on the industry is simply outrageous, says Wayne Arnold
Google’s decision to scrap the traditional 15 per cent media commission system on its search business, in favour of “best practice funding”, has been greeted with deep concern across the UK agency world – and comments from further afield suggest that reaction to Google’s proposals is just as negative.
Cash payments by a media owner to an agency in return for client bookings may seem slightly strange to the US market, but the commission system has served the UK ad industry well for more than a century, with significant benefits for all parties.
For agencies, it has created a level playing field, enabling smaller operators with less sophisticated clients – for whom a regular fee might be impractical – to enjoy an open, legitimate income stream. It also allows larger players to pay back their commission to clients, in part or entirely, in return for a regular agreed fee. Thus agencies of all sizes have been able to earn a living, while clients have benefited through less expensive or even “free” agency services.
But – a stranger might ask – isn’t this at the expense of the media owner? This might be the case if agencies were not offering their own range of benefits in return for the commission they earn. To begin with, the presence of agencies dramatically cuts the number of invoicing points a media owner has to handle – reducing financial and administrative costs. There is also the reassurance, for the media owner, that its medium is being recommended and evaluated professionally – so that when it works, this will be recognised and used as a basis for repeat business.
Finally, in the UK, the media agency does not act as an “agent” but as a “principal in law” – unlike in the US. This means that it undertakes to pay the media owner whether or not it receives payment from the client.
These are major advantages for the current system; Google’s proposal to abolish commission threatens to undermine this.
Without Google commission, smaller digital agencies will find themselves without a significant income stream and will be gradually squeezed out of existence. The larger agencies fear that Google’s proposed price reduction, initially across the board, will soon be eroded, leaving their clients with higher costs.
It is understandable that Google might not see this as a bad result: it would drive up its direct business with clients. Yet such a relationship would not only rob clients of independent expert advice, it could open them up to the risk of long-term exploitation. (Heaven forbid that Google should ever seek to exploit such a situation – but as the dominant player in its sector, this temptation would always be present.)
To help offset these negatives, Google has proposed a best practice funding scheme based on volume rebates. This is, it says, to fund search training and education within agencies. In fact, Google has been at pains to say that the abolition of commission is a topic entirely separate from best practice funding- but given that they are to be rolled out at the same time (and they will both affect agency income), Google will forgive me for mentioning them in the same breath.
Leaving aside whether it is right for any media owner to predicate how an agency should spend its earnings (stating that they should be spent on training and education), the concept of a major media owner making a volume rebate system a core element in its customer offering raises profound concerns about the transparency of client/agency relations. This is additionally complicated for many companies by the demands of the US Sarbanes Oxley legislation.
In place of an orderly and easily understood system, what is arguably the world’s largest media owner appears determined to force through a proposal that could not only drive smaller UK digital agencies out of business, but complicate a simple and highly efficient market.
Of course, agencies and clients could react to this proposal by moving their business into those search providers still offering 15 per cent commission – and no doubt a few will. However, Google, which has “Do no evil” as its core mission statement, knows that as the sector’s dominant player, most clients and agencies have to use it, regardless of how unfairly they feel they have been treated.
So what can be done? Ultimately, Google will control its own destiny. However, even the world’s biggest media owner needs the goodwill of its customers to continue to prosper – as ITV discovered. I hope that Google is brave – and consultative – enough to revisit its original proposals and recognise that the US way of doing business is not the only one applicable around the world. v