How the end of Google’s Best Practice Funding scheme is going to affect the relationship between engines, agencies and advertisers. By Chris Simpson
When Google’s Best Practice Funding scheme was launched in 2006, it aimed to promote the growth of search advertising through agency training, research and technological development across Europe, the Middle East and Africa. With the explosion of the industry over the past two years, which – according to the Internet Advertising Bureau – has seen search take a 58.3% share of total online ad spend, it would appear the scheme has been highly successful in supporting this growth. With this ongoing success in mind, and the fact that Google’s share of the market now appears impenetrable, it shouldn’t come as a huge shock that BPF is no longer needed, having accomplished what it set out to achieve.
Changes will affect advertisers?
Changes to search funding will have an impact on agency fee structures, and for most advertisers, increase the cost of search media. This will be compounded by the relaxation of the rules around brand bidding, which for those clients with high traffic brand terms has also meant an increase in cost per click. In general, search will be more expensive in 2009, but compared to other marketing tools it will continue to deliver outstanding value for money.
A better understanding of the attribution of sales inside search (and across other online sources such as affiliate and display) is a positive long-term impact of this change. Experienced practitioners of search will see it as an opportunity and will lead to more imaginative uses of the medium and its wider integration into the marketing mix.
For clients, the choices are simple – negotiate new terms, repitch or take search in-house.
Negotiating new terms is a definite option for a large number of clients. Changing economic conditions and different business imperatives are now driving short-term actions and a search pitch may have to wait for a large marketing department grappling with its new realities. The more canny clients will renegotiate now and pitch at their leisure in 2009. By then, they will have reassessed their own plans and seen which agencies have emerged as the key service providers in the post-BPF era.
Pitching provides an opportunity to gain a significant amount of search insight and to engage in conversations about their approach. However, pitching also requires considerable amounts of management time and often leads to decisions regarding other related areas of spend which the client may not be ready to confront.
Alternatively, some clients may consider taking their search in-house. A detailed examination into the high cost of doing this often rules it out as an option. Also, the client’s expertise often dwindles with time and the inflexibility of its resources weakens its return, while the vested interests it creates reduces its marketing dexterity.
However, insourcing is the right route for those with a cultural commitment to delivering such services themselves. To keep their approach fresh and able to exploit new opportunities, this is sometimes combined effectively with an agency providing search consulting services.
How should agencies react?
The BPF’s sliding scale in favour of agencies with large volumes created some dichotomies in the market but agencies will now have to compete more squarely on expertise and service.
This is undoubtedly a positive development but many clients will find the full scope of their requirements can only be managed by a small number of agencies. Also, some agencies will be at risk because they haven’t been transparent about building their commercial proposition to clients on the BPF funding, let alone the forthcoming changes.
The big question now, is when? Many predicted a “pitch storm” in the autumn of 2008, but this forecast now looks premature because it assumed that agencies and clients would want to build new commercial models ahead of the changes. It’s clear that many clients are not aware of the real impact and some may continue to be unaware until a cheque fails to arrive in April 2009.
Positively, agencies will be required to be more imaginative with commercials and think about what suits the client, rather than meekly adopting an outdated media spend model.
Performance terms and professional service models will become increasingly common, although the speed of this revolution is likely to be all too slow in the face of somewhat nervous clients.
The impact on the industry
It’s difficult to believe a business that has so completely dominated its competitors would do anything to weaken its position. However, this is exactly what BPF could do if Microsoft Advertising and Yahoo! increase their search volumes.
The way in which Google is regarded by the agencies is unlikely to change rapidly and the manner of their engagement and deportment of the teams that interact with clients and agencies is the most significant factor in this opinion forming. The marshalling of their market messaging is well drilled but it would be perceived more positively if it were a little less so. From an advertiser’s perspective, the insight that Google can provide is extremely valuable, but becomes more so when a knowledgeable agency can apply the filter of impartiality.
The next steps for advertisers
In the post-BPF era, search advertisers need to define what they hope to achieve through search and how it integrates with their overall on- and offline media strategy. Equally important, they should partner with transparent agencies that are solely focused on return on investment.
Finally, advertisers concerned about increasing pay per click costs could offset the loss of rebate with professional and targeted search engine optimisation. When properly integrated with paid search, advertisers can generate additional revenue opportunities while plugging some of the expensive leaks in a paid-only search strategy.