Almost everything I have ever needed to know about adult life I learned from a Kevin Smith film.
Latest and probably least in the Kevin Smith creative library is a little film called 'Jersey Girl' that didn't do well in the box office. A good idea that wasn't a hit? Or, maybe a successful young director testing the boundaries of his skills? Smith probably wanted to go beyond making "movies with characters whose central preoccupation is weed and fart jokes."
At this point you are undoubtedly asking yourself, what does any of this have to do with the price of bubble gum in Singapore? Like Smith's films, search engine marketing (SEM) has had a good initial run, a few winners, a few losers, but no real jackpots at the box office.
Yes, Google is a verb, but to most marketers SEM is still a four-letter word. Advertisers toil away with the in-house or outsource decision, and have no idea who to trust for the right information. The keepers of client relationships, agencies, are beginning to understand the search space while being bombarded with bad press, mostly from optimization firms with decidedly self-serving agendas.
Clearly, search has a few hurdles to overcome in order to be recognized as advertising. And before search integration graduates beyond afterthought. Let's take a look at the barriers, Jersey Trilogy style.
"I'm Jay, and this is my hetero life mate Silent Bob."
Although we've discussed the intermingling of advertisers, agencies, search shops and designers here before, the conflict seems to have gotten a bit worse lately. Specialized search shops declared themselves winners of the search marketing ownership battle before the war began by suggesting that agencies can't or shouldn't be trusted with adopting search. The battle cry of search shops goes something like, "Agencies don't understand search, and even if they did, they couldn't possibly make money operating search initiatives."
That's not exactly true. Most agencies are managing search in some form and agencies (the smart ones) are not known for providing services they lose money on, are they? According to a recent Jupiter research report, 46 percent of agencies provide full search services while another 29 percent outsource only "some SEM services." The remaining 25 percent either outsourced all search services or don't include SEM. One could ague the meaning of "providing SEM" to an agency is simply buying paid listings, but that myth is starting to fade away.
So what's different with an agency? Aside from a general lack of third-party funding, how about cost and operating models that are fundamentally different than a search shops.
A few firms are appointing a "head of search" -- to establish a leadership presence for SEM within the agency -- and staffing up. Much in the same way traditional media buying and planning had to be adapted to fit online marketing, search -- and most specifically the paid realm -- is being adapted to fit online media buying operating profiles. Sure, there are problems with this type of adaptation, but it's a step in the right direction.
Another option for an agency, which often coincides with appointing a search leader, is retooling the existing staff, i.e. training media planners to include paid search. A look inside the media planner's mind will find idealistic, young entry-level employees seeking to enter the exciting world of advertising. The reality of what they find more closely resembles a Dickensian workhouse scenario. Media planners are overworked, underpaid and get pulled in five different directions simultaneously. They are the unsung heroes of advertising, and are most often found at the bottom of the agency food chain beneath senior and middle management, account staff and creatives. Despite the inevitable adversity they face, they are developing an understanding of search, much to the chagrin of specialized optimization firms.
The biggest problem for agencies isn't mastering search, it is the generalized negativity that exists in the world of serving clients and living with secondary information in our modern age. If you have not already done so, take a look at Devin Leonard's epic, "Nightmare on Madison Avenue." The agency world used to be the place to be. Now it seems our world has gone from Dick Van Dyke's idealistic universe to a day on the hill with the Golgothan.
The Big Rubber Poop Monster vs. Mooby the Golden Calf
Optimization firms are getting chubby right now due to the enormous cash being thrown at them from venture capital investments. That's right, I said it: fat on investment money. I can't go to a trade show without a VC rep tossing me a business card and saying something like, "I just gave VXY firm Z million dollars, what do you think?" If they are not getting wealthy on third-party funds, specialized search firms, capitalizing on the popularity of paid search, are growing by leaps and bounds with notoriously high margins earned on organic search services.
So what are they doing with all of this fat cash? The good SEO firms have migrated focused service offerings to include paid search components amid dedicating significant resources over the years to justifying organic search service cost structures. Some even preach about the importance of organic search and the evils of paid search to help illustrate the need for pricey organic search initiatives. The really sharp search specialists have some wildly fascinating tools designed to help automate or otherwise help build a better search experience focusing on critical campaign management issues, such as bid management or return on investment innovation.
Specialized optimization or SEM firms have money to sponsor research. Agencies don't. Search firms have money for big sharp booths at industry conferences. Agencies have little interest or funding for this type of public presence. Agencies have to live within their own challenging profit and loss statements and no one is throwing money at them.
The resulting effect? While advertisers want their agencies to fight the good fight in learning and integrating, optimization firms have established themselves with a strong foothold as experts in their field, while successfully brainwashing marketers into believing that an agency couldn't possibly navigate search successfully. I really have to hand it to the search specialists for executing a wicked smart plan there. I just hope I am around to watch the fun when the investment markers come due.
"In this world gone mad … the monkey will spank us."
So what are clients doing with search, and how do they view the mess? Some are orchestrating a separation of paid listing components from organic or natural search by hiring one firm to deliver search engine optimization while asking the existing agency to handle paid or sponsored listing responsibilities.
Most often, clients know exactly how much revenue the agency generates with the client relationship. That is to say, the client understands how much the agency charges and for what. That's not exactly the case with some search engine marketing firms.
There are some wild ways of making money in search. My personal favorite is a hybrid cost structure that incorporates revenue generated by the search program into the firm's compensation. It's a pretty simple formula that looks great until the client applies some science to the equation. Say the search initiative generates $50,000 a week and the search firm receives 5 percent of the revenue generated as compensation. Great, except the client is paying $10,000 a month for a service that the search firm could accomplish for $2,500 per month and still maintain a 25 percent margin.
Other creative cost structures include assigning flat click costs to organic search listings and paid listings alike. The search firm's profit then becomes the difference between the actual click cost and the previously agreed upon sale click price, or arbitrage. The end result of this pricing structure is very similar to the revenue sharing method -- big fat margins for the search firm.
Clients are beginning to wake up and smell the malarkey, and it is only a matter of time before search shops are forced to live within the confines of normal margins. The sexy trade-show booths will get a little less enticing, the research will have to perform well to be sponsored, and at least half the search firms we know today will go the way of so many dotcom bubbles.
Next Week: The FTC hobby plan, spammers, and what goes better with Coke?
iMedia columnist Kevin Ryan's current and former client roster reads like a "who's who" in big brands: Rolex Watch, USA, State Farm Insurance, Farmers Insurance, Minolta Corporation, Samsung Electronics America, Toyota Motor Sales, USA, Panasonic Services, and the Hilton Hotels brands, to name a few. Ryan believes in sound guidance, creative thought, accountable actions and collaborative execution as applied to search or any form of marketing. His principled approach and staunch commitment to the industry have made him one of the most sought after personalities in online marketing. Ryan volunteers his time with the Interactive Advertising Bureau, Search Engine Marketing Professional Organization and several regional non-profit organizations. Meet Kevin Ryan at Ad:Tech today and the Jupiter Advertising Forum, July 28-29.
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