| Title: | SEM Agencies In Crisis? Good! |
| URL: | http://www.rimmkaufman.com/rkgblog/2007/09/18/sem-agencies-in-crisis-good/ |
| Printed: | October 7, 2008 |
| Source: | The Rimm-Kaufman Group Blog, info@rimmkaufman.com |
- September 18, 2007
- 13 comments
David Pasternack’s piece “SEM agency crisis: who’s to blame” is a not so subtle attempt to thwart price erosion in the SEM business.
He argues that pressure to “win” big accounts forces some agencies to drop prices below the point where they can cover the costs associated with delivering good results.
Smart SEM agencies think very carefully about where they set this fee and whether it’s negotiable: if it’s set too high, they’ll price themselves out of the market. But setting a fee level that’s too low will not provide enough income to support the resources required to deliver favorable results for the client. Why? Because running an SEM campaign that actually delivers results is an expensive, labor-intensive endeavor. Sure, campaign automation systems can take care of the grunt work, but software is just a starting point. The real challenge involves “wetware” (brainpower). Without skilled human analysis and judgment, no SEM campaign can be expected to deliver. Agencies must expend time and money to attract the smartest people, and the media management fees cover (or should cover) this expense.
It’s a compelling story, but it’s not accurate. We think a more honest answer to the question — why are only 21% of companies happy with their SEM? — is that most SEM’s provide lousy service and results. We know, we’ve seen their clients’s data.
From everything we’ve seen Did-It provides excellent service and results, unfortunately we can’t say the same for many of our competitors.
Did-It knows the truth, that the real issue is competence not compensation, so why the sob story? Simple, to defend the uncapped fee structure, which is rightly coming under fire.
Clients are starting to look for ROI not only from their media spend, but from the agency they hire as well, and while “wetware” is expensive, you don’t need more than one really sharp analyst with great tools and algorithms to drive fabulous results for even the largest accounts. Given that, it’s hard to justify the expense of uncapped fees.
For retailers spending $1 million per month, what would you get from an agency with uncapped fees of say 10%? Hopefully, 6 or 7 full-time analysts. But if the real direct marketing piece can be done by a single smart analyst with superior tools, what would those other analysts do?
If the goals of the program are strictly to drive online sales, the answer is “they’d waste your money.” If the goals are mostly to complete large task lists to satisfy internal constituents then we’d still argue that you only need one sharp analyst and a bunch of less expensive gophers, and you can probably hire those folks directly for less.
SEM agencies as a class will respond to demand, eventually. The demand for excellent service at a fair price is strong and growing. In order to compete in 2008, the agencies of 2002 will need to learn how to provide great service cost effectively. The Did-It folks are smart and will figure this out, but for some this will be a very tough new trick to learn.
George
For reference:
A fair pricing model
Why task lists hurt results
How to use “wetware” efficiently
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George, I think you are absolutely right about the poor quality service of a majority of SEM firms.
I think the majority of SEM clients have little understanding of SEM and aren’t knowledgeable enough to police their SEM agencies work.
It’s pretty easy to fake your way into getting work in this field by talking a good game. But eventually clients question the lack of results…
I also think there is a direct correlation in large SEM firms and poor service. Bigger doesn’t really seem to be better…
You’re right about that, Tad.
In fact, I was wrong to say “most agencies” stink; what I really meant to say is that most companies that outsource are with agencies that stink at search. I think there are a great many good young firms out there who are paying attention to their clients’s accounts and understand how search works.
I’ve taken a bit of heat from folks saying that by slinging insults I’m raising questions about the whole industry. I don’t think they’re right.
I think the real long-term threat to the industry is the perception that “all agencies are alike” when it is SO far from the truth. In terms of technological power and flexibility, marketing accumen, and service levels, the difference between the really good agencies and many of the behemoths is huge, and we do ourselves and prospective clients a disservice by simply making nice noises.
George, my firm is increasingly being asked to audit agency’s work. The results have been surprising. I believe the core issues are transparency and the industry standard pricing model. Charging a % of ad spend needlessly obfuscates and confuses what work needs to be done, the level of expertise required to do it and the sophistication of the tools to be employed. I have followed the Rimm-Kaufman Group for several months. You folks clearly “get it.”
My sense is that the average agency value proposition of “we know how to do this work and you don’t” will have to evolve to “we have the resources, we provide complete transparency of our activities and can assure you of no surprises.”
Pricing will be based on economic alternatives not magic.
Well said, Stephen.
It is is about transparency — clear expectations, simple fair pricing, retailer-friendly contracts.
Outsourcing isn’t right for all retailers. SEM “X” (fill in any agency) isn’t right for all retailers.
It is about fit, expectations, competencies, specialization, clarity, transparency, and adding value.
Care to share any of your surprises?
I like this blog post because is screams the importance of “streamlined process” and how agencies must get this right in order to keep their business afloat. If they don’t, they will have a tough time being profitable.
Agencies need to be concerned on both ends of the spectrum when it comes to both success and failure with an existing client. In some cases, an agency may have a client who has a history of having a high turnover rate, and the expectations of renewing this client may already be sketchy. However, on the other side, if the agency really “knocks it out of the park” with results, the client (typically smaller) may decide to not renew the contract and hire in-house people to take over where the agency left off. As someone who seen both sides, this makes a lot of sense because the successful structure is already in place and it’s much more affordable for them to hire a one or two people to maintain and update the campaigns than to continue to pay the agencies monthly fees.
No matter how you look at, SEM Agencies/Firms are obligated to provide the client with great results. If they do not have intelligent processes in place to effectively manage their employees time and reaching their client’s goals and objectives, they will always struggle to compete in the marketplace.
Sure, what were initially surprises for us are now fairly predictable. The top 2 issues we typically see are:
1. Weekly and monthly reporting that rolls-up performance metrics in easy-to-digest “averages morsels.” When we present the same averages broken down by performing ad spend verses non-performing ad spend we usually get a “hmmm… that’s interesting”. For example, cost-per-conversion based on performing ad dollars/keywords usually presents an entirely different picture of reality particularly when comparing changes in performance over time. Take the analysis one step further and pull out branded keyword “give-me” (yes, I am aware of the Atlas report and I too thought is was a little wacky) conversions and the insights get even more interesting and we can usually generate a “wow… we have a lot room for improvement”
2. It is also common to see 30% to 70% of the ad groups running one ad. Bringing this to light usually generates a loud silence if the agency is on the call or in the meeting. (This point speaks directly to the issue that started this thread… the tension between resources amd compensation issue.) The lack of resources or management issue becomes clearly apparent when an ad aging analysis is presented and quantifies the revenue lost/expense incurred by not modifying or eliminating ads when it statistically obvious that the slacker ad can’t and won’t beat the performer ad.
My purpose in sharing these findings is not to suggest that the average agency is incompetent or is intentionally doing a poor job. On the contrary, what is most interesting is that the agencies we have audited are generating ok results (depending upon your prespective) and were meeting their clients’ expectations. It is our clients who are surprised to know how much better they could be doing if they had better reporting and a higher level of effort from their agency or in-house staff.
SEO agencies offering poor quality solutions or bad service will not survive as over time, what is now a relatively immature market will develop a greater understanding of search. Currently, the market is still relatively naive. At worse, we have unscrupulous search agencies taking advantage of this naivety by offering ’solutions’ they know will not deliver and after service which is non-existent. On the other hand, we have agencies that have jumped on the search bandwagon and although they are not quite so underhand, they are also offering solutions that fail to deliver due to their limited knowledge and experience.
If these agencies want to continue providing poor quality solutions and poor service, let them do so. In the short term, this continues to blacken the market as a whole as all agencies are often cast with the same brush. However, it is my belief that longer term only the very best agencies will survive. However, to speed this process, I believe it is the role of the well respected agencies to continue educating their clients and the wider market to the benefits of search and best practice. The more informed the market, the more difficult it will be for the unscrupulous and the ‘bandwagon jumpers’ to continue offering their sub-standard solutions and service.
Good point, Greg. One of the keys to success in search is figuring out where to put most of your energy and time. Learning how to get the most impact out of finite human resources it crucial to success in search for both agencies and retailers running search in house.
Stephen, thanks for sharing. I’d argue that the two hallmarks of the poor performing SEMs are: 1) Thin, machine generated term lists; and 2) incompetent bidding systems.
You’re right, that in many cases the overall non-brand efficiency is on target, but the averages hide the missed opportunities and waste of underbidding on winners and overbidding on losers.
Thanks George and Alan for perspective and insights. I enjoyed the discussion. I am sure this is just the beginning of many similar discussion on this topic to come as our marketplace evolves.