Shocking That the SEM agency is dying (and what to do about it)

Shocking That the SEM agency is dying (and what to do about it)
Shocking That the SEM agency is dying (and what to do about it)

Search engine marketing is an ever-changing field, and columnist David Rodnitzky warns that agencies that fail to adapt will be left out in the cold.

Search engine marketing agencies can face several business challenges over future few years, including magnified competition, fee pressure, clients transfer SEM in-house and a decline in the prominence of SEM normally. SEM agencies that fail to pivot into broad-based digital agencies will either want to focus completely on little business SEM or stop to exist.

Why do companies rent agencies?

There are 2 vectors against that corporations assess agencies: 1) the price that the agency provides; and 2) the insufficiency of the agency’s services. For agencies, scarcity is determined by 2 criteria: a) the amount of different agencies that provide constant service; and b) a possible client’s ability to perform constant service in-house. When you plot these factors on a chart, it looks like this:

As the chart shows, agencies tend to attract business after they can fulfill a scarce want. As supply will increase, agencies lose their leverage with clients, resulting in either value wars between agencies (essentially commoditization) or shoppers transfer services in-house.

Shocking That the SEM agency is dying (and what to do about it)

There are 2 extra points that want to be declared here. First, “scarcity” is a subjective term. For example, a company might not understand the distinction between a seasoned selling professional and a school grad with a year or 2 of selling expertise. Thus, when examination agency services versus hiring in-house, the company may erroneously conclude that there’s a plentiful offer of experience, when in reality they’re creating associate apples-to-oranges comparison.

From an agency perspective, however, client perceptions area unit way additional vital than reality. In other words, if a client believes the agency’s services area unit a artifact, they are a artifact, at least with relevancy that client.

Second, scarcity and price area unit not static values. Rather, both amendment perpetually based mostly on market conditions. For example, there was a time when the price of advertising within the phone book was terribly high, but that price continues to drop each year. Similarly, the scarcity of experience usually declines as a market matures. Today, there are terribly few consultants at computer game selling. Ten years from currently, there may be thousands of consultants.

The trend lines for SEM agencies are not encouraging

If you look at the SEM business over the last 10 years, scarcity has reduced, and value has peaked. Scarcity was at its height in the period of time of SEM, when SEM was still a “nice to have” for most corporations and solely latest direct response marketers cared to become consultants. I remember a headhunter contacting Pine Tree State in 2003 with a job description that needed “5+ years of SEM expertise.” I told her to go find Bill Gross, the founder of GoTo.com, since he invented the SEM area and was the solely one therewith abundant expertise.

So, in 2006, the chart for SEM agencies looked like this (the shaded area is wherever SEM agencies operated):

Shocking That the SEM agency is dying (and what to do about it)

Over the last decade, however, SEM has gone mainstream. Today, there are tens of thousands of SEM consultants, and a new crop of SEM managers is being minted yearly. Finding an knowledgeable with 5, 10, or even 15 years of expertise is incredibly doable. While the price of nice SEM remains high, the supply of SEM professionals has dramatically magnified. Thus, the trend for many corporations is to bring SEM in-house:

Shocking That the SEM agency is dying (and what to do about it)

Obviously, there are still masses of SEM agencies out there (by my count, there are additional than a hundred agencies that have a minimum of ten SEM consultants on staff). So there area unit still thousands of corporations that area unit lease agencies handle their SEM. The trend, however, does not favor agencies.

And it’s unlikely that the situation can improve within the future, for two reasons. First, because the offer of SEM consultants can still expand. And second, because the price of SEM has peaked. Both Forrester analysis and eMarketer area unit sticking out SEM budgets to increase within the next 5 years however SEM market share to decrease (primarily outpaced by social media spend).

Google is also creating changes to AdWords that may additional diminish the worth of SEM. Over the last several years, Google has changed AdWords to “level the enjoying field” for advertisers. These changes make it easier for advertisers to drive scale, but additionally increase CPC costs and cut back opportunities for knowledgeable improvement. Examples include:

  • enhanced campaigns (removing device-optimization);
  • expanded reach of all match varieties (removing long-tail opportunities);
  • Product Listing Ads (reducing the value of keywords);
  • fewer ads on each page (increasing CPCs, reducing auctions); and
  • Conversion Optimizer, Display Conversion Optimizer and Dynamic Search Ads (enabling automation).

I am not claiming that Google has done this with planning, I am simply creating associate observation concerning the dynamic landscape of SEM. The bottom line is that SEM has become a game, with a few big advertisers at the highest of every vertical owning associate ever-increasing share of clicks (and paying additional for every click). This is bad for agencies for 2 reasons: initial, SEM spend is targeted in a few players, so there area unit fewer potential clients; and second, as CPC prices increase, SEM becomes less profitable for advertisers.

In sum, declining SEM market share, SEM concentration in fewer advertisers and decreasing value from SEM suggests that that we tend to might even see SEM fall to very cheap class on my chart in an exceedingly few years:

Shocking That the SEM agency is dying (and what to do about it)

If you’re the CEO of associate SEM agency reading this, at this point you’re either in denial, panicking or a combination of the 2. But despite the gloomy outlook I have given to this point, I do think there area unit opportunities for SEM agencies to thrive moving forward. There are 2 broad options: go native, or go broad.

Option #1: Go native

By “go local,” I mean focusing your business on small to medium-sized businesses. One of the results of Google’s product changes is that market share are wrested from mid-sized advertisers and transferred to larger ones. Consider a hypothetic vertical — decision it the “widgets” class. For the last few years, 15 advertisers have dominated ninety five % of the pay on Google. In the future, these 15 advertisers area unit cropped to solely eight advertisers:

Shocking That the SEM agency is dying (and what to do about it)

In other words, about fifty % of the advertisers can no longer admit Google AdWords for traffic within the future (even although Google can create constant quantity of revenue). Inevitably, this means that — a minimum of for this hypothetic vertical — fifty % of the agencies are out of business.

The 50 % left can be huge enterprise shoppers and little to medium-sized businesses (SMBs). As noted, enterprise clients area unit additional associated additional probably to move to an in-house model, as they can afford to make these groups in-house and there’s not a shortage of SEM consultants. And enterprise spenders who decide not to rent in-house can probably rent a broad-based digital agency to handle multiple channels and services, instead of hiring numerous agencies. Most enterprise spenders choose the potency of “one throat to choke” over the magnified performance of several specialty partners.

Hence, SEM agencies that want to stay centered on SEM can have to be compelled to specialise in little to mid-sized potential shoppers that require facilitate. While Google’s changes can additionally drive some consolidation within the SMB area, there are invariably going to be native advertisers UN agency have to be compelled to geotarget a railroad and specific vertical (think lawyers, plumbers, preschools). Granted, these are completely different varieties of advertisers from the enterprise shoppers defrayment millions a month, but in several respects, they are safer shoppers anyway than massive shoppers, since they are unlikely to switch place of work with associate in-house team.

To survive on SMB clients needs either important automation or a high client-to-account-manager magnitude relation, since the fees associate SMB will afford area unit abundant lower than an enterprise consumer. Many agencies have tested that they will scale on this model, however, so this is a viable choice.

Option #2: Go broad

The second option for SEM agencies is to, frankly, no longer be SEM agencies, but rather, to aspire to be one thing additional than simply the SEM patrons for his or her shoppers. There are several ways in which to accomplish this, but I can usually talk over with this as changing into a digital agency of record (AOR).

There are a few completely different setups which may work here, and I’ve organized them in order from the best to the toughest transitions for SEM agencies:

The digital performance media AOR. An agency that handles all digital performance media shopping for for a consumer. This is anything that’s bottom-of-funnel (SEM, Facebook, PLAs, retargeting) and could additionally embody mid-funnel channels like content selling and programmatic show.
The digital performance AOR. All of the media buying capabilities of the initial class, but with the addition of non-media shopping for services that complement media shopping for, like analytics, strategic consulting, conversion rate optimization and thus on.
The digital full-funnel performance AOR. This level adds top-of-funnel digital media buying, which basically is any digital media that is designed to drive progressive users UN agency don’t seem to be being captured by mid- or bottom-of-funnel channels (and as a result, will have abundant high CPAs or lower ROAS).
The performance AOR. Okay, I admit that this one may sound crazy, but the idea here is that the former SEM-only agency manages all performance selling — junk mail, DRTV, radio — whatever fills the funnel is on the table.
The key to whatever enlargement of services associate SEM agency elects to provide is that this enlargement should meet the twin criteria of providing price to shoppers and being a scarce resource that isn’t simply replicated. For better or worse, the farther you move down the above list — the additional comprehensive your service offerings — the additional probably you produce insufficiency and price.

Build your agency moat

In 2011, a venture capitalist named Bill Gurley described Google’s company strategy as associate “economic trench,” which amounts to a product roadmap and acquisition philosophy that is designed to guard (create a trench around) Google’s AdWords business. In particular, he points to the Android mobile operative system as an excellent example of Google building merchandise that they’re for gratis|freely giving|giving freely} for free so as to guard AdWords:

Google’s aim is defensive not offensive. They are not making an attempt to create a profit on automaton or Chrome. They want to require any layer that lives between themselves and therefore the client and create it free (or even but free).
For most SEM agencies, AdWords is also the economic castle around that a trench should currently be designed. If you want to still offer SEM services to shoppers, you need to make a collection of services or merchandise that complement AdWords. And here I agree with Andrew clarinettist once he notes:

It’s about a culture of experience and a shared skilled mission, as opposed to a culture of pure financial performance.

Some of the biggest agencies within the world — ironically, those who will most afford to coach and encourage their folks — area unit those skimping the foremost. The bean-counters have taken hold.
The road to hell is paved with sensible intentions, after all, and Goodman is completely right that several massive agencies have go away to make multi-channel, full-funnel service solutions but have lost their culture of experience on the approach. Someone smarter than Pine Tree State once same it associateother way: associate knowledgeable at everything is an knowledgeable at nothing.

So the selection isn’t between being consultants at SEM or providing plenty of services; booming agencies can ought to be each. Future-proof agencies will want to maintain a robust culture of experience (though I don’t believe this mandates that the foremost senior executives should forever play this role), while hiring or cultivating new consultants UN agency will offer experience in subsidiary fields.

I doubt, by the way, that most large agencies are ready to regain a culture of experience. So this presents associate superb chance for SEM agencies to fill a void. Going back to the notion of scarcity and price, in the future, clients can have 3 choices:

  1. SEM agencies: perceived commoditization, often additional high-priced than in-house;
  2. Large agencies: one-stop outlets while not true digital expertise; or
  3. Digital AORs: SEM agencies that maintain a culture of data and experience and area unit ready to provide complementary services around SEM (the economic moat).

On the chart, it looks like this:

Shocking That the SEM agency is dying (and what to do about it)

For some SEM agencies, a strict focus on SEM may go within the future — as noted, these agencies will probably want to go downstream and provide services to smaller shoppers. For others, the digital AOR route seems like the foremost probably path. It is not a simple path, by the way; if it were, the large agencies would have patterned it out by currently.

Build your personal moats

Just as a result of SEM agencies area unit dying, it doesn’t mean that SEM is no longer an excellent profession to pursue. There are still masses of job opportunities in SEM — from entry-level to seasoned skilled — and that i suppose that having SEM experience can still be a valued, high-paying career path for the foreseeable future. After all, even if an organization eschews SEM agencies and hires SEM expertise in-house, the actual SEM need isn’t going, it is just being shifted from the agency to the consumer.

Moreover, SEM will continue to be a large chunk of digital media pay going forward, and SEM experts can be required to tweak campaigns and computer code to drive progressive gains. Companies and agencies can continue to fight over the most effective SEM professionals, which suggests that that prime performers can still command nice salaries.

As with SEM agencies, however, standing still and resting on your SEM bona fides is a risky strategy. SEM experts UN agency additionally perceive the rest of the selling system — different media channels, analytics, martech, devices, customer journey, personas and user experience — can be in even higher demand than SEM consultants UN agency simply understand SEM. Put another approach, SEM experts UN agency build a trench around their SEM information can be well-positioned moving forward.

Trees, meet forest

I noted previously that price and insufficiency area unit moving targets: today’s price is tomorrow’s artifact. And much as I want it were true, most people don’t get up and suppose, “How can I work with additional agencies today?”

Spend too abundant time “in your business,” and you run the risk of maintaining expertise in an exceedingly field that’s in decline. I’ve always puzzled what it should have been wish to be a smith throughout the transition from a horse-centric to a car-centric economy, or the CEO of Kodak at the dawn of digital photography, or a yellow pages salesperson in 2000. Change happens, and a myopic focus on what’s worked for the last ten years doesn’t guarantee that you’ll be in business for future 10 years.

Search engine marketing has been superb to Pine Tree State. For one, it gave me associate avenue to not be a professional person, for which i will be able to forever be grateful! It’s additionally given Pine Tree State a gentle financial gain for over fifteen years, the opportunity to make and sell an organization and a network of super-smart folks.

But the next fifteen years don’t seem to be getting to be concerning UN agency will return up with the most effective negative keyword list or build the most effective day-parting rule. SEM isn’t going away, it’s changing and morphing into one thing abundant larger. It will still be plenty of fun, but it can be terribly completely different, and it probably won’t be known as SEM at some purpose. Agencies that don’t pick up on this trend in all probability won’t be around.

 

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