Why Haven’t More Traditional Ad Agencies Acquired SEM Firms?
MIHMORANDUM NO. 42 | October 22nd, 2007
Save for a few exceptions, I haven’t heard much news about large-scale traditional advertising agencies buying or partnering with notable SEO, SEM, and SMM firms. Maybe I’m just out of the loop, or maybe I just don’t have a very good understanding of Fortune 500-style business, but still it strikes me as peculiar.
Overall online spending looks like it’s going to top $10B for 2007, and search eats up about 40% of that budget, meaning there are a lot of fees in play for firms who deliver first-class service and results. So why haven’t the bigger players in the traditional space taken notice and tried to leverage existing brand names and expertise in search marketing to increase their bottom lines?
It seems like traditional ad agencies were relatively quick to embrace the interactive layer of marketing…so why aren’t they worried about boutique search marketing firms taking away from their interactive client base?
- Are traditional advertising firms simply not getting requests for search marketing services (i.e. do Fortune 500 / Russell 2000-level clients still not feel that search is important)?
- Is search marketing for large-scale enterprises inherently handled better handled in-house?
- Do clients PREFER to deal directly with smaller search firms? Even if they do, doesn’t this separation hurt their overall brand & messaging synergies?
- Is there simply a lack of understanding, and inherent fear, of venturing into such a new industry?
- Is there a lack of established brands and figures, in terms of awareness among traditional advertising executives, in the SEM space?
- Is SEM as a business model simply too difficult to scale well?
- Is SEM simply not as profitable as more traditional forms of advertising? Or is it SO profitable that smaller shops are unwilling to sell out to larger players?
- With respect to SEO and SMM in particular, are the benefits simply to hard to track and measure to show value to larger clients?
What IS interesting to me is the degree to which bigger players in the LOCAL search marketing space have gobbled up smaller ones. Greg Sterling over at Screenwerk points out that Yellowpages.com / AT&T is
the only remaining major US publisher that has not acquired an SEM firm. SuperPages recently bought Inceptor and Yellow Book purchased ClickForward previously.
I’d love readers’ responses to why this disconnect exists with respect to search marketing firms with more generalized service offerings.
David Mihm is an
October 23rd, 2007 at 7:07 pm
As an insider that was close to these 2 acquistions, I can tell you the only people that benefited were the founders of these 2 companies. In fact, most SEM firms are praying that they will be bought out by some unknowlegable big companies impressed with their fast talking CEOs. You touched on some of the reasons why others have not acquired SEM. The main one is that SEM is not really scalable and economical for small businesses. Just think about it, SEM companies really have no tangiable assets and little revenue. They might have a few smart guys that really know what they are doing but they can’t effectively handle hundreds of accounts. Anybody can be a SEM “guru” by spending a week using Google’s tools and playing with an account. As for SEO, true SEO is like hedge funds, only the rich can afford them but it can produce spectacular results. However, if you were a plumber in New York City, you will never be at the top of the SERP regardless of how much you spend on SEO. But if you were a maker of some obscure product like duck brain candy, you will need no SEO efforts to come up first when a user search on duck brain in Google. Google has always insisted that if you follow their recommendations on how to design a website, you don’t need help from SEO consultants. By now, your average web designer or webmaster should know the basis of SEO 101. All the major yellowpages companies have purchased a SEM company with the exception of AT&T. I think they are smart with their decision.
October 24th, 2007 at 2:04 am
Hi David,
This is a thought-provoking post. I don’t know very much about recent acquisitions (particularly in the US), but I’m not sure that lack of scalability is the real issue (especially when we are talking about PPC).
The comparison above with hedge funds is apt - there is definitely room in the market for firms full of really smart people doing hands-on management. But I think there is also room for the more quant-focussed “develop smart software and use fairly smart people to manage it” approach. In particular, I would expect this to be true in the mid-range and would expect a flurry of acquisitions by slightly smaller ad agencies. They must be being asked to do this stuff by their clients and with a relatively small team, and some good software, they could.
At the top end, I am very surprised if there haven’t been some big acquisitions - large ad agencies don’t need to scale the PPC management to thousands of clients - a few really large accounts would be well worth having and I would have thought the ability to run campaigns in synergy with the rest of their advertising efforts and the reduction of overhead in dealing with only one agency could easily make this worthwhile for the largest players.
On the SEO / SMM side of things, I think the scalability becomes a real concern. I would expect to see more partnership or hiring of individuals than acquisition, but to be honest, there might be more road-blocks to those kind of routes than I have thought of…
Just my 2p-worth.
Will
October 24th, 2007 at 5:31 am
Hey guys, thanks for stopping by & making such thoughtful, discussion-encouraging comments.
@ Troy: I think you’re exactly right wrt the scalability problem. Most SEM shops probably DON’T have enough really big clients (with bigger margins) to get the juices flowing at traditional ad agencies. And I suspect the “SEM guru” problem is a major issue; mainly that the only real “asset” you are acquiring is that PERSON’s expertise, rather than a dedicated following of clients.
I disagree with two of your comments, though:
“A New York Plumber will never top the SERPs for that result.” a) I have several clients who rank quite well for similar keywords, albeit in a smaller geographic area; b) another phase of search marketing beyond thinking of the client’s own website is to improve their exposure in the kinds of national sites that are ranking for those terms (i.e. Yelp, Citysearch, Craigslist).
“By now, your average web designer or webmaster should know the basis of SEO 101.” I can’t tell you how many web designs / webmasters I still run into who have no clue about on-page SEO, let alone the importance of acquiring incoming links.
@Will: Great call on the acquisitions by smaller ad agencies. Perhaps there have been a ton of these that just haven’t made the news. And I’m similarly confused by why there haven’t been more at the top (it was the main reason I wrote this post) — with SEM firms being more secretive about their clients (even SEOmoz increasingly falls into this bucket), it’s hard to know how many of them have the really big fishies…
Thanks again for stopping, guys!
October 24th, 2007 at 7:09 pm
Your disagreement on point 1. That’s my point, I’m sure you can get a plumber rank well for Chunky, Miss. or Happy TX because there is only 1 plumber in those towns. As for the average web designer/webmaster, maybe you’re right. In the end SEM/SEO are like financial advisers. There is usually a direct corralation between the quality of the services with how much you got to spend. If you only got a few thousand dollars to invest, you will not get the rock star adviser to manage your money other than if he is your brother in law. It’s the old saying, you get what you paid. Some SEM firms like to have people believing that they got some secret sauce technology which turns out to be a spread sheet.
October 25th, 2007 at 9:25 am
I guess we will just agree to disagree about the relative difficulty or ease of ranking for geographic terms. The market that my local clients rank in has over 1,000,000 people. It’s definitely competitive. Not as big as New York’s appx. 15 million, but not as small as Happy, TX :)
You’re absolutely right that you get what you pay for wrt SEM. The “$99 submission” shops aren’t even worth 99c. for what they provide.
November 21st, 2007 at 10:12 am
The urban businesses that are already big advertisers in local print, radio, tv, and the yellow pages are great candidates for the SEM industry and are already spending large dollars with local advertising agencies.
I’m surprised larger local agencies aren’t expanding aggressively in this area. The clients already have large budgets for advertising. Either the agencies don’t want to dilute their earnings via potentially less income through aggressive SEO and use of the web or the local SEM’s/SEO’s aren’t picking up their business but all of these businesses have the funds to spend dramatically on SEO. Possibly the local plumber won’t spend an amount that relates to dramatic SE and overall web visibility but every existing large advertising spender is a potential client.
Dave