The tables have turned in Search Engine Marketing (SEM), with agencies now controlling a majority of SEM spending in the United States, but there’s not yet a standard fee structure in the industry.
According to JupiterResearch’s Search Engine Marketing Agency Constellation report, the shift toward agencies playing a substantial role reflects a growing maturity of the SEM market. Before this shift, most of the money went directly to search engines from marketers. Today, agencies account for 51 percent of the total spending on paid search — a significant increase over the past 18 months, said JupiterResearch analyst Nate Elliott.
“A third of search marketers use an agency to manage their SEM campaign, while just over half the spending comes from them. It’s a sign that the industry is starting to grow up — it’s not all ‘Mom and Pop shops’ anymore,” Elliott said.
The fee structures prevalent in the industry are currently scattered, but Elliott expects fees to consolidate toward a percentage of ad spending as the market matures, a model that has long been standard in traditional advertising. Currently, 31 percent of marketers pay a flat monthly fee, 19 percent pay a flat fee per project, and only 12 percent pay on a percentage of ad spending basis.
“The agencies are going to push for it aggressively. If they’re charging flat fees and doing most of the work up front, they don’t have the opportunity to generate ongoing revenue,” Elliott said. “Marketers should enjoy the flat fees while they can.”
He notes that as more large marketers using search, SEM is becoming a line item on the budget, instead of being an afterthought. These marketers are used to paying agency fees based on a percentage of ad spending for other forms of advertising, so they are not likely to balk at doing the same with SEM, he said.
The current landscape of agencies vary widely, the report found. Agencies can vary widely in their technology, knowledge, and use of data — all key differentiators marketers should consider when looking to outsource SEM to an agency, Elliott said.
When considering paid listings, technology ownership is crucial, both for its affect on SEM results, and because it gives the agency another level of knowledge gained by building and maintaining that technology to keep up with changes at search engines, Elliott said. Organic optimization comes down to an agency’s knowledge and use of data — turning it into a science rather than an art, he said.
According to the report, Decide Interactive/24/7 Search, Did-It.com, Impaqt, Performics and AvenueA/Razorfish Search are closely grouped for top ratings in paid listings management. iProspect and Impaqt outpace all the other vendors in organic optimization.
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