
From the first day of 2009, Google’s Best Practice Funding scheme (a euphemism for agency commissions) will have ended. Yahoo too will be changing the way it rewards big spending agencies by moving to a tiered scheme. We’ve been thinking hard about how that will affect clients, agencies and the search engines themselves. And the answer is that, for agencies and their clients, there will be real impact. Google, in the meantime can roll on regardless.
Since Google accounts for at least 90% of all UK search spend (and therefore half of all UK online ad spend), we’re focusing here on them but Yahoo’s decision (it will begin to pay back four per cent to spenders of between £50,000 to £100,000 a month and nine per cent to spenders of £100,000-plus) will have an impact too.
BPF was Google’s replacement for direct agency discounts and was pitched as a way to encourage growth and ‘best practice’ among agencies. Where agencies invested the money they saved through the scheme in delivering better search (for example, systems, technology and people), that’s just what it did. But, many used it as their route to margin, particularly the traditional buying agencies that were used to receiving large discounts on offline media.
Under the last iteration of the scheme, agencies that spent more than £15m a year got more than seven per cent of it (£1m-plus) back. That is a large sum of money to remove from whichever line in your P&L account you put it but if you’d been putting it right at the bottom, you now face a real issue with profitability.
At iCrossing, we put our BPF cash into our own search technology and our team, not our bottom line. But, even for us that is still money that will be missed since lost business revenue can only ever be replaced in three ways – reduced investment, higher prices or lower costs. None of those is an attractive prospect and agencies will be looking for understanding from their clients as they look for ways to offset BPF while at the same time increasing (not just maintaining) the quality of their service.
In short:
1. Pitch time: agencies who were simply using BPF to bolster their P & L or passing this back to clients as a point of differentiation to win search accounts are going to be hit hard. Serious, fundamental renegotiation of large contracts will serve as a stimulus for many clients to consider their options and indeed other agencies
2. The experts will win out: those that invested BPF in developing real search expertise and technology, can make natural and paid search work together to develop efficiency, and use ‘native’ digital planning techniques (e.g. linguistic profiling and genuine customer journey insight) will be the ones that deliver real value and therefore should hold on to clients and pick up business in the new swathe of pitches – as long as those clients hire on value rather than just cost.
3. CPCs unaffected: it’s been speculated that CPCs might decrease since agencies will have less to spend on keywords. But, BPF average payout is probably more like 3-4%, rather than 7-8% and individual accounts still represent the majority of Google’s spend (not agencies) so we’ll see little impact in the price of search
4. Google steams on: the sheer dominance of Google as the country’s most popular search engine negates the normal dynamics of buying and selling. Since buyers are unable to choose alternatives, where Google leads, we must follow. That Yahoo has changed its agency commissions too demonstrates this
So, there’s our thoughts, what are yours? Do you think that the effects of the change will be manifest themselves in different ways? We’d love to hear from you. And if you’re interested in any more insight into how BPF might affect your own search campaigns and strategy, give us a call.