Competition Or Co-opetition? SEMs And Traditional Ad Agencies

It seems like every week a new study is released touting the continued growth of paid search advertising and the shift of marketers' ad dollars from traditional ad media to newer channels such as search engine marketing. This news is obviously of great interest to me and our industry.

But what does it mean to Madison Avenue? How are the traditional, creative shops reacting to this change? Do they see it as a threat or simply just a nagging fad that will go away in due time?

Recently I have been talking to our clients as well as industry peers about where SEM currently fits within the marketing budget mix. I've also chatted with traditional ad agencies about this very subject. The consensus seems to be all over the place--two percent, five percent, 10 percent, etc. But whatever the breakout may be, it's still peanuts compared to other traditional ad platforms.

How can I say that? Because it's true. But it doesn't mean that SEM is not a valuable medium. In fact, it's become a jewel in the marketer's crown to show direct correlation between investment and return. Hence the reason why clients are shifting more of their marketing budgets to SEM. And it's why traditional ad agencies are getting into the game. And it's not going away.



So the real question ad agencies must ask themselves is: Do we buy the capabilities, build it in-house, or partner with those who already have it?

Walking the "Line"

A recently released study from market research consultancy The Winterberry Group highlighted this ad budget shift to what it called "below-the-line" media, including SEM, e-mail marketing and direct response. The traditional "above-the-line" avenues of TV and print advertising are not disappearing by any means, but clients are demanding that their agencies do what works and what shows tangible and measurable results.

Paid search is one of those "things" that work--and the industry is taking notice. The Winterberry report surveyed more than 70 senior executives from the top full-service agencies and specialty services shops, as well as marketers in the corporate and non-profit sectors. One of the results was that 70.1 percent of respondents expect SEM to be a critical piece of the marketing media mix in the years to come, close behind direct (81.3 percent) and e-mail marketing (85.4 percent).

We hear and read that the traditional channels of TV and print advertising have been coming under scrutiny by marketers as being less effective. A new book, What Sticks: Why Most Advertising Fails and How to Guarantee Yours Succeeds, uncovers new research that dispels the old adage that half of all advertising budgets are wasted. It turns out that only about one-third is wasted--leaving agencies and marketers with more than 60 percent of their budgets to determine how to secure more measurable business results through different marketing channels, such as SEM.

How to get a piece of the search pie is an interesting challenge (or dilemma, for that matter) for many agencies. Especially today, when the industry is moving so fast and the pure search marketing companies tend to have years of experience executing below-the-line strategies, and superior technology. But agencies can solve this challenge by approaching an effective partnering strategy that enables them to immediately add core search marketing skills to their list of client offerings.

Buy, Build or Partner?

The popularity and success of highly specialized SEM, interactive/email marketing and direct response shops, especially among a growing number of big offline brands, is clear evidence of the changing landscape of the traditional marketing and advertising business. Specialized services shops are being acquired left and right--for example, Zenith Media's recent acquisition of Moxie--primarily due to big clients demanding that their large agency have a strong mix of off-line and online capabilities or they will take their account elsewhere to a shop with both.

So is an acquisition strategy the only solution? Not in the least. In some cases the best solution is a strategic partnership. To me, partnering is the quickest and most effective way to get in the game. Managing paid search advertising campaigns effectively requires extensive quantitative expertise, solid technology and years of experience working with the algorithms. So partnering is the only true option, whereas building or buying could take years and lots of money before an agency can get it right. Paid search doesn't hurt a traditional agency's core business. Rather, it serves as a complement to its current offerings and provides added value, such as the ability to:

  • acquire new clients that are interested in building an online presence;

  • retain clients who are reallocating budgets to new media marketing channels;

  • remain relevant in a marketplace that is yielding to the bottom-line results that advertisers demand; and

  • differentiate themselves against other full-service agencies when competing for accounts.

    Everyone Benefits

    The inevitable combining of the old-line ad agency with the new interactive and search marketing shop is where the future of our industry is headed. Only time will tell when, not if, big agencies will make the leap to providing their clients and their brands the ability to become significant players in the new-media arena. I believe partnerships will benefit the entire ad agency industry, as well as all the large and small brand marketers that need to reach the masses, but in a more targeted and effective way. Traditional advertising agencies may have a small adjustment period, but I think we all realize there are a lot of dollars to share in the next generation of advertising.

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