The Efficient Middleman

    January 15, 2007

SEM clients who deal directly with the search engines expose themselves to greater inefficiencies than those who hire agencies.

Unfortunately, the traditional view of agencies as inefficient middlemen has left the new media buying agency with a bum rap.

“When I die, I want to be cremated, and have ten percent of my ashes thrown in my agent’s face,” once quipped an anonymous actor. Agents, whether for talent, real estate, stocks, or advertising, are traditionally maligned as middlemen. The thought is that they do nothing more than connect their clients with the goods that they seek. They’re referral services, little more than rolodexes.

Except according to this view, the innocent rolodex may be too benign a metaphor to do justice to the sinister activities of agents. They hoard their relationships with sellers, and actively prevent clients from engaging with them directly. This forces the clients to pay the agency a commission for doing what, exactly? Making their business less efficient?

When search engines entered the media-buying picture with their automated keyword buying platforms, the message to traditional agencies was clear: say goodbye to your commissions, because we’re going to get your clients to buy their media directly from us. Oh sure, publicly the engines stated that they weren’t out to steal agencies’ clients. After all, they didn’t want to arouse the ire of Madison Avenue, not early on anyway.

But anyone who’s spent time on one of the search engines’ websites learning about their advertising programs knows different. The message there is, we’ll teach you, the buyer, how to do it. You can take our training course for free and learn it. We have the technology to help you manage it. You can talk to one of our experts to help you get started. It’s easy, and results are guaranteed. Let’s you and I talk business, and forget about this middleman.

That siren song just got a little louder with Meredith Corp.’s recent acquisitions of Genex and New Media Strategies. The networks are busy purchasing and developing media-buying and management technologies to lure buyers directly to their island. But the buyers may need agencies to tether them to their boats with strong rope. Otherwise, they could jump ship and swim to the skull-covered beach only to meet their doom.

An agency is more trustworthy than a network. A network just wants as many buyers as possible so that it can jack up prices and make more money. An agency’s revenue is tied to its particular clients’ performance. Whether an agency takes a percentage of earnings or a percentage of media spend, that agency wants to earn its clients’ trust by managing a successful campaign. Agencies understand that a successful campaign will entice the client to spend more money, and thus increase the agency’s commission. The network has an incentive to help each client and its competition. The agency helps each client crush its competition.

A network may be able to build or acquire the best technology in the world, but that technology won’t help someone who doesn’t understand how to use it. A network may provide expert support, but those experts have little incentive to do more than help buyers increase click volume and reassure them that ads are running. An agency, at least a full-service one, understands that it’s less about the click and more about what their clients do with it. An agency staffed with experienced professionals will help clients conduct A/B landing page tests, or multi-variate tests. The network’s in-house experts aren’t about to help with that.

Better agencies also are constantly investigating and evaluating at all the available media opportunities and re-allocating budgets to the ones that have the best likelihood of a positive impact. The media plan is becoming a fluid document.

The agencies as middlemen have an incentive to maintain relationships with networks, but that can work to a client’s advantage. A large agency is responsible for a greater portion of the networks’ revenues than any of its clients are on their own. That gives them leverage, and more clout when it comes to testing new media buying opportunities. An agency’s client may gain access to hot new advertising channels that they simply couldn’t get working directly with the network. Plus as more and more buying becomes automated through marketplaces, the expertise and data gained though large transaction volume is an asset the agency shares across their clients.

True, paying an agency a commission for buying media in an age when anyone with a credit card and an Internet connection can do it seems inefficient. However, advertisers who work directly with search engines will also have inefficiencies in their media buying process. They won’t have the resources to weed out all the underperforming elements of their campaign. To make sure they’re getting the most for their money, they may need to pay an outside agency a fee. But if that agency can justify its fee by bringing the client a higher net profit, then it’s actually inefficient to eliminate the middleman.

The new media buying agency isn’t just a rolodex. The better agencies are super-consultants who use technology and expertise to reap the benefit of large datasets and relationships with the media. Together that provides valuable experience and insight to boost clients’ bottom lines, net of the agency’s fee.

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Mr. Frog is a leading Search industry visionary. Mr. Frog is a member of the Did-it Search Marketing team which accompanies him to most major
marketing conferences.