As search marketing continues to outpace all other types of Internet advertising, ad agencies are scrambling to meet client demand and tap into this lucrative business. Over the past few months, there have been a flurry of announcements by agencies adding search units, often through acquisition.
Search experts predict the deals will continue, as companies acknowledge they can't add in-house skills fast enough. "Most agencies' initial feeling is that if they have an online group, they can build out this capability," said Chris Copeland, managing director at Outrider, a 10-year-old search company owned by WPP Group but operating within the Mediaedge:cia media-buying division. But this isn't as easy as it sounds, he said. "It's challenging to build out your own group because it takes time and it takes a different level of skills than what most online media planners and buyers currently possess," he said.
In the most recent of the deals, Grey Direct last month announced it had created a new, executive-level position at the agency to oversee agency partnerships with companies in the search engine marketing space, as well as in wireless, SMS and viral. Grey Direct, the wholly owned subsidiary of Grey Global Group, counts Adobe Systems, BellSouth, Oracle Corp. and Xerox Corp. among its clients.
A week earlier, agency holding company WPP announced the formation of mSearch, a search engine marketing unit that will be part of its mOne Worldwide media unit. Global clients that have already signed on include IBM Corp., Ford Motor Co., Sony Corp., Nextel, Ameritrade and Novartis.
In December, Aegis Group, another global agency network, acquired iProspect, a search engine marketing (SEM) provider for $50 million and folded it into Isobar, a unit formed by Aegis last year. Isobar also houses Carat Interactive, which offers search services to clients.
Isobar is an agency that is ahead of the curve in terms of search, since it has been in the game for several years, said Sarah Fay, formerly president of Carat and now president of Isobar. "Search has always been important to the agency," Fay said, adding: "If you're media-minded, you'll aim for the `center of the hive.' Search isn't only the center of the hive. Search is the queen bee."
Rather than merge Carat and iProspect, Fay said, Aegis' plan is to "create synergies between the two," which may compete with each other for some business.
Some agencies are keeping their heads in the sand regarding search, Fay said. "I've talked to other agencies who've willfully said, `We will not get into search,' " Fay said. "I think that's crazy. You can't separate it out from the rest."
On the flip side, SEMs are complementing their search know-how with agency services or broadening their own search portfolios.
CGI Corp., which owns WebSourced, a search engine optimization (SEO) provider, announced in January the acquisition of the MarketSmart companies, including MarketSmart Advertising, a full-service ad agency. Another search marketing company, 360I, announced in late February the acquisition of SearchIgnite, a pay-per-click search software company, to round out its search expertise. 360I offers keyword research, bid management, tracking and competitive analysis, as well as paid, algorithmic, contextual, local and vertical search.
While most digital agencies have at least one person dedicated to search engine marketing, nearly all agencies claim they can offer search marketing to clients, either with an in-house capability or by partnering with a search engine marketing company. According to Jupiter Research's Executive Survey, which looks at agency workloads in general, 62% of agencies hire outside contractors to work on specific projects; another 35% hire permanent staffers.
Clients are driving the surge in search, which has become an integral part of the mix rather than an afterthought.
"[Ad agencies] don't want to do search," said Fredrick Marckini, founder-CEO of iProspect. In the face of client demand to make search part of the marketing mix, "what you're seeing is acquiescence," he said.
Others agreed. "Client demand is dictating they now become active after the fact," said Copeland. "Some agencies are just now finding solutions."
However, some say the transition for agencies is not that simple. "This is the rocket science of online marketing," Marckini said. "It is a complex math problem that does not get solved without an extraordinary technology."
"The reason agencies can't compete with SEM is that there's a very large technical component to what we do," said Noel McMichael, VP-search engine marketing at Digital Impact, an e-mail marketing company that bought SEM company Marketleap in July 2004. "I go up against agencies all the time that have great big names," McMichael said, "but if they go up against me on search, I'm going to win nine times out of 10."
Robust acquisition market
Because of the specialized skill set needed, the consensus is agencies will more likely partner or acquire than grow SEMs organically, making the SEM market ripe for picking.
"I don't think there's any SEM company out there that's private that's not for sale right now," said McMichael, adding there were "lots of VCs roaming the floor" at the search show in New York.
One executive said the agencies that are pursuing search are coming in at just the right time. "I would give them credit for being attentive to their primary client base," said Craig Pisaris-Henderson, chairman-CEO of FindWhat, a search and content marketing provider. He said the medium is still quite immature. "You don't want to jump in with a product that is not [yet] in huge demand for their client."
As agencies and SEMs/SEOs continue to partner or merge with each other, they will need to figure out how to work together. "It's a left brain, right brain thing," said Dixon Jones, managing director at Receptional.com, a U.K.-based SEM. He said there is friction between the two sides, but suggested a way to live in harmony. "Lesson one: Learn the [agency] lingo," Jones said. "You have to find the sweet spot that works for both sides." M