$43.6B U.S. agency revenue
Paid search is already the largest piece of the online advertising pie, representing $8.3 billion of the total $19.5 billion of online ad spending projected for this year, according to eMarketer. The market researcher projects that search advertising, now at 42.5% of total online spending, will grow to 44.3% by 2011.
"Search marketing is very technologically based and needs very specialized marketing companies to do that," said David Hallerman, a senior analyst at eMarketer. "The agencies didn't have the tools. Very few traditional agencies developed anything for search. They have been losing dollars" that are going to search agencies, he said.
In April, Interpublic Group of Cos., an agency holding company, agreed to acquire search agency Reprise Media.
The same month, GroupM, the media division of WPP Group that includes agencies MAXUS, MediaCom, Mediaedge:cia and MindShare, announced that Outrider, an SEM agency, will serve as the dedicated global search marketing agency for those shops, elevating its role inside the company. Outrider joined WPP in 2001.
Beefing up internally
Other agencies are busy beefing up their internal search practices. Neo@Ogilvy, Ogilvy Group's global digital and direct media planning company, last week formed a partnership with SEMDirector, a search marketing automation provider. The partnership enables Neo@Ogilvy's clients to use SEMDirector's proprietary technology to manage and measure paid and organic search marketing campaigns.
"We had been working with SEMDirector directly and indirectly on a lot of things, so it just seemed logical to formalize this," said Greg Smith, chief operating officer at Neo@Ogilvy.
Smith called search a primary opportunity for his clients. "If you're not doing search right now, your media is woefully incomplete," he said. "Because it is so important, we needed to invest."
Neo@Ogilvy has pursued an acquisition strategy as well. In early March, it announced it had acquired Global Strategies International, a 3-year-old consultancy that specializes in search engine optimization, brand reputation management and training. GSI also shares some of Neo's clients.
A `missed' opportunity
Peter Hershberg, managing partner of Reprise Media, said agencies in general are known for underinvesting in technology.
"[Interpublic] really valued and understood the importance of technology in a way most other holding companies did not," Hershberg said of his company's owner. "Many ad agencies were slow to recognize the importance of search and the role it would ultimately play in a more integrated marketing campaign. Many of them missed the opportunity and are now going out and seeking investments and partnerships with specialists."
Client demand is another factor driving the pace of deal activity.
"One of the challenges I'm looking at is what is the right mix of print and online," said Robert B. DeRobertis, director of marketing programs for the Digital Signal Processing Systems division of Analog Devices. Like many marketers, he would like a better overview of his diverse investments.
"We have one company that buys our media and another that does creative and strategizing," DeRobertis said. "It causes complications for me."
In fact, in DeRobertis' case, it gets even more complicated: A third SEM agency handles the division's search strategy.
Aside from dealing with multiple agencies, DeRobertis said the volume of data generated by online media is an issue.
"There's lots of data that comes at you when you work online," he said. "It would help a marketer make reasonable judgments when all this comes together. We have to make decisions fairly quickly. If you have folks that you work with who are looking at the whole broad breadth of activity, that would be helpful."
Another indicator of search's elevated role in the agency realm comes from Aegis Group's Isobar, the digital marketing services network, which recently named Frederick Marckini to a newly created C-level search post: chief global search officer. Marckini is leaving his post as CEO of Isobar corporate sibling iProspect.
"The thing the holding companies are doing right now is they're acquiring search companies because it remains 40% of the total Internet spend or more," said David L. Smith, CEO of Mediasmith, a media agency. "It's a reach for market share and revenues. It's capturing services that might be done outside and bringing them into their company."
Smith said ad agencies have "taken the good first step by bringing search inside rather than outsourcing it" but added that most agencies still have to work at breaking down silos. "The proprietary nature of all these entrepreneurs running all their independent silos does not make for a good communications mix. Until they break down the walls, the efficiency and effectiveness will not be fully realized," he said.
A few agencies did come early to the search dance.
Carat Fusion, for example, has had its own in-house search practice since 2000. "We're a little more entrenched in search and, as an agency, invested in it quite some time ago," said Bill Mungovan, director of search marketing, West at Carat Fusion. He said his company understood early on that search was going to be part of any media buy.
"The major agencies are really starting to get this. It's now being validated through these acquisitions you are seeing," he said. "If you don't have search as part of your media plan, you may be missing out on that last mile."
Independents ripe for picking
Mungovan and other executives agree that some of the remaining independent SEMs are ripe for the picking. "It's possible for a search-only agency to survive on its own, but I anticipate some of those agencies getting picked up," he said.
Independent search agencies include 360i, Did-It and The Search Agency.
Search marketing is drawing budget money away from other channels, particularly offline, according to a February report titled "The State of Search Engine Marketing 2006" from the Search Engine Marketing Professional Organization.
Twenty percent of advertisers told SEMPO they are shifting money to search from magazine print ads; 16% are shifting direct mail dollars; 13% are shifting TV spot dollars; and 13% are moving funds from newspaper print ads.