As Growth of Search Marketing Slows, Agencies Change Tack

Four Digital Shops That Look Different Than They Did a Decade Ago

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Considering some ad agencies are older than your grandmother, evolving for a digital world is hardly a new concept. But newer generations of agencies are focused on evolving too -- especially those raised in search marketing.

Most marketers still spend more in search than any other category of online ads. While search continues to grow, the crop of shops that grew up getting advertisers on Google and its brethren are increasingly looking the other way.

The "i" gang -- iCrossing, 360i, iProspect, all within the top five U.S. search agencies by revenue and posting double-digit growth in 2010 according to Ad Age DataCenter -- are now pivoting into new digital arenas. Even digital shops known for hot creative, such as AKQA, are snapping up search-marketing accounts, while media agencies such as Starcom Mediavest Group are collapsing specialties in search back into their larger business.

For example, iCrossing, the No. 1 agency by U.S. search revenue with $92.4 million in 2010, is now pioneering a major push toward producing branded videos, blogs and other content for clients. No. 2 on the list, 360i, has been picking up social-media accounts in addition to its $75 million in U.S. search revenue. This past spring, No. 3 iProspect followed suit and announced its repositioning to become a more wide-ranging digital shop, too.

So why are agencies that are still growing in search looking to broader horizons? It seems counterintuitive considering that search continues to grab the largest share of U.S. online ad budgets by far, according to eMarketer. U.S. search spending is expected to top $14 billion this year -- that 's nearly half of all U.S. online ad spending that includes banners, video and email.

The thing is , growth in search spending is expected to slow in that period, with spending for video, banner ads and sponsorships increasing much faster, especially in the short-term, eMarketer notes.

"If you look at the economics of just search, it's a good business," said Don Scales, CEO of iCrossing, the 700-person agency Hearst Corp. acquired last year. "While it's growing, to maintain what is required of companies the size of iCrossing, those kind of growth rates won't get you to scale. So you need to branch out beyond just the one line [of revenue]."

There's also competition in all directions. Pure search agencies are up against a wider swath of agencies that can buy technology to set up shop. Even some clients are licensing that technology themselves to handle search in-house. "We are all migrating to the same point, just from different directions," said Rob Murray, global CEO of iProspect.

Here's a look at how four digital shops, in search, creative and media, are evolving their models.

Founded : 1998
2010 Revenue: $136.1 million total, including $92.4 million from search.*
Where it started: After Don Scales joined the agency in 2006 after clocking time at digital agencies, iCrossing began its evolution by first starting a social-media department, and then acquired web-development shop Proxicom in 2007.
Where it's headed: Last year, Hearst acquired the agency and, shortly after, iCrossing began to beat the branded-content drum. Its new parent's extensive production resources and ex-journalist hires have been instrumental to getting its Content Lab off the ground.

Founded : 1996
2010 Revenue: $52 million
Where it started: The agency was founded to handle search-engine optimization for clients, even before paid search became a major focus.
Where it's headed: The agency sees display advertising heading in the same direction as search: With demand-side platforms and ad exchanges, buyers can pick up inventory and audiences in real-time. Since those two worlds are coming together, that 's where the agency needs to be, said Global CEO Rob Murray.

SMG Search
Founded : 2006
2010 Revenue: $10.7 million for search only.
Where it started: The Publicis Groupe media agency network created the unit SMG Search to specialize in the arena in 2006. The unit brought together experts from the network's agencies Starcom and MediaVest.
Where it's headed: Growing from 30 employees in 2007 to more than 100 in 2010, this spring SMG reorganized again to put search back into the media shops. "When a channel is nascent, advertisers tend to think they need a specialist because media agencies are a mile wide and an inch deep; expertise outweighs integration," said David Gould, exec-VP global digital managing director for Starcom MediaVest Group. "But as display and search in this case become more accepted, it needs to be integrated and that ' what you're seeing now."

Founded : 1995
2010 Revenue: $124.8 million for all digital.
Where it started: AKQA as we know it today was formed when now-chairman Ajaz Ahmed's AKQA New Media merged with now-CEO Tom Bedecarre's Citron Haligman Bedecarre as well as web developer Magnet Interactive and Asian agency The AdInc. It's since built a strong reputation for web and mobile development.
Where it's headed: While AKQA has handled some media since its founding, the digital agency known for its creative chops has, especially recently, been snapping up search and digital-media accounts. Since it acquired SearchRev, the company has been licensing the technology to other agencies and clients and using it for its own clients' search and Facebook buys. "We've been able to show people we can not only do SEO (search engine optimization) and tag your websites, but we know how to build them from the ground up," said Mr. Bedecarre.

*All revenue is U.S. only, according to the Ad Age DataCenter.

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