From January 2009, Google is ending its Best Practice Funding programme, which was launched in 2006 and gave agencies that used the search engine to book ad campaigns a percentage of money back based on how much they spent on behalf of clients. Although the rebate usually isn’t larger than five per cent in most cases, for agencies, which are big spenders on PPC this can sometimes equate to tens or even hundreds of thousands of pounds every month per client.
Prior to 2006, Google offered agencies that reached a certain spend threshold a 15 per cent commission, which was given to agencies as an incentive for them to grow their business and ultimately their expenditure with Google.
Incentives
This agency commission (which Yahoo and MSN still adhere to) was replaced in 2006 by the Best Practice Funding scheme, which was officially put in place to reward agencies, not only for their growth, but also for adhering to best practice guidelines and therefore improving the quality of the paid-for listings.
To qualify, the agencies had to generate a minimum of £50,000 spend for every client on a quarterly basis, so it only really applied to big agencies that were already spending a considerable amount on Google and had little to do with encouraging growth, as the small agencies had little chance to get a piece of this bonus pie.
You could also argue the reason Google (cleverly) kept this scheme for so long was simply to acquire more clients through the help of the agencies.
In addition to the Best Practice Funding scheme, Google also offered an additional bonus scheme for the top 10 per cent of agencies that grew the most in that quarter, receiving an additional five per cent bonus for growth. In my opinion, this additional bonus scheme signified the death of the funding schemes from Google. As clients got wiser, it became apparent that agencies would stoop to any level in order to keep the big spenders on their books.
Rebate rebellion
This desperation led to clients asking for a percentage of the bonus scheme back as a token of gratitude for giving the agency their business – which led to the programme falling apart. Instead of being a scheme for agencies to grow business and developing their relationship with Google, it became a race to spend the most money and keep as much of the agency bonus their clients would allow them.
In fact, it became a regular occurance for big PPC spenders to change agencies frequently if the agency they were dealing with didn’t give them a large enough part of their rebate bonus. Gone was the intended concept of encouraging best practice. Now it was a ‘who gets the bonus’ war.
In fact, in 2008, it is regular practice for the bigger PPC agencies to give full kick-back on the bonus, direct to the client. Google quite rightly – although still selfishly – realised this was not improving paid search results. Instead it became a highly competitive stock market for who can spend the most money. Which I’m sure Google doesn’t mind, even though it insists the quality of results is its ultimate ambition.
New playing field
What will this mean for the future of search agencies? Traditionally, PPC is the biggest earner for large search agencies, most of them having small capability in SEO. Scrapping the Best Practice Funding scheme opens up a whole new playing field in the search engine marketing environment.
It will be difficult for agencies to reorganise their pricing structure to maintain the same high profits running big paid search campaigns. My prediction is that traditional paid search agencies will now turn to organic listings and Search Engine Optimisation (SEO) to regain high profits. In fact, a few large agencies that have never offered SEO are now setting up specific SEO departments and preparing to offer an integrated approach.
In the long run, this change might have an impact on the bigger agencies and their pricing structures, but for smaller agencies this can only be positive as it offers a more level playing field to gain new clients.
There is also a fair chance that this change will result in clients setting up their own in-house PPC teams to run paid search campaigns, as management fees from agencies are likely to increase, forcing the decision to be more cost-effective by implementing paid search inhouse.
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