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Old 03-14-2005   #1
MUSCLE13
 
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Will SEM exist 3 years from now?

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Jay MacDonald, an analyst at DeSilva & Phillips, added that a flurry of acquisitions is imminent, yet it all may be for naught. “As technology improves, the need for optimization will go away,” MacDonald said. “Their business won’t exist in three years.”


Search-Specific Agencies Fight for Survival http://www.mediaweek.com/mw/news/rec..._id=1000837282
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Old 03-14-2005   #2
St0n3y
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For one, he does not say how he thinks technology will cause SEOs to disappear. Maybe I'm shortsighted but I don't see how. Technology woks WITH seo, but I don't see how it would replace it.

Several years ago people were saying SEO was dying, and it hasn't yet. Sure many SEO companies may get bought out by ad agencies, but as he states himself, many ad agencies don't see enough of a profit in it. So why bother buying in, if that's the case. If they do, their prices will be extremely pricey leaving plenty of room for the less expensive companies to thrive.
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Old 03-14-2005   #3
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Consolidation is probably the key theme here. As in any new explosive business there will only end up to be a few winners when the industry matures. It happened with traditional ad agencies. It happened with the dotcom boom itself. SEM is no different. There will probably just be a few winners.
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Old 03-14-2005   #4
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Another excerpt from the Mediaweek article -

“The search agency space right now is in the same place that the online agency space was five to seven years ago,” said Stuart Bogaty, CEO of mSearch North America, which was recently launched as a sister agency to mOne. “The smaller guys are either going to be acquired or will not be able to support their businesses.”
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Old 03-14-2005   #5
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I certainly agree that many SEOs will eventually get weeded out. It happened a few years ago and it will undoubtedly happen again. Only the strong survive in anything.
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Old 03-14-2005   #6
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It's not even summer time (where there is usually not amny real news to repport) and yet, we still get this same old storie again Oh my ...


Yes, things will change. I've been in this industry for many, many years and this is for sure one thing that I have learned: Things change - all the time. 75% of what I do today I know I am probably going to be doing, the same way, in 12 month. Sometimes even in 6! Thats the nature of this industry.

Sure companies will merge and smaller SEM-firms will be consumed by larger ones but there are a couple of things I an very confident about:

1) There is going to be a need for SEOs as long as people use some sort of "information search" - and I bet thats going to stick around for a while. Even with the best technology or human editors (such as on a news paper) there will still be someone that rank at the top and some that don't - AND, some people will know how to push you there and some won't. Why do you think we still have PR agencies, spin doctores and all sorts of experts that can influence the solid newspaper editors and journalists? Because it works. Because it works very well indeed - just as well as SEO do and will continue to do.

2) There are going to be fewer mid-sized SEO/SEM companies around in 2-3 years. Some of them will have merged - others sold. However, just as in advertising and PR there is still going to be a huge gap open for the creative specialised consultant - weather he is doing PR, advertising or SEO. Independant SEOs is still going to have an advantage over the larger firms in the fact that they will be able to shape and adjust their offerings and strategies much faster. Also, they will be bale to take risk and implement strategies that would never go in a large firm - especially a public one. We will probably see more "elephants" in this industry - but the "snakes" will still survive
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Old 03-14-2005   #7
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Will SEO margins be squeezed as the search engines themselves try to bring some of the money back in that the SEO's are taking now? Of course. Too much money out there in the middle. As margins come down, consolidation is inevitable in any business.
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Old 03-14-2005   #8
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I think SEO prices will only continue to rise as more expertise is needed to get the job done.
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Old 03-14-2005   #9
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Quote:
Originally Posted by St0n3y
I think SEO prices will only continue to rise as more expertise is needed to get the job done.
I think this is where technology comes in. There is so much money out there in the middle that no doubt the search engines will work to bring that money back into the industry. As search ad technology and targeting improves the middle will get squeezed.
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Old 03-14-2005   #10
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Analysts should be forced to work in the real world from time to time. Their abstract musings often seem removed from the day-in, day-out demand that real practitioners feel in phone calls and handshakes from real customers with real needs. (And revenue growth of course.)

There have always been advertising and marketing agencies of one sort or another, and there have always been successful and unsuccessful companies. The unsuccessful ones always die.

SEM firms who are unwilling to adapt to change may find themselves in trouble, but that's unsurprising. In business you need to adapt.

Many SEM firms do face a grow-or-die proposition, perhaps, but someone might have said that about webmasters or web services too. Many clients like to deal with a consultant who has time to take care of them, which is how small shops have always gotten plenty of work. The market is HUGE, varied, and open to innovation.

Essentially this analyst is saying something akin to "all companies will eliminate their marketing departments." It's overblown and probably biased in some hidden way.

Let's use the example of law firms. Consolidation? Sure. There are big law firms, and little law firms. Now why would a bunch of spokesmen for big law firms suddenly start talking about the imminent demise of all the little law firms? Probably because the big law firms are either (a) threatened by how much business the little firms continue to take from them; (b) aiming to acquire more little law firms, and they are using the press to haggle about the price.

Last edited by andrewgoodman : 03-14-2005 at 08:21 PM. Reason: added law firms analogy
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Old 03-14-2005   #11
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Quote:
Originally Posted by andrewgoodman
There have always been advertising and marketing agencies of one sort or another, and there have always been successful and unsuccessful companies. The unsuccessful ones always die.

SEM firms who are unwilling to adapt to change may find themselves in trouble, but that's unsurprising. In business you need to adapt.

Many SEM firms do face a grow-or-die proposition, perhaps, but someone might have said that about webmasters or web services too. Many clients like to deal with a consultant who has time to take care of them, which is how small shops have always gotten plenty of work. The market is HUGE, varied, and open to innovation.
The total US advertising industry spend is over $250 billion per year and growing. Pretty HUGE. How many traditional media ad agencies are left after consolidation? Why won't the same happen in SEM? Consolidation is inevitable. Only a few will win.
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Old 03-14-2005   #12
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All of this assumes that the search distribution model, i.e., how we get in front of consumer eyeballs, remains as we've come to know it over the past 10 years. I don't think it will. For consumer markets, my largest concern is that we're headed toward a "push" or broadcast system combined with ultra-convenient but largely walled garden browsing appliances. The "real" internet will be there, but 3 clicks away. Search as we know it will be just a part of the playing field. How large a portion and even if you'll be allowed to play is up in the air.

In 3 years, the digital living room kicks in bigtime. Now go find that article by Battelle about integrating search with TV and see where SEM will be when paid placement cuts it out of the loop.

Signs of 'corralling with commercial intent' are everywhere from autolinks to xbox
Quote:
The new console will offer an on-screen guide with a shopping marketplace in which players can buy new game levels, including weapons, cars or character outfits, Microsoft told a game developers' conference in San Francisco.
Forbes
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...The next-generation console will offer an on-screen guide with a shopping marketplace in which players can buy new game levels, weapons, cars or character outfits. Microsoft will set up a payment system so that even small-ticket items can be easily purchased.....

....Players may also have the ability to spend money on music. The on-screen guide will allow players to listen to their own music during games instead of the game soundtrack. Microsoft said the feature takes the burden off of developers to include custom music in games, but the company may also have less altruistic motives.

Microsoft didn't give many details about the music system, but it's easy to imagine the Xbox connecting to a music ecosystem that includes the MSN Music online store or the music library on a Media Center PC. Microsoft executives have long expressed the desire for the Xbox to become part of a larger home-entertainment system with a sophisticated PC at its core. ... Seattle Times
Infotainment and technology convergence will change this industry at its root.
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Old 03-14-2005   #13
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Will SEO margins be squeezed as the search engines themselves try to bring some of the money back in that the SEO's are taking now? Of course. Too much money out there in the middle. As margins come down, consolidation is inevitable in any business.
The money SEM firms are taking now? First, let's get clear on some definitions. When I say SEO, I mean a company that works for getting only "free" or "natural" listings and the activity of getting better listings for free. Ad agencies aren't going to wipe out SEO as an activity. In fact, it's something they especially aren't going to enjoy getting into, as you can guarantee it, nor can you just mark up what you "pay" for it.

As for the analyst, he talks about technology improving and making optimization not needed. My read of that is that he's not saying consolidation is involved. It sounds like he's saying search technology will improve so much that companies won't need to hire search engine optimization firms to aid in ranking improvements. I flatly disagree. In fact, SEO will probably be more important than ever as search fragments into verticals. SEO firms will better understand how particular content should be fed to shopping search engines, local search engines and so on. In addition, the great technology improvement that some of the same type analysts have praised Google for hasn't wiped out SEO. I don't see it changing so dramatically that things just naturally always happen the right way in the next three years.

Now as for SEM, the umbrella term for search marketing through paid and unpaid means, back to that margin squeeze. In the US, search engines aren't paying a commission. So search marketing firms either have to mark up or add-on in some other way to earn for what they do. Is that the money the search companies are supposedly going to try and grab? I think not. There's not much "middle" to begin with. What middle there is was already hard earned by companies that proved there was a reason to come to them for help rather than go to the search companies already, who are happy to take any big client by the hand. And ultimately, that's because you cannot trust that Google is going to do the right thing for you in terms of getting your buy on Yahoo -- and vice-versa. A third party firm? For them, it's in their interest to ally with you.

Anyone curious, I posted some additional thoughts on the article over here: SEMs: Your Days Are Over (Not).
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Old 03-14-2005   #14
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Honestly I don't think one of you SEM guys has ever listened to a quarterly earnings conference call from a search engine company. Do you guys ever research at all??? It reminds of the the old dot com days. Just my opinion

Anyway- Really simple, Just for an example - Lets say the search engine charges 70 cents and the advertiser pays $1.00 to the SEM guy who goes and buys the inventory from the search engine for 70 cents. If the advertiser is willing to pay a dollar and the search engine is only getting 70 cents of that you guys don't think that search engines are going to work like crazy to better target the technology so that they can get some of that 30 cents in the middle? Danny you honestly believes margins won't be squeezed in the SEM business???
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Old 03-14-2005   #15
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Now SEO Danny. If money is being poured into SEO to get the free listings optomized and thats part of search spend, you don't think the search engines will try to bring that money into advertising spend? If technology and relevancy improves and optimization falls there is more money available for keyword spending.

If consolidation happened in traditional ad agencies why won't it happen in search ad agencies?
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Old 03-14-2005   #16
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Anyway- Really simple, Just for an example - Lets say the search engine charges 70 cents and the advertiser pays $1.00 to the SEM guy who goes and buys the inventory from the search engine for 70 cents.
Muscle13 - thats a pretty interesting pricing model.

Do you know of any professional SEM companies that operate that way in a market where the inventory 'buy' price is determined in a 24/7/365 auction process? Its not a fixed price CPM banner ad buy.

Most SEM's I have spoken to charge on a head hours basis for the added value they bring.
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Old 03-14-2005   #17
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Muscle13 - thats a pretty interesting pricing model.

Do you know of any professional SEM companies that operate that way in a market where the inventory 'buy' price is determined in a 24/7/365 auction process? Its not a fixed price CPM banner ad buy.

Most SEM's I have spoken to charge on a head hours basis for the added value they bring.
Ok let me reword it

Lets say the SEM guy bids and gets inventory for 70 cents and the advertiser pays $1.00 to the SEM guy. If the advertiser is willing to pay a dollar and the search engine is only getting 70 cents of that you guys don't think that search engines are going to work like crazy to better the technology so they can bring that dollar into the industry or at least more than 70 cents.

There is no difference Chris. Differing price determination methods do not change the conclusion that SEM margins will still be squeezed.

Again, if consolidation happened in traditional ad agencies why won't it happen in search ad agencies?
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Old 03-14-2005   #18
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I've listened to a number of quarterly earnings calls, along with many other discussions of things that go on that aren't covered in calls. I also understand that the earnings calls don't tend to cover the less visible side of search marketing, that which the search marketers themselves do. In short, if you only hear things from what the search engines tell you on calls, you aren't getting a good overall view of the search marketing space.

So if you're honestly looking to understand the space, don't imply that the search marketers responding in this thread are somehow clueless. They are on the front lines of the spending. They see things anyone should take into account. They are as much a part of the market as the search engines themselves, not some lesser children. In fact, many of them were earning money on search long before the search engines realized they could do paid listings.

Now, as for paying the search company $0.70 by working with them directly or the search marketing company $0.80 cents (that's a 15 percent markup, which is typical). Why pay the 15 percent?

Because I see the value in having the search marketing company watching out for me. They've proven they'll do other things like help with my conversions, make sure that I've not overpaying when the bid management tools the search engines offer that are supposed to protect me don't. They'll ensure I don't run my budget out or get involved in bid wars that might not make sense.

The search engines already try to grab direct business when they can from search marketers. This isn't something new. Despite this, the search marketers are hanging on to business.

As for trying to somehow get the SEO money direct to them, Yahoo does that through a program called paid inclusion. For their pain, they get a lot of bad PR. Google, if it tries to grab the SEO money, gets a bad rep of mixing church and state.

As for consolidation, I'm certainly not saying there won't be consolidation. But that doesn't mean you don't have standalone shops. Geez, there are ad agencies big and small across the US. It's not like we've got only five ad agencies. And we have standalone PR agencies, standalone brand development agencies, standalone direct marketing shops. I think search is plenty big enough that some standalone shops of various sizes will remain -- especially many, many of the small firms.
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Old 03-14-2005   #19
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Most SEM's I have spoken to charge on a head hours basis for the added value they bring.
'Reselling' inventory, and 'marking it up' isn't a popular business model in the world of SEM, Muscle13.

Like most professional SEM's, we charge for the value we add - which the search engines themselves don't provide - and its based on head hours.

You asked:
Quote:
Do you guys ever research at all???
I'd respectfully suggest that you really need to so some research on what's involved in managing and measuring PPC campaigns across multiple search engines. Then you may better understand that its not a 'margin squeeze' situation. Professional SEM is more about maximising the clients ROI based on conversions - its not generally a simplistic 'resale of clicks' business model.
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Old 03-14-2005   #20
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Now that was a pretty cool answer Danny. I don't agree with it but at least you SEM guys are addressing the issues and for once treating me like I am human.

Value added in traditional ad agencies. Isn't it mostly creative? How can creative work into search? I just don't see it.

Won't the search engines themselves try to do the value added parts you talk about (through technology) if they see they can get more of the dollars in?
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