Last week, Google fundamentally changed the way it operates in the UK by announcing the end of a raft of benefits it offers agencies. Some agencies were quick to admit they would introduce or increase management fees and renegotiate contracts - meaning that, as a result of Google's decision, advertisers will have to part with more money to run search campaigns (see box).
Google introduced its Best Practice Funding scheme on 1 January 2006 in order to gain a dominant position in the market and convince agencies that their clients would benefit by putting money into paid search.
It replaced a previous agency discount scheme, which did not have such an emphasis on training.
Mark Howe, managing director of Google UK, says that although he believes now is the natural time for the scheme to end, various factors made the search engine change policy.
"The programme has reached its natural conclusion," says Howe. "Skill sets are now dramatically different across the board. We've seen agencies truly invest to support clients' needs, and the basics are now there in most cases."
Howe says that the programme "has led to practices that reduce integrity in the scheme, and removing it clears up a few loopholes".
Some advertisers, he points out, had begun changing search agency every quarter in order to trigger the growth kicker, which rewards agencies for significantly increasing their spend with Google. They would then demand payment from the agency and take their business elsewhere.
Howe moved to appease agencies, claiming that Google's support for them would not diminish. He insisted that Google has "absolutely no desire to have a more direct relationship with clients".
Yet advertisers have suddenly been given less reason to deal with agencies. Companies such as Amazon, eBay, Masterfoods and Thomas Cook run much of their search marketing in-house and, although agencies have predicted that more firms will follow suit, they believe the cost of training and hiring a full-time search team will stop it becoming a major trend.
Indeed, some agencies have welcomed the end of Best Practice Funding because they believe it was fundamentally flawed all along.
Elliott Muscant, director at MediaVest Manchester, says: "Google's current commission programme was ill-conceived and open to abuse. Dressing it up under the umbrella of 'best practice funding' simply masks the fact that the tiered structure favours the large agency networks, regardless of the quality of their search product.
"Business has been won and lost over the past two years based on potential funding rebates, rather than the ability to deliver a sophisticated search marketing strategy."
Muscant will continue to argue for a flat agency commission, but believes removing the best practice scheme altogether is preferable to maintaining a structure that favours "brawn over brains".
But his desire for a flat agency commission structure is unlikely to be realised and, although agencies are unhappy at missing out on Google's payments, many believe it will result in a more open market.
Simon Mansell, managing director of independent digital agency TBG London, says that, where previously it has been difficult to compete against agencies that claim the full rebate, clients will now award their accounts more on ability than price.
Level playing field
Paul Doleman, chief technical officer at search agency Spannerworks, has been lobbying for the removal of Best Practice Funding for some time. "I totally agree with Google that getting rid of it creates a level playing field," he says. "Full-service agencies use search as a loss leader, which fosters laziness among buyers.
"There were also all sorts of abuses going on that needed to be stopped. Big agencies may divert spend to Microsoft and Yahoo! because they offer more of a discount."
Howe is not concerned about agencies spending money elsewhere in the market as long as Google delivers results for clients and agencies. "If Google can't deliver high value rewards, then there's no reason to advertise with us," he says.
No agencies, whether independent, search-specific, digital-only or belonging to a network, will admit that they stand to lose the most through Best Practice Funding ending.
But those who have previously used price as their unique selling point will no longer have such an advantage, and they now have 15 months to get their house in order.
Agencies that have invested Google payments in improving their search performance will be in a better position, as they will now also be able to compete on price.
Google has changed how search works in the UK and shaken up agencies in a big way by ending Best Practice Funding.
There will be a lot of staff and account moves in the sector before advertisers and agencies learn to cope with the new arrangements.
GOOGLE'S BEST PRACTICE
FUNDING - THE KEY POINTS
- The main changes for 2008 will see agencies having to spend less to achieve maximum payouts, thereby giving smaller agencies a chance to get bigger kicker payments
- Ad spend on YouTube will count towards the payment for the first time. Google has axed its growth kicker, which was being abused by advertisers swapping agencies in order to get a payout
- Google has also ended its payout for agencies that invest in new ad formats, including video ads
- Google introduced its Best Practice Funding scheme at the start of 2006 and will scrap it at the end of 2008.
This article was first published on Media Week