Google scraps best practice funding - end of an era or heralding a new dawn?
With the news that Google is to scrap its best practice funding programme - worth an estimated £50m a year to EMEA agencies - it seems the halcyon days of Google agency kickbacks are well and truly over.
But is there all that much to miss?
Launched by Google in 2005, Best Practice Funding (BPF) was introduced to drive growth and innovation within the search space, replacing traditional agency commissions. Crucially, it also aimed to provide agencies with the funding for skills and technology, the idea being they would reinvest the money in these areas.
Best practice funding (BPF) awarded agencies a percentage of money based on how much they spent on their clients' behalf. Meaning agencies have received anything from 3% to 8% of their ad spend each quarter.
Google's BPF is due to end on 31 December 2008.
Unfortunately, not every agency took advantage of BPF for the right reasons. In fact, loopholes have been exploited over the last two years. Some clients swapped agencies every quarter in order to receive a quarterly growth kickback during year one, while some agencies used the discounts as bait in the pitch process. Media planning and buying agencies were particularly renowned for this.
Put simply, these agencies are going to have to hike up their rates to recoup their losses. This may well mean losing some of their clients, followed by some pretty intensive pitching to gain more. But, with higher rates, the winning of new business could prove anything but straightforward.
Google's BPF was never going to last forever. So those who relied on the programme to keep rates down have only themselves to blame for their impending predicaments.
What it means for Greenlight and our clients
The industry has mixed feelings about BPF's demise - and viewpoint depends on how the agency in question spent the money. Some believe BPF slowed down the paid search industry's progress and are pleased to see the back of it.
At Greenlight, while we recognise BPF could be used to mask bad service and inadequate technology, on a personal level it's been a very useful exercise. The money came at just the right time for us to invest it in our rapidly-evolving technologies and help evolve them even quicker.
SearchSentry™, for example, was turned round in a month and is moving into its second version ready for Q4. AdApt™ and Quant™ have also benefited from Google's BPF, speeding up some of the features planned for later in the year.
As befits a business at the forefront of developments in search, we put the money into what works best for our business. This in turn benefited - and will continue to benefit - all our clients. We didn't try to lure clients at pitches by offering now unworkable rates. So, unlike some agencies, we won't need to raise our fees.
Of course, we will experience a small (though negligible) loss in revenue. But the technological advancements we've made in the last two years - and the revenue they've created for us and our clients - will more than make up for this.
We did allocate some BPF money to a small percentage of our highest-spending clients. But on the understanding they reinvested it in their search campaigns. What's more, these clients were aware the arrangement was finite. So there are no nasty financial surprises for them now the BPF days are almost over.
An end in sight
Worryingly, not every advertiser out there is even aware BPF is going or - if they are - when this will actually happen. Some agencies have been rather shy about sharing this important information with their clients.
Though the current system will actually end on 31 December 2008, many believed the date was 31 August 2008. Perhaps some agencies would like to use the last four months of the year to try and offset some of the extra costs they'll soon be facing?
Best of the rest
While Yahoo! and MSN have no plans to remove their agency commissions, there is no guarantee they'll be in place forever. Yahoo offers a 10% discount for an £80,000+ spend, and 5% for anything less. MSN has maintained its rate at 15%.
Looking forward - quality, not quantity
For Greenlight and our clients, the future's bright.
Because we've always been very realistic about how BPF worked, we can afford to be positive. Having used the money to grow our technology offer, we can face the future with confidence. In fact, life after BPF looks decidedly rosy for Greenlight and our clients.
Looking at the wider industry picture, the end of BPF can only spell good news for paid search. BPF's removal will sort the wheat from the chaff - and demonstrate which search engine marketing companies offer true value.
Damian Burns, Head of Agency Relations for Google EMEA says, 'Agencies are now at a level where they don't need a subsidy.'
He goes on to add: "Everyone should be equal in an auction system; there shouldn't be buying clout. The value for clients is in how well agency campaigns perform."
The quantity of what an agency offers in kickbacks is not - and never was - a representation of the quality of service it provides. Hopefully, now it won't just be clients from a handful of agencies who have the measure of this fact.