When the internet emerged in the mid-90s, the talk was of 'disintermediation' – the death of the middleman. The web, it was said, would give us all direct access to whoever we wanted, meaning we could dispense with all those troublesome and costly intermediaries.
The reality is better described as reintermediation - a shift from one type of go-between to another. From broker to price-comparison site, directory to search engine. There are still people in the middle - it is just different people.
In marketing services, the same dynamic has troubled media agencies. Would they become marginalised or even redundant, as media became increasingly commoditised? Would Google cast them aside and deal direct with clients? Would technology render agencies unnecessary?
Most responded by driving the development of strategic, value-added services; anticipating margin erosion on the commodity end of their service spectrum and replacing lost income with more defensible services.
For smart agencies, Google has always been an opportunity. But the question of how and whether agencies add value in search is one that has been raised once again, as John Lewis last month announced a deal with technology provider Omniture to bring its search management in-house.
This reflects a move by technology partners to move up the value chain to provide consultancy services, with the likes of Efficient Frontier morphing into agencies to sell their platform.
To assess whether agencies are going to be reintermediated by technology businesses, we need to understand what agencies do. The traditional rationale still holds good here. Without scale in a particular market, it's tough to build the skills an organisation needs to operate. Scale gives breadth of experience; know-how gained in the insurance market can be applied to consumer electronics or travel, and only by having a team that's big enough to get that span of exposure to the market can you create the intellectual fire power to stay ahead.
Moreover, if you lack that breadth, it's harder to hire the best people - their career development suffers if their experience is too narrow.
But while this is a rationale for advertisers to outsource search, it is not an argument in favour of marketing services agencies - there is no reason, in theory, why technology companies can't provide this expertise. From a marketer's point of view, the challenge lies with technology itself.
An agency that exists as sales wrapper for a technology platform can only be as good as that technology platform. There are two problems with this. First, almost no technology is right for every brand's challenge. Software is expensive to develop, and adds a negligible extra cost for each new customer; so each new account is almost pure profit. The economic pressures make it unlikely that an 'agency' would recommend a competing system. So, strategic advice is fundamentally compromised.
Second, technology can quickly be eclipsed. Many regarded Efficient Frontier's platform as the market leader last year, but it appears to have been overtaken in several areas.
So agencies are under pressure from would-be reintermediators. But while expertise in technology is a crucial benefit of outsourcing to agencies, it doesn't necessitate ownership of that technology. In practice, if separation of tech assets from advice is an important aspect of the impartiality marketers should demand from agencies, it could be a barrier to entry for technologists with ambitions to displace agencies as the intermediator of choice.
Andrew Walmsley is co-founder of i-level
30 seconds on Efficient Frontier
- Efficient Frontier describes itself as the 'worldwide market and technology leader in providing search engine marketing solutions for large advertisers and agencies'.
- The company was founded in 2002 and employs 200 staff in the US, the UK, France, Germany and India. It is privately held, and funded by venture capital firms Redpoint Ventures and Cambrian Ventures. It manages more than £460m in search spend across the world each year.
- Efficient Frontier re-cently renewed its contract with Marks & Spencer to provide the retailer with a full search engine marketing service.
- It is the only firm that applies predictive modelling algorithms, adopted from those used to trade securities, to compute the potential return for every keyword.
- The 'efficient frontier' is also a concept in modern portfolio theory, which describes how investors can minimise risk by diversifying their investment.
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