France and Search Marketing Q3: Economics of Search
So summer is over since last week here in Paris and pre-autumn has struck with a quietly sad and Oxford-like endless drizzle where the sky and the smog merge into autumness. We also have days with sunglasses in the morning and umbrella in the afternoon but they are becoming more rare and I expect to soon put the sunglasses away and find me a more solid umbrella.
And while the days get darker, the French economy is at last seeing a bit of light at the end of the tunnel with small signs of recovery after repeated crises. Just in time to get some confidence into the market as we will be looking towards the end of the year with expectation.
The French Search industry got a bit of a shock just before summer when one of its Pioneering brands, the independent agency 1ere Position published a blog post saying they were in severe economic difficulties and were looking for a solution to avoid bankruptcy. They ended up in a procedure similar to the American Chapter 11 where the court controls operations until financial recovery. The founder mentioned some financial management problems on the blog and also blamed Google for their lack of willingness to help the agency through the crisis. The agency got a lot of support from the entire Search community in France and as we understand it, the company is pulling out of its difficulties while restructuring activities to abandon Paid Search and concentrate solely on Organic Search and Social.
Now to change the mood a bit, there was another major piece of French online marketing news to hit the press only this week. The inventors of online remarketing, the French company Criteo, filed for an IPO. The French start-up sector hasn’t had that many IPOs so this is a bright and shining piece of news. Criteo are covering the globe today and have earned a significant portion of online marketing budgets with their direct sales approach and minimal marketing integration philosophy.
Usually in periods of financial turmoil, you can read signs of an undergoing change and I find it striking to see a Search Marketing agency in trouble and a Remarketing technology in great expansion. There is definitely change in the market place and agencies and consultants must constantly upgrade their business models and embrace novelties to stay afloat.
I have been involved in the Economics of Online marketing for many years. My first big discussion on the economics of search was a pretty simple one. The agency I subcontracted some SEO for back in the 90ies said to me: ”you need to prepare yourself for consultancy fees to go down in this sector as volume of business goes up”. Volume up, price down – pretty straight forward economic thinking, only, the economy of Search does not live by that rule. My opinion was the exactly opposite – hourly or daily consulting fees in SEO would go up significantly and for a long time. So, I was right and the agency stopped using me as a subcontractor…
And when Paid Search arrived, the economics of the sector were shook up again. It was a hard shift when you wanted to move from SEO-services with a 100% margin to PPC-services with a 15% margin. We used to receive those 15% as a kick-back or a commission from the engines – Overture, E-Spotting, Voila, Google at that time. Today the kick-backs are gone in France and we operate most major Paid Search operations well below the 15% mark – and via 2 engines: Google and Bing. We are also spending more time managing the campaigns and paying for the tools and technology required to be up and optimised 24 hours every day. And then we are integrating those campaigns with Facebook, LinkedIn and Display campaigns via a Demand Side Platform. Luckily budgets have gone up since then, so that percentage represents enough value for us to cover costs of technology, labor, offices, management and communication.
Today, even the structure of SEO engagements is changing from an economic stand-point. The “old” formula used in France about 10 years ago would present a SEO engagement as a yearly project with an intensive initial period of work over approximately 3 months where an SEO audit and a technical recommendation would be provided to the client. The rest of the year would be very profitable for the agency because they would be doing only rank reporting and reminders to the client saying: “you still haven’t implemented the technical changes I told you to make”. And so at the end of the year, the client would say: “Dear SEO agency, you did a good job and you are obviously very competent but unfortunately I got very little value out of your work so I am changing to a different agency”. So the chairs would be swapped every year and every new engagement would have its intensive and its profitable part. Now, this is where I will stress that many SEO agencies were pretty worked up about this and always tried to do better than that: involving technical teams, involving designers, doing workshops and trainings to try to make sure the client’s site adopted the maximum number of recommendations made by the agency.
But then we entered the Links Era and the equation had to change. The whole area of linkbuilding suddenly filled up the entire year of SEO accompaniment and depending on how good your site and content was, you could even get some really significant results out of the SEO engagement. And with last year’s Penguin updates from Google we seem to be in the middle of a new shift to contents. So the SEOs who used to work with big constraints: “this is the site you need to make rank” are at last getting the chance to be heard for what they are really knowledgeable about: “dear client, these are the contents you need to build, these are the distribution partners you need to activate and here is how you analyse and track to see if you are getting there”. Some will argue that “SEO is dead” to get attention and build their authorship profile, others might continue to sell SEO using the old and obsolete approach to prove that point and others again will start building complementary internal competencies for shooting video, writing fabulous copy , handling complex data and design outstanding graphics.
So the crux of it all is that we are trying to build the economic models for online marketing and they are constantly being shaken by technological change, by commercial objectives and first and foremost by changing user behaviour. The French consumer has undergone a huge shift during the time I have addressed that market.
So, is the French market so much different than other European Search markets? We are all dependent on Google and their 2 algorithms which you can summarize in PageRank and QualityScore, are we not? And those are the same across the world. What differs, however, are the other variables: language structure, competitive landscape, ecommerce value and search volume. My experience with international markets have made me focus on as little as 2 values to understand the difference between the economic structures of search markets: Market size and Maturity level. I am deliberately not looking at the cost side of the equation although it is sometimes making this a bit more complex (think the Nordics: tiny market sizes and high cost of living).
To estimate or compare market size, you can look at the size of the online population and to estimate a maturity level you can analyze average CPC in Google adwords. For France you are looking at a decent size market and a fairly high average CPC. Compared to the UK market, an SEO engagement will be charged less as the client will not get the same value out of it. Although the market sizes are average, maturity is higher in the UK. Compare to the US and you will see that both market size and maturity are lower.
So, there is change in the French online marketing landscape. Economic turmoil but optimism. Shaken agencies will be back on their feet as they master the Search-Social equation. Criteo will be an IPO hit especially if they can keep innovating.
For the coming months we will look to the lights of Christmas to carry us through the boring season and into the joyful end of year. And if the optimism in the French Economy is maintained a bit, we should see a remarkable French Ecommerce performance at the end of 2013. It will do good to the entire online marketing space and we hope to be able to talk about great successes in the Q4 update which we will be the first “Digital Marketing and France” update.
About the Author, Anders Hjorth
Anders Hjorth (@soanders) is a digital native, entrepreneur, a frequent speaker on Search Marketing and occasional blogger. He is the Founder of AZNOS [Content Marketing] and of BDBL MEDIA [Biddable Media], 2 Digital Marketing agencies based in Paris.