Ad/Search Agency Convergence from Hollis Thomases at ClickZ looks at when an ad agency is NOT also and SEM firm or more to the point, how they can't be when paid search is making up so much of online ad spend.
The slant seems more on the pure-play SEM firms suggesting that ad agencies can't do well in the search world. From my experience, that's not just a marketing pitch by the firms. It's often the reality. But it depends on the ad firm you're talking about.
A pure play creative ad shop? Search is going to be weird, strange and not really what they do. If they need it, they're far more likely to outsource to someone else to do it.
In the end, you're going to continue to have a spectrum of agencies -- SEMs that focus just on search and everything to do with search (feeds, local, shopping, web, and free and organic listings in all of those), interactive agencies that do search along with other buys, traditional agencies that may or may not take on some interactive roles.
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