Google has announced plans to revamp the practice of paying commissions to agencies in Europe. Rather than tying the percentage of money paid to to the size of an agency and other factors, Google will be giving "best practice funding" that is tiered against the actual business that agencies bring to Google.
Best practice funding? From Google's perspective, it's no longer paying commissions. It is giving money to agencies, which it hopes they'll use to help grow the search marketing sides of their operations. Hence the "best practice funding" wording. However, agencies can spend the money as they like. For many, they're still going to consider this a commission regardless of the wording.
Agencies will only be eligible for payments if they have at least two Google-certified Advertising Professionals on staff. To qualify, agencies will have to have at least five clients involved with search. Search marketing firms are already considered agencies for payments, Google says, and will continue to be so under the changes. The program will roll out as of January 2006 across Europe.
Why make the move? Google is worried that making large payments is distorting the auction-based system of buying search ads. In addition, it also has had to deal with different types of commission structures that are expected in different European countries. The changes are meant to unify what's paid and ensure that payments are tied to how agencies help grow the purchase of search ads through Google.
"We've been concerned about this practice of agency discounts in Europe. We're revamping our whole structure and introducing a best practice funding program in the industry," said Nikesh Arora, Google's vice president of European operations.
Agencies will be paid according to a tiered structure where they are rewarded by the amount of business they bring in or how quickly they grow business, up to a maximum of 12 percent of spend. Current commission payments range from 15 to 30 percent, Arora said.
Google's also going to provide additional support and tools for the agencies, in particular tools to help ensure they are measuring and managing ads properly. Many agencies have a weakness in these areas, Arora said.
Why not get rid of payments entirely? Outside Europe, commissions generally aren't offered, to my knowledge. They certainly aren't in the United States, where paid search originated.
Arora said payments were something Google felt compelled to offer, when it entered the European market nearly four years ago. More media is purchased through agencies in Europe than through companies coming to Google directly, he said.
"A significant amount of the large players only deal with agencies," he explained.
Search also wasn't established as much in Europe, so paying commissions was a way to help speed the process along.
Given that commission-like payments have been established, I can see it's obviously difficult for Google to simply declare they won't happen any longer. However, the change will be significant to some. Agency reaction remains to be seen, as the move has only just been announced. Arora expects some agencies obviously won't like it, but one executive from a major top five European search agency told him the move wouldn't be a problem.
See also the Agency Commission Or Discount Offered On Search Ads? thread in our Search Engine Watch Forums for discussions of payments in Europe and how they don't happen in the US.
Here's additional info Google has sent (press release comes after that):
- From 1st January 2006 there will be no agency commission i.e. All advertisers will be on a level playing field.
- The Google European third party programme is a drive to empower 3rd parties in the delivery of best practice within the field of search marketing.
- The best practice funding element is a criteria-based scheme which aims to provide investment for third parties from Google in order to drive their search marketing capabilities forward and grow the industry.
- The scheme is optional and does not involve any discounting of the Google advertising model - a deliberate move aimed at achieving transparency and integrity for the adwords auction model.
- The criteria for qualification are not solely financially based and include mandatory adoption of our My Client Centre. Third parties must also meet Google Advertising Professional quota requirements in order to qualify.
London - September 28, 2005 - Google Inc. today announced that it has introduced a new program aimed at empowering third parties and delivering continued value to advertisers of all sizes. This new industry program will be available to all qualifying third parties across Europe from January 2006.
Under the new Google European Third Party program, Google will deliver training, tools and support to third parties, enabling them to deliver more value to their clients. By reconfiguring the previous practice of giving agency discounts and introducing best practice funding, this new program will level the playing field, allowing advertisers of all sizes to fairly compete in Google's auctions based advertising platform.
"Google's new program empowers third parties to more efficiently and effectively serve their clients. Third parties are critical to the success of advertisers and to Google and we have designed an approach that favours both," says Nikesh Arora, Vice President of European Operations at Google. "We firmly believe that it is important to preserve the integrity of the channel in terms of marketing effectiveness and advertiser perception. By fostering greater equality across Google's auction model, advertisers of all sizes can more effectively compete against each other," he concludes.
The core elements that Google will now provide its third parties are:
- Tools to increase third party efficiency and effectiveness
- Training and market research
- Process enhancements such as wholesale upgrades to our commercial processes to ensure that our processes are aligned to our third party business models
- Extended service and technical support
- A quarterly best practice funding program for investment in training and platforms which aims to provide financial support for those third parties who fulfill our quality and investment scale criteria
Designed to boost the quality of search marketing operations, and safeguard the integrity of the channel, this program encourages third parties to deliver quality advertising results for users thereby improving marketing effectiveness, clients ROI and advertiser perception.