A Reprise Reprise: Why Most SEM's Are Picking The Wrong Side

Another SEM got tired and sold out to a traditional agency for a low multiple yesterday. The Reprise team is great and gifted and proven, but I think they'll look back and realize they made a big strategic mistake. Here's my analysis:

1) Reprise probably got <$25M, not exactly a stellar price, but big agencies aren’t used to paying technology multiples.

2) I think SEM's maximize their potential in the long-term by endeavoring to be the best at what they do and being independent enough to sell to everyone, not just one particular global agencies’ clients. Reprise will within a matter of 1-2 quarters cease to be selling to anything but existing Interpublic clients.

3) Good SEM's should think of themselves as more akin to Atlas and DoubleClick in terms of being able to sell to many agencies, and having agency products helps that.

4) GOOG & YHOO are worth $200B+ together because online marketing matters most and because online marketing matters most, best of breed will matter to enough advertisers to allow good SEM's to control their own growth for the next several years at least (control meaning their own execution will determine their success more than external market/competitive factors).

5) I think the big traditional agencies will continue to largely ignore or be irrelevant to the search engine’s top 1000’s of advertisers = the web intermediaries. That said, with all these SEMs getting bought by big agencies, good remaining SEMs should actually be in a very good position to become solutions of choice for smart web intermediaries as well as the minority of offline advertisers who ‘get it’ online. For our part, I feel confident that our web-centric clients have built long-term businesses that will continue to challenge old school brands whose own business models are not web-ified enough to suit consumers’ changing media and buying behaviors. SEM’s within big agencies will, for their part, in effect be locked out of the non-traditional Internet business space, leaving it to us (and a few others).

6) I firmly believe the best SEM's will have to have dual technology-enabled services and self-service technology offerings. EF, for one, *is* a new model and one that exists because the opportunity exists to continue build out a thriving, independent SEM that will become attractive not to low-PE agencies, but rather to high-PE technology companies like SaaS, SAP, Oracle, IBM and Microsoft on the one hand, and high-PE Internet companies like IAC, Yahoo, Google, Valueclick, Aquantive and [dare I say] Omniture on the other hand.

7) If SEMs can be among the first and best at growing into mobile, directory, radio and TV along with the SE’s, we will get our share of agency business no matter what SEM they buy.

8) Lastly, I think it’s important to note that we’re currently in a relatively benign economic climate; if the economy heads into recession as I feel it will, bloated agencies have always & will be the first ones to feel it – not something Peter and Josh’s *employees* will find very rewarding.

Congratulations to Peter & Joshua (and Frederick and others) for making some dough, but in the most ironic of twists, they picked the wrong side.