Wednesday, September 03, 2008

SEM's At The VC Teat

Many Searchquant readers (yes, there are many of you despite my inability to set up an RSS feed) have told me that one of the things they like most about my blog is what I have to say about SEM firms, competition among them and the market-making aspect of SEM sales.

One aspect of the SEM vendor world I've been meaning to comment on is that subset of SEM firms whose pricing model is so low that even the pants-around-ankles analogy is woefully inadequate. You have folks like DART Search and other agency-focused SEM vendors who regularly go in at 1-2% of spend fees for annual contracts, and others who sell self-service tools/platforms at 2-6% of spend fees, all of which is below the 8-15% the industry used to charge back in the day when search was infinitely easier and more ROI-positive.

But then you have that most desperate, that most irrational, that most pitiful SEM vendor. Yes, you know what I'm talking about: the recently VC-funded, *very* late market entrant. With the economy stagnating and worse times yet ahead, these late-inning VC-funded pipe dreams have to fight at least 7-8 other direct competitors as well as several dozen agencies tooth & nail for their business, all in the hopes that the equity exits of 2004-2007 still apply (they don't). Doing a 30-day no-cost trial and then offering month-to-month 1-1.5% of spend contracts may be a great way to gain consideration in lieu of hard work, and some advertisers may think it's a good opportunity for them individually as potential clients.

But now multiply that across these SEM firms' entire businesses and you basically have vendors 'buying' *potential future business* with the VC money they've raised.

Word to you wise $50K+/mo PPC advertisers: if search is at all important to you, you need to take into account vendor stability, durability, proven ROI and product integration into your analytics, internal systems and 3rd party applications, and you need to buy based on value, not just price.

You need to buy based on value, not just price.
You need to fight the good fight and get your management to fund SEM as something other than an afterthought.
You need to remember what Grandpa told you: you get what you pay for.
Value, not price.
Value. Value. Value.

Look for financial stability, proven performance, credible product roadmap, global infrastructure and all the other things that ensure your partner's value to you will last as long as your SEM efforts do. Otherwise you'll end up with a vendor incapable of providing the services necessary for you to get off the ground and up & running with their solution. Likewise, understand that what's *not* in short supply is advertisers who need to do better in search. What *is* in short supply is vendors who can help them get there.

If you're a VC and your recent SEM investment is leading with free trials, month-to-month contracts and 1-2% pricing, I humbly submit that you are the nursing mother seated at the park bench reading your magazine, and Jim Carey is that SEM firm you funded.


Blogger Jeremy Mayes said...

Great post, as always

And if it helps anyone else...


4:50 PM


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