What Impact Will Slowed Search Engine Growth Have on Agencies?

By Aaron Goldman, VP Marketing & Strategic Partnerships

Last, week I asked the question, “How Will the Recession Affect Search Engines and Agencies?”

My thoughts centered on the impact a recession will have on mid and long-tail search marketers. Given that these companies are newer to search and/or have less cash reserves to weather a financial storm, they are the most likely to pull back on their paid search campaigns with the economy tanking.

While this doesn’t present a big problem for search agencies, as they don’t typically represent small search marketers, this poses a major challenge to the engines that have been growing revenue dramatically quarter over quarter as the tail gets longer. And slower growth yields shareholder frustration, sending stock prices South. For proof, look no further than Google’s $70 slide in the 4 days following the announcement of Q4 earnings that missed analysts forecasts.

So what does slower revenue growth for the engines mean for agencies?

With stock prices retreating, it will become increasingly difficult for search engines to justify hefty R&D budgets -- especially those that are more long-term focused. Less innovation means less opportunity for marketers to expand their search programs. This, in turn, makes it more difficult for search agencies to grow their client’s campaigns and, thus, their own businesses.

Additionally, slower growth will likely bring more consolidation in the space. Without the usual growth from search, companies like Yahoo that are re-organizing to better meet the needs of the market, will have to take more drastic measures. That could mean buying other companies or getting bought themselves. Microsoft’s unsolicited bid for Yahoo certainly reflects Steve Ballmer preying on Jerry Yang’s current financial woes. A consolidated Microohoo could serve to make the role of the agency less vital if marketers can easily cover 90%+ of the search landscape with just 2 partners.

These are just a couple examples of how a slowdown for the search engines can negatively impact agencies. I think the bottom line is that high tides lift all boats and low tides sink them. It will be difficult for any constituency to thrive when the major search providers aren’t doing well -- that includes end-users, too, as they feel the brunt of slower innovation and less choice in the marketplace.

For everyone’s sake, let’s hope things don’t play out this way and the net result of the recession is a boon for search as marketers (big and small alike) move budget away from less accountable media.

Posted by: Aaron Goldman, VP Marketing & Strategic Partnerships