RFP's are evil (Part 1)

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While recent forecasts show that SEM, as a marketing discipline, has a bright future ahead, it's equally clear that the majority of clients using SEM agencies are deeply unhappy. In fact, SEMPO's recent "State of the Search Market 2006" survey reported that just about two thirds of advertisers plan to ditch their SEM agencies entirely, bringing their SEM initiatives (both paid and SEO) in-house. A 2006 study by Jupiter Research painted an even direr picture: just 21 percent of respondents reported being completely happy with their SEM agencies. And those of us who work at SEM agencies are repeatedly exposed to the cry of search advertisers who claim, rightly or wrongly, that "my last SEM agency ripped me off!"

Why are so many search clients so unhappy? Are SEM agencies really doing a ghastly job of managing their clients' search goals? Or is there something broken with the way clients pick their SEM agencies that leads directly to this cycle of disappointment, failure, and client churn?

Why companies use RFPs to select SEM agencies
Let's look at the way that corporate clients typically select a SEM agency. Typically, an RFP (request for proposal) is at the heart of this selection process. The RFP, which is typically crafted by a mid-level Search Manager, contains numerous questions that purport to address the given SEM agency's suitability to task. Sometimes, these questions can range into the hundreds, delving deeply into the micro-minutia of how a SEM agency runs search campaigns.

The RFP goes out to 20 or 30 SEM agencies, is completed and returned to the client, the data is sifted through by the Search Manager, and four or five finalists are selected to present directly to the client. The agency that makes the best presentation typically wins the account.

Does this sound like a rational way to select a supplier? Well, it might be, if you're selecting a supplier of copying machines, PBX phone systems, office-cleaning services, or other category of good or service in which differences among competing offerings are neither mission-critical nor earth-shattering. Copying machines, for example, represent a mature technology where differences in price points, tech specs, and support policies can be efficiently disclosed by the RPF process.

But using an RFP process to select a SEM agency isn't just the wrong way to select a supplier of SEM services: it's a recipe for disaster. Why? Because the RFP is probably the least reliable method of revealing the major differences among SEM agencies, differences that can, over time, result in big wins, or big losses, in the search marketplace that can represent millions of dollars of lost or found revenue.

You'd never use an RFP to select a strategic partner
In most organizations, the CEO is directly involved in critical decisions relating to the selection of outside firms considered critical to the future of the organization. These firms typically include an outside law firm, an outside accounting firm and an outside ad agency. Any CEO worth his or her salt realizes that these are big, mission-critical decisions: this is why he or she refuses to "delegate them down" to underlings. After all, if the company is sued and the outside attorney loses the case, the costs might be in the millions or billions of dollars. Selecting the wrong accounting firm is similarly costly, and so is hiring the wrong ad agency. Every CEO knows this, and would never delegate these important decisions down to a mid-level manager, even if this mid-level manager happens to have a background in law, accounting or advertising.

But this is exactly what happens in the SEM agency selection process. A lower-level employee, hired because he or she "knows search," is given the responsibility of selecting a search firm, even though he or she may be completely unqualified to make basic procurement decisions, much less strategic decisions.

The problem is this: in today's world, selecting a search partner is quite possibly the most important strategic decision senior management can ever make. SEM agencies, unlike copying machine suppliers, have big, material differences among them that can directly impact the enterprise's bottom line and future growth prospects. The costs of failure in the search marketplace may represent losses of millions, perhaps billions of dollars in the long term. And yet this mission-critical decision is delegated to a search underling who may not even know what his employer's strategic goals are, much less how to achieve them. How crazy is that?

A predictable path to disaster
Let's look at what happens after the RFP process ends, and the deal is signed between the SEM agency and the client. Six months or a year later, it's clear to everyone in top management that they're losing at search, their competitors are eating their lunch, and their SEM agency is underperforming. Amid a chorus from senior management that "we're being ripped off by our SEM agency," the search underling is given new orders: "find us a new SEM!" He dutifully dusts off the old RFP document, tweaks it a bit, and sends it out again to 20 or 30 SEMs, which starts the agency selection process again. Again, the SEM agencies with the best, most comprehensive responses to the RFP are called in, and the winner gets the account.

Let's fast forward another year. Once again, the SEM agency is in the crosshairs of senior management after having "mismanaged" the client's account. But this time, senior management has had enough. Not only are they again blaming their SEM agency, but they're blaming Google, the search marketplace, clickfraudsters, basically everyone but themselves. In short order, both the in-house search manager and the SEM agency are fired, and the CEO's PR agency issues a terse press release, which reads as follows:

"While we initially regarded search as an efficient, low-cost marketing medium with high ROI potential, high keyword prices, increased competition, and an unacceptable level of click fraud have led us to reassess our marketing posture. After much thought and due consideration, the XYZ Corporation will now be putting our dollars into more proven marketing channels, including direct mail, magazine ads, and radio and TV spots."

While Company XYZ won't admit this in public, this kind of statement is a clear admission of total, abject, miserable failure. The cost of this decision may well amount to millions, if not billions of dollars, in the years ahead. But management walks away from this decision feeling better, because, at least, they are no longer being "ripped off" by their SEM agency and have decisively proven to themselves that "search is too tough for us to win at."

All they've proven, however, is that they've used exactly the wrong methods to choose their strategic partner. Sadly, nobody on this doomed ship of fools is even aware that it's their absurd procurement process, beginning with the RFP, that's responsible for the disaster they've themselves created, or that, had they only asked the right questions at the very beginning of the process, they wouldn't be mired in the hole that they're stuck in now (and will become further enmired in as their competitors use search to pull ahead of them).

What can be done?
RFPs, in and of themselves, aren't evil, if they're used sensibly to sort out competing suppliers of products and services with marginal differences among them. When, however, they are used to separate strategic service providers with major qualitative differences that can't be easily quantified in a 35-page questionnaire, they're poisonous. Not only does the RFP process lull senior management into a false sense of security, but it practically guarantees the kind of widespread unhappiness and search campaign failure we regularly see in the industry. The result, for the whole SEM industry, is also a disaster, because when so many clients are unhappy, the whole industry is tarred with a broad brush, in which SEM agencies are regarded as "rip off" artists, or, at the very least, incompetent, overpromising underperformers.

Is there a better way to select SEM agencies? You bet there is. In fact, the process is so astonishingly simple that you may wind up slapping yourself in head, saying to yourself, "why didn't I think of that?" So in Part 2 of this series, I'll show you exactly what you need to do to select the right SEM agency, the questions you must ask, and the way you must think about the process.

If you follow my advice, I can guarantee you that you'll never have to endure the painful cycle of failure, disappointment, unhappiness and strategic failure that so many companies fall into when selecting SEM agencies.

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