Hitmetrix - User behavior analytics & recording

Providing interactive services: Buy, build or partner?

We hear from many direct response and advertising executives that clients of agencies, list brokers and other service firms have been asking them to provide interactive services such as search, lead generation, Web design and offline-to-online tracking. We’ve also been hearing that many woefully are forced to say, “We don’t do that.” Clearly, this represents lost opportunities that might wind up in the hands of competitors who do offer those services.

There are many companies that want to provide these kinds of services, but don’t know where to start. They are faced with the question that service companies have dealt with for decades: Should I buy, build or partner in order to offer these services? Using search engine marketing (SEM) as an example, let’s look at these three choices.

Regardless of which path you take, offering search services today requires technology and highly trained, experienced specialists, the latter of which are hard to find in most markets. In the same way that seasoned list brokers aren’t growing on trees, the people you need to staff a top-shelf SEM division are scarce. This is exacerbated by the fact that the SEM channel has not been around long enough to produce a sufficient pool of talent to meet the ever-growing need for such. Other things to consider are the cost, control, and risk and reward issues.

Buy. One option is to buy an existing search company or interactive agency that has a search practice. However, many of the best companies have already been purchased by major league companies. The remaining independents will command a premium, if they are for sale. Depending on their existing revenue, profitability, technology and staff, purchasing a good search agency could run into the multimillions.

Another challenge when you buy an existing search agency, is that you really won’t know what you’re getting in terms of technology and staff, so you’ve got to do some great due diligence. This could be a significant problem if you don’t know what to look for. While buying a good quality search firm stands to net a solid financial reward and could be accomplished fairly quickly, it also carries the most risk. However, owning your own search agency gives you total flexibility, and the ability to service specific accounts that make the most business sense for you – no one else is dictating who your clients should be.

Build. If you were to consider building a search division, you eliminate the premium associated with buying, but you inherit other issues. Depending on the needs of your client base, you may be faced with building a small department of fewer than ten people, or one with dozens or more.

Search, like most interactive activities, is labor-intensive and your biggest challenge, should you decide to build, will be to find trained direct response and search marketers to staff your division. You will pay dearly for that talent, and it will take quite a while to find them and convince them to join a startup division. Once again, the financial reward is there for the taking, but you need a heavy dose of intestinal fortitude and patience to make this happen. That being said, like buying, building gives you total control over who you work with and also enables you to build the division with the specific goals and objectives of your clients in mind.

Partner. Unlike buying or building, partnering with a search agency enables you to get in the game almost immediately, with minimal or even no investment and greatly reduced risk. In this environment, the agency you partner with does all the heavy lifting, allowing you to provide more services to clients, literally overnight. Plus, you have the flexibility to switch partners should you be dissatisfied with the service and/or results.

Partnering also gives your agency the ability to go out and get new business, because you now offer a wide range of customer acquisition services, from lists to agency services to search to display ads, and so forth.

Each of these approaches has pros and cons, like any decision of this magnitude. If your goal is to respond to clients who want these services today, partnering is the obvious choice. If time is not an issue and long-term revenue is, buying or building could be the answer. In all cases, do your due diligence, because your good reputation is always on the line.

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