Winners and losers in NMA’s search agency league table 2010 + PR implications

A curate’s egg – ie good in parts – is probably the best way to look at NMA’s latest league table of UK search marketing agencies.

As ever, I’m always grateful to NMA for providing the baseline data to look at. As I’ve done in previous years, I thought I’d dig behind the figures to see if there are any significant trends to be discovered – and to compare the search sector with the PR sector.

First up, some things worth noting regarding this year’s league table compared to 2009.

1. As per last year, NMA looked at net income (gross profit) rather than turnover in order to rank agencies.

2. The NMA table seems to suffer like PR Week’s league tables from agencies who submit figures when times are good – and then don’t submit when the data doesn’t look so rosy. There are only 19 firms in this year’s league table that were in last year’s. Hard to believe that 11 firms dropped out by recording a lower gross profit  (£36K) than number 36 ranked iVantage. So we can only assume they chose not to take part for whatever reason.

3. The financial periods being compared vary widely. For example, although in principle the table is intended to cover 2009, iCrossing achieved a number two position based on their figures to the end of Dec 2008. However, Steak returned figures based on a year end to February 2010 – as we all know, a lot can happen in 14 months. So worth bearing in mind that apples aren’t necessarily being compared with apples here.

So what can be gleaned from this year’s figures?

On one level, you might argue that Bigmouthmedia should be very pleased to have held on to their number one slot for the second year running with gross profit of £12.6m (in terms of PR sector comparisons, bear in mind that this is larger than most top 150 PR Week firms achieve in terms of top line fee income).  However, Bigmouth actually saw gross profit drop by 5.78pc on last year – or £775K.  Other firms also saw declines in net income – in fact a total of 42pc of the firms that appeared in last year’s table saw falls in net income. The biggest came from Latitude with a 52pc drop (£5.4m). As was well documented at the time, Latitude went (briefly) into administration in January, before a management buy out saw the firm back in the game.

In terms of net income per earner, Bigmouth once again are  top of the pile – £120K gross profit per employee – marginally down on last year’s figure of £123K. Last year’s top performer in terms of gross profit per employee – Net Planet Media – didn’t figure in this year’s table. Then again, it did derive 100pc of its income via paid search – so perhaps the removal of Google’s BPF had a big impact on net income (for PR comparison, the top fee per earner rate in the PR Week Top 150 is around 280K. However, even assuming stellar gross margins of 30pc ie unlikely, the best performing top 150 PR Week firms would still be well below Bigmouth’s profit per employee figure).

But who were the best search agency performers? (*)

On the basis of actual and percentage growth, then there is a clear winner – Propellernet.  The Brighton-based firm saw net income rise by 64pc to £2.268m. Propellernet was also second only to Bigmouth in terms of gross profit per employee (£113K). Congrats also to Agenda21 and Epiphany Solutions who saw net income rise 44pc and 32pc respectively.

So what does this tell us about the state of the search sector? And the implications for PR?

As NMA themselves pointed out “it was the first full year to cope without Google’s Best Practice Funding. This had often been used by agencies to lure in new business by offering any commission from Google to the client directly. In a world without this, agencies had to prove their added value.”

In other words, agencies had to move away from relying on PPC for income.  This can clearly be seen in the breakdown of individual revenue streams from agencies.

For example, back in 2008, Steak said it drew 80pc of its revenue from paid search. According to NMA, that percentage is now down to 37pc.  And this trend is being played out among other search marketing firms. But although natural search is taking a bigger slice of search agency revenue, in many cases, agencies are turning into digital generalists, offering e-mail, mobile, interactive and other services.

Of course, we ought to be careful about how these labels are defined. For example, top performer Propellernet says 70pc of its revenue comes from natural search with 30pc from paid search. However, Propellernet have been very vocal of late in promoting their SEO PR offering – indeed, they currently describe themselves as a search and social marketing agency. Perhaps some very healthy online PR related revenues are being wrapped up under the label of natural search?

Staying with PR, it was also interesting to note that the digital arm of PR group Golley Slater made an impressive debut in the NMA table with net income of £2.1m. In the PR Week top 150 table, Golley Slater generated PR fee income of £3.9m. Even if Golley Slater achieved record breaking gross PR profit margins of 30pc, then their digital income would still dwarf their profits from PR.  I strongly suspect their PR margins are much lower than 30pc. And PR fee income fell last year.

The search arm of PR group Chime Communications VCCP also saw net income rise to £1.16m – a smaller, but significant and growing contribution to the profitability of Chime overall.

In summary, this year’s NMA league table shows that even the search sector is not entirely immune to the general woes of the economy. Having said that, search firms continue to generate very respectable profits – certainly compared with the PR sector. And search firms are making no secret of continuing their land grab for PR work. The PR sector must therefore continue to up its game in terms of the quality and value of the digital services it offers.

(*) I was all set to name Summit Media as the best performer. They apparently recorded an incredible 1128pc increase (£1.364m) in net income based on the figures in last year’s NMA table which ranked them at number 29 with gross profit of £120K. However, according to this year’s table, they actually recorded net income of £1,208,160 in 2009 – so obviously a big typo remains in last year’s NMA search agency table.