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UK search marketing agencies vs UK PR firms (updated)

NMA recently published its “league table” of UK search marketing agencies – the equivalent of PR Week’s Agency top 150. Admittedly it only contains 36 firms, but it is interesting to compare with PR Week’s list – both for general PR and tech PR.

For example, the number one search marketing agency is The Search Works recording an £88m turnover for 2007. Quite impressive when you consider that the company was only founded in 1999 and employs a mere 64 staff. Number one in PR Week’s league table is Bell Pottinger with fees of £52.5m and 467 people (and before anyone asks, of course, we aren’t comparing like with like ie turnover with fees – but I’ll come to that in a minute).

Number five search agency Steak Media was only founded 3 years ago and has already raced to over £20m annual turnover. Number 5 PR firm Citigate Dewe Rogerson turned over £25m last year – though it has been around considerably longer.

According to my calculations, the combined turnover of the UK’s top 36 search firms is around £330m, employing around 1300 people in total. Contrast that with the top 40 UK tech PR firms who brought in around £71m in fees last year and collectively employ around 850 people.

Of course, the billing model for search agencies and PR firms is different. Search firms business tends to fall into three broad camps – paid search, natural search and other stuff (which can be a mix of anything from e-mail marketing, affiliate networks, etc). Based on the NMA figures, the average search firm seems to get around 50pc of its sales from paid search, 25pc from natural search and 25pc for other activity.

Paid search is renumerated either via commission or management fee basis. As far as I can glean, commission varies between 5 and 15pc (though Google Best Practice Funding is due to end at the beginning of next year). This is a traditional ad agency model and you can thus begin to see a correlation between those agencies with high turnover and the majority of their revenue coming from paid search. For example, 90pc of The Search Works business comes from paid search – likewise Steak Media (around 80pc).

Natural search is much more akin to the PR fee model – so those agencies that tend to do more natural search may well have lower turnovers, but have higher margins than paid search. For example Netrank has a turnover of £1.3m and 35 staff – but 100pc of its business is in natural search.

Various sources have pointed out that some search firms that rely upon paid search (and specifically the Google BPF rebate) may be in trouble come next year. However, those that have taken a management fee approach or are moving more work into natural search seem well placed. Interestingly, the move to a fee based, natural search offering seems to parallel issues for PR agencies. It requires more human beings ie brains to do it properly – and thus you hear from various quarters that there is a growing demand for people with the right kind of skills to be able to deliver on natural search. As far as I know, unlike PR, there are no MAs in SEO and online marketing yet – so the search firms are having to train people themselves.

Nevertheless, it is easy to see why the worlds of search and PR are going to get closer together in the future – to borrow from Deep Throat in All The President’s Men: “Follow The Money”.

As far as I can see at the moment, the profitability of search firms is generally better than PR agencies. Whether that will last remains to be seen.

NOTE: This is an updated version of this post – my thanks to Nick Clarke at Profero for pointing out that I’d got the figures wrong for the percentage volume of their natural search business. I have thus replaced it with Netrank as a more accurate example.  My sincere apologies to Nick and Profero – it’s called looking in the wrong column on the spreadsheet with tired eyes.