The end of Google BPF: advertisers should check the small print

19.11.2008 Posted in Search

In the early days of its AdWords system (2003/2004), Google introduced commissions to selected paid search agencies. The aim was to provide incentives for agencies to help Google to grow its base of advertisers (and to encourage existing advertisers to spend more). However, the selection ‘process’ was fairly informal and unscientific. Agencies that were not included soon heard about it and started asking how they could join. With no formal criteria, the scheme started to get disorganised.

Turning agency commission into customer discounts

A further problem emerged when some of the agencies that were originally offered commissions (which typically amounted to 15 percent of advertiser spend) started passing these back to their clients in the form of discounts. For example, some agencies were taking ten percent as their fee and passing the remaining five percent back to their clients. This skewed the market, as companies who did not use paid search agencies were effectively being penalised because they had no option but to pay higher rates.

A new approach

Google soon recognised that a more systematic and structured approach was needed.

With the launch of BPF, Google shifted the focus away from its original aim of growing its advertiser base. The stated objective of the new scheme was to help ensure that paid search campaigns were designed and run as effectively as possible, with the recognition of the value that agencies can offer in this regard. The level of commissions (bonuses) were much lower, and agencies were requested to ensure that none of the funds were passed back to the client but instead used for training and internal development.

The BPF scheme also offered a formal set of criteria for qualification and was available to any agency that met these.

Levelling the playing field

Two years after the inception of BPF, Google’s announcement that it is to end the scheme should not come as a great surprise. The digital media industry continues to move at a rapid pace, and with such a high profile and a dominant share of the paid search market, the company hardly needs to offer incentives to attract new advertisers or additional spend.

From an overall industry perspective, BPF also tended to favour larger agencies with high spending clients. Therefore, going forward, there will be a more level playing field, which many will argue can only be good for the entire online sector.

The implications for search agencies…

Different agencies have varying degrees of dependency on BPF, and for some it has become a key source of revenue. However none have a right to feel aggrieved at the impending demise of the scheme – and their potential loss of earnings - as Google never set any expectation about its longevity.

…and what it means for advertisers

The end of BPF should be good news for marketers as all agency revenue must now be earned as explicit fees and billed to the client, giving much better visibility of how much an agency is earning from a campaign. However, search agencies feeling squeezed by the double whammy of Google’s move and the threat of a potential recession may be tempted to negate this loss of earnings via a change in the terms offered to their customers. Some advertisers may already have been contacted with a request for a contractual change that is likely to be to their disadvantage.

A competitive deal?

Those marketers that do not yet know their agency’s stance on Google BPF should take the initiative and get an update on their plans for 2009. If new terms and fees are going to be introduced, this may be the ideal time for paid search advertisers to verify whether they are getting a competitive deal – and, if they find this is not the case, vote with their feet.