Search engine marketing agencies will face many business challenges over the next couple of years, including increased competition, fee pressure, clients bringing SEM in-house and a decline in the prominence of SEM in general. SEM agencies that fail to pivot into broad-based digital agencies will either need to focus exclusively on small business SEM or cease to exist.
Why do companies hire agencies?
There are two vectors against which companies evaluate agencies: 1) the value that the agency provides; and 2) the scarcity of the agency’s services. For agencies, scarcity is determined by two criteria: a) the number of other agencies that offer the same service; and b) a potential client’s ability to perform the same service in-house. When you plot these factors on a chart, it looks like this:
As the chart shows, agencies tend to attract business when they can fulfill a scarce need. As supply increases, agencies lose their leverage with clients, resulting in either price wars