Google has recently announced its controversial Best Practice Funding (BPF) scheme in Europe will be removed in 2009. Google’s Best Practice Funding Scheme was launched in 2006; replacing the traditional agency commission model Yahoo and MSN still adhere too.

The Google Best Practice Funding program requires participating agencies to have at least five clients, generate a minimum of USD $100,000 in spend for every client on a quarterly basis and two Google certified professionals in order to qualify for quarterly payments (tiered to a maximum of 12% of total spend on Google).

Conveniently Google does not consider its Best Practice Funding scheme as a direct financial incentive but rather a “best practice and training fund. The reality is that the Google Best Practice Funding scheme has perpetuated the ill driven media practice of bulk buying a phenomemum inherited from traditional media. The model, effectively a rebate, rewards bulk buying with no regard for effectiveness or performance. It rewards investment quantity as opposed to investment quality. Back in April I wrote a piece entitled “Granular vs. Tonnage Media Buying“, which addresses some of the issues with the existing approach to media buying across display and search.

The reality is that the large majority of search agencies have not used the Google Best Practice Funding scheme to train and disseminate best practices. Instead, the majority of search agencies have used the Google Best Practice Funding scheme to: 1) increase their margins 2) establishing an artificial advantage by passing the quarterly rebates directly to clients and 3) subsidize loss making accounts.

The much anticipated end of the Google Best Practice Funding scheme is positive. It should bring forward a more transparent model of billing, performance reporting (does the last click get to much credit?) and business relationships. Search agencies will have to hone their consulting skills as opposed to their billings and salesmanship skills to grow their margins. Clients will have to recognize that the value in a strong agency relationship is not a commodity purely driven by price but by the long-term sustainable return of that relationship. If you currently employ a search agency, I invite you to review one of my earlier posts entitled Ten Questions to Ask your Search Agency.

I see the following trends starting to emerge later this year as clients and agencies begin to contemplate life without the Google Best Practice Funding (BPF) scheme:

• Search specialist agencies, without much success, to venture into the display advertising seeking higher margin projects
• Third party ad-serving contracts and relationships to be renegotiated or changed in an effort to reduce serving costs and increase efficiency through technology.
• Super Affiliate PPC specialists such as Click2Customers to grow in prominence, becoming a real alternative to the traditional and established PPC agencies.
• More clients will contemplate bringing PPC search in-house as the overall value proposition of outsourcing becomes less attractive given the increase in operating and service costs.