Google under fire for scrapping agency commission
11 October 2005 11:57
IPA wades into the rowGoogle is coming under increasing pressure to reverse its decision to scrap agency commission payments.
The search engine giant announced earlier in the month that it will drop the payment of commission to media agencies in favour of a system of volume rebates, called best practice funding, from January 2006.
The move was widely criticised by individual media agencies in the UK last week, while the Institute of Practitioners in Advertising's (IPA) Digital Marketing Group (DMG) has now waded into the row on behalf of its members.
It issued a statement today expressing its "deep concern" over best practice funding, claiming it would "undermine the trust between a client and its agency" by throwing "inevitable doubt and suspicion" on whether the proposals an agency makes are driven by a genuine desire to serve the client or by financial self-interest.
Even if this issue could be overcome, the DMG said the rumoured qualification levels for rebates set are "unrealistic" for any single agency in the UK or EMEA. It has been reported that some agencies will have to put around £680,000 worth of business Google's way to qualify for discounts. That means that Google would unfairly discriminate against smaller agencies - and could squeeze them out of the market altogether.
The DMG believes the current commission system has served the advertising industry well in the UK and benefits all parties - including the media owner - despite it not being common practice elsewhere in the world.
Its statement says: "The current system not only has the advantage of single invoice points, thereby avoiding the substantial administration costs of direct selling, but also the reassurance that in the UK, the agency is 'principal in law' which means it is liable for any debts incurred regardless of whether it is paid by the client or not. This current system ensures the sound financial health of media agencies of all sizes. UK agencies adopt this position in return for media owners’ being prepared to offer them commission and credit facilities."
The DMG is due to meet Google's senior management to discuss the controversy this week.
Wayne Arnold, the vice chairman of the IPA's DMG Group and the managing director of Profero, said: "It is clear that Google's recent announcement has raised a number of unacceptable concerns for our members. At the heart of this is the move to best practice funding which creates a lack of remuneration transparency for our clients and has the potential to create an un-level playing field in the market. We are taking this issue extremely seriously and will be meeting with Google this week to discuss our concerns in more detail."
By Graham Hayday
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