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Google's new European Third-Party Programme will provide quarterly payments, based on volume and growth (see box), rather than the current 15 per cent monthly commission paid to the biggest spenders.

Agencies say the change will force up the cost of campaigns and a search strategy rethink for both themselves and clients. The developing row also goes to the heart of complaints from advertisers that Google's customer service falls short of its competitors.

The new system replaces the 15 per cent model, which paid commission for buying listings on its sponsored search programme AdWords. Google says the change will level the playing field for clients that have smaller budgets or buy direct, neither of whom were able to earn commission under the old system.

Cost impact

However, Steve Leach, chief executive officer of search agency Bigmouthmedia, whose clients include British Airways, The FT and MTV, reckons: "It will almost certainly have a cost impact for clients."

How big an impact depends on agencies' business models. For example, Bigmouthmedia charges clients a management fee, based on the amount of time it spends managing their account. When it receives a commission, the agency passes it back to its customers. Without this commission, clients' costs will rise.

Some will be hit even harder, such as those agencies that don't charge management fees and finance themselves using commission. "It will leave a lot of agencies scratching their heads about their income," says Richard Collins, managing director of mSearch, the search arm of media agency mOne.

"We are going from getting 15 per cent payments monthly to quarterly payments in arrears, which definitely will not be as much," says Jim Banks, managing director of search specialist WebDiversity, one of Google's biggest spenders. "To get the same margins, we are going to have to spend more money on Overture, charge more money to clients or cut our overheads."

Claiming almost 50 per cent of search traffic in the UK, Google's power in the sector has already prompted undercurrents of rebellion. Agencies have complained that the company's attitude towards advertisers reflects its technology focus and compares poorly with the likes of Yahoo!-owned Overture and Miva (Revolution, May, P53).

Thus, the move could further encourage agencies to switch spend and help generate a warmer response for Microsoft's new search offer, which launched in France and Singapore last month. It is expected to arrive in the UK when the company's deal with Overture runs out next June.

Yet, rumours that Google's main rivals are set to drop their own commission systems, as well as Google's popularity with users, means the chances of a boycott are slim.

Returns risk

"In traditional media, when agencies disconnect with media owners over remuneration, there is always the chance that money could be pulled," points out Rob Horler, managing director of Carat-owned digital agency Diffiniti. "But that is not really possible with Google. The reality is that, in many markets, Google is probably top of client's media schedules, both on and offline, in terms of return on investment."

The risk to Google is that, as a result of dropping agency commission, it might not provide the best ROI. "If they are not going to get the benefit of commission, some clients may decide to go direct," reckons Collins.

"And if they don't have the specialist skills required, bid prices could go up because campaigns are not managed as efficiently."

Search marketing's specialist nature is at the heart of the debate. Google says it wants to discourage agencies that are in the sector to make a fast buck and encourage an educated approach; a move reflected in its plans to help train agency staff.

At last month's unveiling of the European Third-Party Programme at AD:TECH, Nikesh Arora, Google's VP of European operations, said: "We expect people who are actually passionate about search to see this as a positive thing."

Search skills

Others agree. "Search marketing is not media buying," says Warren Cowan, managing director of specialist search agency Greenlight. "Media buying may be involved, but it is a completely different discipline, which requires skills in understanding how search engines work and optimisation. If you are planning your strategy around where you're going to make the most money, you're not going to get the best value for your clients."

However, for some, it is just that kind of sophistication that justifies agency commission.

Where both sides agree is in the desire for transparency. Yet, while Google reckons its new programme is fairer because it rewards agencies on campaign performance, its customers argue that the sector will become more complex.

"How will a client know what their agency is getting back and where does that money go?", asks Jason Carter, managing director of Universal McCann Interactive. "Google says it is for investing in an agency's search service. Does that mean we're not going to be able to give it back to clients? If so, we don't even know if, legally speaking, we're going to be able to take it."

What is certain is that both agencies and clients are likely to alter the way they buy search, further demonstrating Google's influence on digital advertising's most successful sector.

GOOGLE'S THIRD-PARTY PROGRAMME

- Google's current UK commission system is similar to a traditional media model. If an agency spends £100,000 per month on Google, it earns a 15 per cent discount and pays £85,000. Google pays agencies on a client-by-client basis, so clients spending below a certain threshold are not paid any commission. Neither is the discount paid to clients who buy, or have ever bought, direct from Google.

- The European Third-Party Programme is optional, but dependant on several criteria. Agencies need to have at least five active clients and bill at least 250,000 euros (£170,000) per quarter. They will also be required to employ two 'Google Advertising Professionals' and use supplied tools.

- "It will be a tiered structure, based on volume and growth. We will put an onus on third-parties to perform," says Nikesh Arora, VP of European operations at Google. "It is not inconceivable that an agency could receive six-to-12 per cent of what they spend with us back in funding." K Google has yet to provide details of how it will work, but it's understood that all agencies will be entitled to a percentage funding, based on volume, although only the top-performing 10 per cent will get additional rewards.