To outsource or not to outsource?


Liam Walsh writes: This really is a media industry blog when it covers something as seemingly dry as outsourcing sales. Even worse is that I find it a really interesting area!

It was something I was ruminating on and then I saw the post today in mumbrella about Tempest and Carsales. It typified the nature of the problem for re-sellers. Tempest has grown the revenues to such a point that it makes more sense to take it in-house. The better Tempest got at selling carsales, the greater the pressure to take it back.

A genuinely unenviable position.

There are a bunch of things people talk passionately about in digital. In fact nearly everything is discussed with strong positions and passion. Data takes second place, even though there is tons of it.

Outsourcing sales is no exception and normally ends with opposing parties making no impact on the other. So I have offered up a very simple overview here.

Why outsourcing can be good:

  •  The major re-sellers have relationships with customers. That is important as it takes a long time to establish customer relationships.
  • Re-sellers have infrastructure around operations and sales. This reduces the need for people and means a site can monetise traffic very quickly.
  • The majors all have some form of network of sites so joining a network means a site may benefit from the value of the others.
  • Cost. Labour costs are dramatically reduced.

Why outsourcing can be a problem

  • Training (by the site owner). There is a lot of training to get sales team qualified to represent sites well. It is very difficult to get the sales teams engaged in new sites or site upgrades etc because they have a lot to know and sell already.
  • Access to market. Outsourcing means the site owner is fundamentally disconnected to the market. Without access, information for decision making will have to be second-hand and that poses enormous risks to determining one’s strategic plan.
  • Focus. The biggest complaint a site owner has it that their site doesn’t get as much focus as another site, typically the largest site in the network. This complaint is reasonable and the truth is nearly always that they are right. This is particularly frustrating for the network as the largest site will also complain that the network is focusing too much on the smaller ones. Third party repping is an exercise in patience.
  •  Money. At a certain point the cost of running one’s own sales and operations is less than the fee the reseller takes from the sales. That point is about a million dollars in cost.

So what to do?

It is certainly not a ten million dollar question. That depends on how regular the income is, how likely it is a business can increase head-count and a bunch of other considerations. However when the revenue becomes substantial etc there is virtually no reason to outsource. When the revenue is upwards of ten million annually.

At this point the cost of re-selling is 3-4million which could be spent on one’s own team. 3 million on one’s own sales team would be difficult to spend!

REA is a classic example of how focus has delivered outstanding revenue results. They absolutely dominate Home Lending advertising at the expense of all others. I don’t know their exact revenue but am sure a look at the annual report will show something beginning with a 2 (or maybe 3) for annual banner income. That is very serious money. It would be interesting to know what google writes in home lending.

Erhem…. what about the customer?

Well here is the problem. The agency is mostly the customer even if technically the advertiser is. The agencies are normally pretty vocal on saying they want less not more sales people contacting them.

I don’t know how online buyers cope with the sheer volume of people selling things online. It would drive me to distraction. BUT the buyer’s business problem is only relevant if it affects the sites revenue. If the site is running at ten million dollars or it needs a lot of focus then outsourcing will deliver greater profitability even if it doesn’t suit the buyer.

The supporters of outsourcing are strident about this point, that customers won’t deal with smaller players as they already have hundreds of sellers. Problem with this is I can’t list a hundred re-sellers so this sounds like an exaggeration.

It doesn’t take that long to establish a relationship. Adconian are a good example of that! Yes I know they are not re-sellers but you get my point.

Most importantly, the buyers complaint that they deal with hundreds of sellers means that they do deal with lots of sellers. If the site or offering is good, the customers will buy it. Agencies enjoy doing the best job they can, so I can’t see a buyer saying no to the right site for their customer’s advertising.

Finally

If carsales sparks interest in more sites going it alone, then we may see some pretty frustrated media buyers and a subsequent decline in media buying quality or higher fees for the client. Hopefully the latter.

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4 responses to “To outsource or not to outsource?

  1. Pingback: GOOODLINX: What’s wrong with agencies; should you outsource media sales; the rules of social media - mUmBRELLA

  2. Very interesting post and question.

    As a small publisher, my take on this is that third-party representation risks over promising but under delivering.

    My sense is that third party representation is best suited to offshore publishers who have no great interests in setting up a local office. Next best would be publishers who just don’t want to get into the sales process, for whatever reason. Then it gets into pros/cons – which can be a tough choice.

    One thing I’d love to see is more guarantees of revenue from the reps. This way both parties share the upside (and downside).

  3. Zac, I’m sure you’d love to get a guarantee from a publisher but I’m a little mystified how you come to the conclusion that a revenue guarantee shares the risk equitably. Surely it’s the exact opposite. In my experience, publishers given revenue guarantees rarely feel motivated to engage actively in the relationship because they know their income is in the bag.

  4. My main concern with this is the cost…

    I find that when a site moves away from a network and brings sales in house then the CPM rates increase dramatically in line with their (potentially incorrect) view on how great their site is and how valuable their audiences are and the added value you get normally when purchasing dies a death…

    At least when i buy a site via a network or bigger publisher i get the option of getting my added value & can negotiate down overall cost for a bigger buy across more sites…

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