Posted by As former Netscape CEO Jim Barksdale famously said, “There are only two ways to make money in business: One is to bundle; the other is unbundle.”
Ever since the concept of search engine optimization (SEO) became a thing a little over 20 years ago, marketing agencies have remained locked in an arms race. They’ve developed new tactics, tools, and approaches to help businesses climb to the top of search engine results pages (SERPs).
They’ve also worked to bundle their services together to provide clients with everything they need to thrive online at a single price point. For businesses, that’s been an attractive proposition. After all, in the kind of bull market cycle we were in for many years until the pandemic, thriving businesses value cost certainty and simplicity more than they value bargains. And they honor extraction over efficiency. That made the one-stop-shop offerings of SEO agencies an easy sell.
But the SEO industry is about to confront something that it, along with many other industries, hasn’t seen in some time — a major recession. In the cycle we’re heading into now, it will be efficiency and frugality that win the day.
Except for 12 to 18 months back in the early aughts and the whole of 2008, recessions just haven’t been something that SEO agencies have had to deal with. That is, the SEO industry tends to skew younger, meaning most of the current experts and agency owners haven’t experienced a recession before. And the looming recession threatens to mark a tectonic shift in the SEO market. It’s going to create the conditions for what I’ve taken to calling “the great unbundling.” Here’s what that means and what SEO agencies must do to prepare.
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Why recessions force businesses to seek cost savings
When recessions hit, businesses look for ways to shore up their financial footing. That means they look for almost any opportunity to cut spending. But research demonstrates that businesses that cut their marketing spend in recession fare worse than their competitors. They also take longer to recover their momentum when the recession ends. So in astute companies, marketing budgets often escape the ax.
But that doesn’t mean businesses don’t change how they’re spending their marketing budgets when recessions strike. In fact, a wide-scale study by the Harvard Business Review found that the key to coming out of a recession in good shape was to make a mixture of defensive and offensive changes to strategies and spending.
When it comes to marketing, you’d better believe that businesses are going to start digging into the topline numbers on their marketing agency invoices. At my company, we’re already seeing this start to happen firsthand. There’s been a pronounced uptick in businesses comparison shopping for various individual SEO services, indicating that they’re starting to do the math to see if the bundle offered by their current agency is still the best way forward.
Related: How to Make Your Business Stand Out From the Noise
What agencies can expect as the recession takes hold
For marketing agencies, all of this means that continuing to offer nothing but bundled services is about to become a liability. Bundles work by combining a suite of related services — and all the fine detail of the way they interact with each other — in one convenient package at a single price.
As clients start to evaluate their spending levels, they’re naturally going to start trying to isolate the individual costs within their marketing strategies. But because bundles are presented in ways that are hard to deconstruct, it’s very difficult to comparison-shop the individual elements. This is going to lead to two things.
The first is an increase in uncomfortable conversations between business decision-makers and their agency marketing reps. Those conversations are going to include questions about line-item expenses and why they don’t seem to match up to open-market SEO rates. The answer, of course, lies in convenience — as in, the fact that the business doesn’t have to manage an array of individual SEO experts and freelancers to pull off their marketing strategy.
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But as the recession starts to bite, that’s not going to be a good enough reason for any business to stick with bundled services. Agencies will need to compete with SEO freelancers who are, by nature, more agile and able to adapt to changes in demand. They’re also frequently specialists, so agencies will need to be world-class in their field to make their offering more attractive than an individual expert.
The second thing that will happen is that a significant proportion of businesses will complete their cost/benefit analyses and decide that they can optimize their marketing spend by looking elsewhere. They’ll see an opportunity in dropping the nice-to-have extras that come with a bundle in favor of more focused solutions in link building, content creation and SEO tools like Ahrefs, SEMRush and AI content tools like Clearscope or MarketMuse. That’s going to create pressure on agency bottom lines and put them in danger of becoming a victim of the recession themselves. That is — unless they take some decisive actions of their own.
In a recession, bundling can work when the whole is less than the sum of its parts. That can make sense when going for contribution margins, as in hard cost fields like ecommerce and retail, for instance, where they have inventories to clear. But it’s less useful in knowledge work where the inventory is time.
How to navigate the great unbundling
For agencies that depend on bundled services for a significant portion of their revenue, now’s the time to act. There’s a handful of measures that could mean the difference between hanging onto valuable clients and losing them for good. The first is the most obvious:
Start unbundling your services and preparing a la carte offerings as fast as possible — even if you don’t immediately advertise to clients that you’re doing it.
That will at least prepare you for some of those uncomfortable conversations that will soon start happening. But that’s just the first step. The next thing to do is to look for opportunities to automate within your existing internal workflows. That will help make your client-facing operations more efficient and less costly. It will also get you ahead of the game, as automation will soon become a larger piece of the conversation, as it’s one of the few deflationary levers available in the economy.
Because automation takes investment up front, the savings generated can take time to realize, but many agencies will find opportunities in low-hanging fruit they neglected until now. The savings will become a critical financial reservoir to help accomplish a few other necessary steps. The first is to absorb the costs as you adjust your unbundled prices to be more in line with what your clients can find on the open market. And the second is to enable you to keep paying your staff well — the ones who do the most valuable work for your clients. That’s how you’ll retain your best talent, so you’ll be ready to capitalize on new opportunities as your competitors falter.
Finally, consider creating SEO courses and education to incentivize your clients to stick around. These are value-add items that can be a key component of bundles, but because they have a one-time setup cost, they have a greater payoff over time. By transforming your agency into a valuable resource beyond just the services you provide, your clients will see you as a partner in their fight to weather the recession. When that happens, they’re more likely to reward you with their loyalty. That will help to position your agency where it has the reserve cash necessary to scoop up additional market share in the aftermath of the recession. Some consider it winning to survive a recession, and your market share will grow just by outliving your competitors.
Related:Marketing Services Are Smart in Bucking the ‘Unbundling’ Trend
The way forward
The SEO industry is in uncharted waters. Relatively few people within the industry have any experience dealing with a major recession. But there’s ample evidence of how businesses react when one hits, which means SEO agencies will soon find their clients questioning whether the convenience of bundled services is worth paying for. When they do, agencies will only have two choices: they can give their clients what they want, or they can cling to a business model built for better days. Which do you think you’re better off choosing?