As Online media gathers speed well above the expect levels, will agencies who make money via management fees and media kickbacks (Google Best Practice) continue to rule the roost with the expertise levels contain within or will we see big brands and eventually small to medium companies moved it all in house.

The potential saving can run into 1000's even when employing people on higher salaries with the added bonus they will only be working on the clients products and not as many agencies operate with individuals working up to 10 accounts each whether they say there are working exclusively on the clients, this very rarely happens.

With the larger agencies joining forces we may see a super power scenario with profit taking precedence over clients requirements as investment companies get involved, this could just be the catalyst for clients to take control back from the agencies and deal direct with the media houses which as we know is Google's preferred choice already.

In my experience in-house usually fails to deliver due to a) politics b) lack of experience (especially commercial) c) lack fo specialist technical skills and d) being too / too little ambitious.

External help is always very very precious.

Certainly not! However the landscape is definately changing!

I feel that over the next 12-18 months there will be an increased level of migration from external full service to in-house as PPC spends rise, the larger advertisers become more savvy and the next generation of SEM tools coming to market simplify Campaign management and Optimisation.

Agencies will still have a very important part to play in terms of on-going training, strategy and planning but there will be a shift. 

As a next generation SEM Tool provider SearchRev welcomes the transition from external to in-house and is in consultation with a number of very large UK advertisers who wish to license our technology and bring Search in-house. These advertisers have done their cost benefit saving analysis exercises and in most cases they will save many 100's of thousands of pounds a year. In their eyes these savings certainly justify recruiting and training their own teams.

The Advertisers that SearchRev are working with realise it will not happen for them over night and that they are taking a calculated risk in bringing Search in-house, but by collaborating with their agencies who can continue to add value they will have the right mix they need to succeed.

Agencies should not worry as there will always be a steady supply of new advertisers who are eager to spend more in order to play catch up and move themselves up the ladder - these advertisers will certainly be looking for a full service model.

I think there are a couple of things left out of those cost calculations:

a few additional costs in hiring an employee

1. tax, NI, insurance, etc.
   
2. hiring costs: agency fees, time  (& re-hiring should they leave)
3. training, management & equipment
4. absence/holiday costs (& loss of service)
   
5. no guarantee of performance / difficulty 'switching provider' if the service isn't great

All of that, plus the massive 'skills and experience' problem that Loz mentioned, I don't think agencies will die any time soon!

outsourcing abroad

If you think cost is the biggest issue in all of this & you think of SEO/PPC as being 'commodity' jobs (I don't think that they really are), then India/China are probably a bigger threat to agencies than in-housing. It will be interesting to see whether the changes in telemarketing/software development will be mirrored in online marketing over the next few years.

agency/in-house aren't mutually exclusive

Agency/In-house are just two different models, each of which is better suited to a different situation. They're not exclusive either - there's no reason why (as most blue chips realise) you can't take advantage of the benefits of both.

daniel