Talk to anyone in the professional search business lately, and you’ll be speaking with someone whose outlook on their profession ranks just above “middle manager at Chrysler.”  In other words, it ain’t lookin’ good.

In the contingent search industry, times are downright desperate.  While this segment of the professional search marketplace has been under pressure for years, 2009 will be a watershed moment for the entire industry. 

Here’s why:

DIY Recruiting is easier than ever.  DIY, or “Do it Yourself,” is the preferred search approach for the vast majority of companies with whom I speak lately.  It’s more than this never-ending recession that’s causing companies to reject search firms in favor of a DIY approach; it’s just too easy to find people on your own to justify a $15,000 outlay to a search firm.  Hiring managers have a different mindset, because they have an entire suite of tools - most of them 100% free of charge - that enable them to do their own candidate research in a very reasonable amount of time.  Candidate sourcing used to be the hard part.  Now, managers can just do it themselves.

Overcapacity is depressing prices.  The search industry entered 2008 with too many search firms, too many recruiters, and too few jobs to work on.  By June of 2008, search firm owners were really sweating it.  In December of 2008, most of the work simply vanished, leaving an overbuilt search industry with very few jobs to work on.  The job orders that did exist were being picked over by hungry firms like hyenas at a carcass.  I talk with search firm owners who, if they’re lucky to get an order, are sharing it with 15-20 other firms.  20:1 odds mean there’s a 95% chance that you’re working for free on that order. 

This week, a client of mine bragged that he had successfully beaten his primary vendors down to accepting a 10% fee, and he had eight vendors on the list.  That’s almost 60% off the price that firms have to charge to run a profitable operation.  I know how that movie is going to end.

Technology is replacing low-level recruiting.  I’m not saying that technology will replace search firms, because it won’t.  I am, however, saying that the number of people required to produce a successful search is going to drop precipitously, due entirely to technology.  Gone are the days of running entry level sourcers through a phone bank and dialing for leads.  Gone, too, are the recent days of having sourcers mine job boards.  Search firm managers have access to better and better tools that will sort, screen, and score candidates, reducing the need for lower-level recruiting talent.

HR is on to you, search industry.  There are only two reasons that HR uses contingent firms anymore.  One reason is because they’re trying to fill a niche-skill position.  The second reason is because they’re swamped and need an extra set of hands.  Guess what?  80% of contingent firms were in business because they were filling the easy stuff with candidates found on job boards.  That business has evaporated almost entirely.  Niche vendors are making due with the engineering and the high level auditors  and the like, but there’s not enough of that around to support existing capacity.  Worse, HR is no longer willing to pay a 20-25% fee to buy that extra set of hands. 

2009 is shaping up to be a major shakeout year for the recruiting industry.  A huge slice of the search market has been eaten up by unemployment approaching 10% (it will likely stay above 8% through 2010, exacerbating the situation), and the small, non-niche firms are going to battle down to their last dollar.  A second slice of the search market is going to be permanently lost to the new DIY managers who figure that it’s easy enough to justify the time investment.

Those contingent firms that are left will be smaller, more focused, and a lot less expensive to use.  Many will migrate to a retained model, or some form of hybrid “retingency” model, when they ask for a portion of the fee upfront.  One thing’s for sure, though - for managers who are looking to hire out for recruiting help, you’re going to get yourself one heckuva deal for a good long while.