Xaxis’ performance marketing “incubator” Light Reaction may have significant impact on the pricing models used by media agencies, according to the unit’s boss Paul Dolan.

Launched in June, following the acquisition of European performance specialists Quisma and mobile performance company ActionX, Light Reaction prices its products based on “outcomes”. These can range from traffic to website, app downloads and even real-world metrics such as store footfall.

Speaking to M&M Global, Light Reaction’s general manager Paul Dolan said he was keen to create a proposition distinct from the performance-orientated work already taking place within GroupM and Xaxis, which he previously managed.

“To say we’re creating a new performance media division undermines the fact there is great performance work being done inside the agencies. But there is still a tremendous opportunity,” says Dolan.

“We’re trying to be a little bit disruptive, we are asking people to think in a different way. That is intentional. Xaxis is a significant-sized business, and to do more of the same – well, we deliberately didn’t call this initiative Xaxis Performance.

“It allows us to take some risks, try some new models, and it insulates Xaxis a little bit. If for any reason it doesn’t work out, it doesn’t impact that client relationship with Xaxis.”

Eyebrows raised

A few eyebrows have been raised by the prospect of clients being able to demand specific outcomes working with a Xaxis-owned division – this after WPP boss Sir Martin Sorrell made his infamous comment about being “transparent about the non-transparency on Xaxis”.

However, Dolan does not believe Light Reaction’s offering is in any way contradictory to the ethos of Xaxis’ audience-led pricing model: “It offers a second opportunity, but is consistent with the Xaxis product and pricing models. In both scenarios, we take the underlying assets – data, media, technology, creative, expertise – and package them up into a single price.

“In Xaxis that is packaged as an audience, and priced on a CPM. This is comfortable to advertisers that buy a lot of media on a CPM. At Light Reaction, it may be less comfortable for clients used to pricing by CPM, but more comfortable for those clients who want increased transparency.”

Fast growth

The business has certainly grown quickly: within three months, it has already reached 24 markets, boasts 121 employees and 300 clients, and expects to hit $94m in revenues in 2015.

Much of this, of course, has come from other parts of the Xaxis business, but Dolan is confident of “doubling or trebling” Light Reaction next year. He expects Light Reaction to be present in all 40 of Xaxis’ markets within 12 months, and anticipates regions such as the Middle East and Asia to grow just as quickly as Western markets.

Even the chairman of GroupM, Irwin Gottlieb, believes eventually agencies will have to produce compensation models priced based on outcomes

“Instead of Asia Pacific being a trailing region, it is right there with us from the very beginning,” he says, referring to Light Reaction’s offices in China, Taiwan, South Korea, Singapore and Malaysia.

“To build a model equally effective in China and the US is a great challenge but is a lot of fun. Telling Light Reaction Asia colleagues their input is not just adjusting a UK or US product, but that we are building expressly for Asia’s needs, is very new for them.

“We are going to see a race between Light Reaction APAC and Light Reaction Americas as to who can grow faster and quicker.”

More attractive

So could Light Reaction’s ‘outcomes’ pricing model end up overtaking Xaxis’ current CPM approach as the industry default? Dolan certainly believes so, and argues agencies must ready themselves for a new method of generating revenues.

“As digital becomes more important and more measurable for clients, I think you’ll see performance pricing as a more attractive option. Even the chairman of GroupM, Irwin Gottlieb, believes eventually agencies will have to produce compensation models priced based on outcomes,” he says.

“We can be an incubator for that approach, on a small scale, inside a piece of the media plan. If we can proof it out, imagine what that means for the media agency itself.”