Pay as You Go

Mobil launched Speedpass to help customers guzzle gas faster. Now, 5 million users later, the tiny device has become a huge asset -- a classic case of a network effect.

For such a subversive idea, it's a modest-looking item: a black, one-and-a-half-inch-long cylinder of plastic. It fits onto a key chain. It's distributed for free by the largest oil company on the planet. With it, the company hopes you will pay for burgers, groceries, lip gloss -- everything.

By the way, the company also hopes you will buy more of its gasoline. And chances are, you will.

In 1996, Mobil Oil Corp., now part of ExxonMobil, began to develop what would become its Speedpass wireless-transaction system. The idea behind the project was simple enough: Get customers in and

out of gas stations as fast as possible. Joe Giordano, then a 32-year-old marketing manager, was charged with finding ways to do just that. "If we made life simpler and faster, we thought, customers would come back more often," he says.

They were right. By waving a small device at a reader on the gas pump and having their credit cards automatically billed, customers could cut 30 seconds or so from a three-and-a-half-minute transaction. And that half-minute turned out to be compelling: Speedpass holders (5 million drivers have become active users in the past four years) average one visit more per month to Mobil stations than other customers do, and so spend 2% to 3% more per month. The company won't release conclusive data on Speedpass usage, but higher revenue so far has justified station owners' typical $15,000 investment in scanner technology, Giordano says.

The radio frequency identification (RFID) technology, supplied by Texas Instruments, is powerful because it's so easy to use. Unlike other emerging forms of wireless transactions, it doesn't require keystrokes or Web browsing.

The catch: The technology isn't hard to replicate. At least two other companies, 2Scoot and FreedomPay Inc., sell such systems, and various Shell stations are testing a competing service.

Mobil understands the implications. In the early 1990s, it invested heavily in technology that allowed customers to pay at the pump with credit cards, only to lose its advantage when other oil companies simply copied that feature. Mobil faced the same challenge when creating Speedpass. "Clearly," Giordano says, "the risk to keeping it proprietary was that we could lose everything."

Here's where Mobil has made a crucial leap in its thinking: The value of Speedpass isn't in the exclusivity of the technology. It's in the relationships with those 5 million users. "This is about the network," says Giordano. "Our key assets are our customer database and our brand."

That's a remarkably progressive analysis for the $230 billion leader of an industry known best for conservative, plodding strategy. Forfeit exclusivity, it says, in hopes of building something much more powerful. That's why Mobil Speedpass is now simply called Speedpass. And this autumn, in an important test, it will be accepted at 400 Chicago-area McDonald's restaurants. Giordano says he expects to announce similar deals with a national drugstore chain and a grocery retailer later this year. His team of 25 is working on a broad range of category-exclusive arrangements to follow.

What they're banking on is a classic network effect. The more consumers who sign up for Speedpass, the more attractive Speedpass becomes to retailers. And as retailers buy in, the network appeals to more consumers. "Any new payment technology has to be adopted in large numbers by both consumers and merchants," explains Mark Haddad of Dove Consulting, who has studied the RFID market. "With Speedpass, ExxonMobil already has a huge start."

In return for processing transactions and marketing the network, Speedpass will collect revenue from participating merchants, likely in the form of a small transaction fee. But the real payoff will come from higher gasoline sales. Giordano hopes that in five years, the Speedpass program will have ballooned to 30 million members. Because ExxonMobil's gas stations will be the only ones in the network, he believes members will be more inclined to fill up there.

Even so, unlike most traditional loyalty programs, Speedpass offers members no explicit economic incentive to shop more often -- just greater convenience. What's more, the fact that Speedpass will grant its merchants exclusivity within their categories may tacitly encourage other merchants to join competing networks as they emerge.

All of which suggests Giordano's biggest challenge: to make everything happen faster. ExxonMobil's edge, for now, is its head start -- and those 5 million users already in the database. Now it has to convert those assets into a network large enough and inclusive enough to head off the competition. "Time," says Giordano. "That's the only thing I worry about at night."

Contact Joe Giordano by email (joeg.speedpass@exxonmobil.com).

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