Will Amazon Coins Outperform Real Money?

May 14, 2013

I don’t really get the allure of virtual money, but others apparently do as friends and colleagues have spoken with enthusiasm about the prospects of bitcoin and other forms of currency without the backing of any governmental agency. The latest to promote its own made-up money is Amazon.com with its Amazon Coins.

Yesterday, the company announced it would put 500 Amazon Coins, the equivalent of $5, into the account of every Kindle Fire to be spent on apps, games and in-app items.

"With discounts of up to 10% when you buy Coins, this is a great way for customers to save money when they buy apps, games and in-app items," said Mike George, vice president of Apps and Games at Amazon, in a statement. "We will continue to add more ways to earn and spend Coins on a wider range of content and activities."

Amazon, which initially introduced Coins back in February, is also looking to spur app development with its virtual currency. Developers will continue to earn their standard 70 percent share of revenues when Amazon customers make a purchase using Coins. Developers not currently selling through the Appstore can submit apps through the Amazon Mobile App Distribution Portal.

What is your take on virtual currency in general? Do you see Amazon Coins as a worthwhile strategy for the company? How do you think consumers will react to Amazon Coins?

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12 Comments on "Will Amazon Coins Outperform Real Money?"

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Ken Lonyai

Currency is currency. It represents something of value that can be traded for something else of value. No matter if it’s real or virtual, there’s something real behind it somewhere. So, Amazon giving away a $5 dollar incentive to encourage people to stay within their walled garden will eventually lead to additional input of something of real value, namely real money. That said, people do tend to get more excited about virtual currency and seemingly less attentive to spending it.

Just look at game maker Supercell which racks up $2.5M/day in virtual goods sales for it’s iOS games. Amazon, like Supercell, is creating an environment that locks people into their “monetary system” that has no value outside of their space. If it catches on and lasts beyond the novelty stage, it will likely drive up revenues and slightly lessen defectors to other tablet platforms.

Camille P. Schuster, PhD.

Keeping track of currency conversions was never anything I thought was fun or worthwhile. I still do not. The allure of discounts may get some people, but I am not interested. Obviously many people are, so it is another example of customer fragmentation.

Shep Hyken

Virtual currency is the wave of the future—actually it’s here now. Get used to it. It will become more and more common and eventually, in some version, the norm.

As for Amazon’s strategy, I like it. It gets the product into the hands of the customer, and it gives them risk-free use as they use Amazon’s money to experience the product.

Bill Bittner
Bill Bittner
4 years 6 months ago
I admit I am still trying to get my head around this whole virtual currency thing from both a financial perspective and a technical perspective. From a financial perspective, the only reason someone accepts money is because they believe in the integrity of the currency. We are no longer able to exchange currency for gold or silver, and coins are no longer made of precious metals. So our only reason to accept currency in exchange for goods and services is the belief that the producer of the currency will ensure its integrity. This means they are policing counterfeiters, controlling the printing presses, and enforce the laws that make the currency “legal tender” so it must be accepted. Now we have virtual currency, and Bitcoin claims to have implemented a technical solution that does all the things behind paper currency. This is where I am still learning, but supposedly the technology prevents duplication and counterfeiting, controls the rate at which Bitcoins can be produced with an upper limit that will never be exceeded, but it is still not a “legal tender.” This is where I see the problems eventually arising. For now, I still look at the general use of virtual… Read more »
Kai Clarke

This is a dangerous game. Only the US government has the ability to create money or currency. In reality, these coins are translated into an offset of pricing (i.e. a discount) so their value is only to existing, repeat, Amazon customers.

Lee Kent

I guess I am just too literal. I don’t get it at all from a financial or technical perspective. To me it is just a game. Maybe I need more education on this one!

Craig Sundstrom

Maybe I should just come out and declare what everyone here—save maybe Shep—edged closer and closer to without really saying: this isn’t currency. The main point of currency is that it is universally accepted. When I can walk into Kaspers and pay for my Cajun Dogs with “Amazon Coins, or more precisely, when I can do that without even thinking about whether/not I can do that, then it’ll be currency. Until then, it’s just a gift card.

Roger Saunders

Much like the “de-coder rings” of our youth, the Amazon Coins create a useful promotional opportunity to build attention, interest and purchase of select items.

This doesn’t have the legs for a long-term play, but used on a targeted or seasonal basis, Amazon will get some mileage out of it.

Ryan Mathews

Right now, I’m with George—color me skeptical.

The “coins” may work for Amazon as a promotional tool, but it’s a very, very long distance between promotion and currency.

As I said, I think they’ll work as a promotional device, but on a limited basis. Are these really anything more than digital Border’s Bucks?

M. Jericho Banks PhD
M. Jericho Banks PhD
4 years 6 months ago

I buy a lot of stuff from Amazon, and recently opened their home page which was dominated by their “Coins” announcement. Exciting, right? I’m a very frequent buyer, so I’ll probably get a lot of these Coins to use for purchases of the stuff I like the most.

Not so fast, shopper-boy. For all their vaunted targeting ability, Amazon has decided to reward me with stuff I never buy—apps and games. Whoopee!

Way back in ’99 my partner and I developed a virtual currency converter algorithm we were convinced would take the world by storm. Remember Flooz (a different kind of Whoopi) and Beenz? Clearly, there was no market for our product. I hope this time around things are different and someone smarter than my partner and me will succeed.

Alexander Rink
4 years 6 months ago

Virtual currency seems like the virtual equivalent of gift cards, with the added benefit of the convenience of not having to deal with the physical medium. When I reload my Starbucks card on my app, I’m essentially trading my dollars for Starbucks Currency. The convenience from a consumer perspective is that it allows one to easily purchase items on the go, without having to enter credit card information.

From Amazon’s perspective, I am sure it will be successful due to its similarity with gift cards. According to a recent Time article, 2012 saw $2 billion in unused gift cards. Although the profits may not be as big for currency (since presumably you would only purchase yourself Amazon coins if you know you will use them), Amazon will improve its balance sheet from holding the cash prepayments, and shoppers will be psychologically inclined to purchase at the store where they already have currency stored, rather than spending “real” money somewhere else.

Dan Frechtling

Amazon is launching Coins to achieve business outcomes, not out of a mission to float virtual currency alone.

Amazon gets gamers to initiate more first-time transactions, and then repeat. Plus, it attracts more developers to its ecosystem. Through this, it further differentiates Kindle and AppStore

Gamers get $5 free and the ability to spend it on something they value.

Developers get less friction for gamers to make micropayments (versus paying with credit cards) and a share of a stimulus program with tens of millions in free currency.

Retailers have long lamented the savings they give shoppers get spent elsewhere. Points, gift cards, account credit and even gift-with-purchase emerged to keep spending within the four walls. Virtual currency is another innovation in this line. To be adopted broadly, Amazon must broaden the trade zone. They can’t treat Coins like arcade tokens and artificially limit them to apps and games.


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