Amazon’s Bi-Modal Purchasers

republished from MobilePaymentsToday.com

Amazon seems to think that there is a market for virtual coins. The company revealed the possibility of a customer buying apps or in-app purchases with their credit card or virtual coins. Is this bold step a bit premature? We’ve seen the craze that BitCoin created with its otherworldly valuations. Also, Flooz and Beanz failed early in the last decade as well.

According to the Amazon Coin FAQ, one Amazon Coin is worth one cent, so an app that is valued at $2.99 is worth 299 Amazon Coins. Simple and straightforward enough for the moment, mostly because the Amazon Coin system is only available to U.S. consumers at the time of launch and won’t be eligible as payment for any subscription services. This sidesteps currency markets and exchange rates – for now.

Despite the stigma to alternative forms of currency, I believe in Amazon. Amazon understands what it’s doing right and what others are doing wrong. It’s creating a bimodal purchaser for its app store. These purchasers can help to break down traditional currency silos and organize app purchases along a tiered purchase structure. It can help to create rewards for customers that are beyond simple discounts.

The idea is to take advantage of what Amazon calls already-high conversion rates from Kindle Fire users on the Amazon platform and give users a new way to spend money. Adding a virtual currency, which takes the sting out of spending hard-earned cash, is simply the next logical step toward the goal of helping Amazon developers make money. Developers will still get their 70 percent cut from each purchase made, whether it’s from credit card or Amazon Coins. It’s still unclear whether or not developers, as opposed to Amazon itself, will be able to reward users with Amazon Coins as part of their own promotions.

I am wary about the longevity that virtual currencies, like Amazon Coins, have. Facebook has tried and failed at creating a virtual currency, as did a host of other companies. It’s not an easy proposition to think that money can be created online but can’t be redeemed offline. But it’s not a stretch to imagine Amazon extending the coins so they can be spent elsewhere – Kindle e-books or Amazon music tracks, for example. Other options include Amazon Web Services, Amazon Prime subscriptions, and of course, the colossal array of real-world products Amazon sells online.

For the moment, it seems as though Amazon will create a finite universe of users and situations that accept Amazon Coins. One thing that could make Amazon’s coins very different from earlier virtual currencies is Amazon itself. It’s no dot-com-era startup or online commerce experiment. It’s an e-commerce giant through which billions and billions of dollars flow every month.

Maybe Amazon Coins will remain in a tiny app-store corner of the company’s commercial transactions. But the possibility that they could spread so much farther makes them much more important than other virtual currencies and means we should pay much closer attention to what Amazon does with them. I hope Amazon can commit to a fixed Amazon coin exchange rate so customers don’t have to worry they’ll suddenly be devalued. Maybe then they can create a marketplace.

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