Amazon Coins Go Live, Customers Weigh In on the New Currency

Register now's virtual currency Amazon Coins, which launched today, has the potential to become a successful alternative to card payments — if the currency expands beyond digital app purchases.

"This potential stems from the fact that Amazon has both ends of the value chain: it attracts shoppers looking for items and it attracts merchants looking to sell their merchandise," says Adil Moussa, principal at Adil Consulting, in an email. "Both players are already established Amazon users and are looking for ways to get more benefits: shoppers want more savings and merchants want to sell more."

The virtual currency, which works more like a virtual gift card, can be used to purchase games, apps and in-app virtual goods on the Kindle Fire tablet and within Amazon's app store.

Amazon gave every Kindle Fire tablet owner in the U.S. $5 worth of Amazon Coins, and users were quick to provide their first impressions on the product page Amazon established to sell the currency in varying increments.

Early adopters are divided about the limited applicability of Amazon Coins. Though Amazon sells everything from magazines to milk, it accepts Amazon Coins only for digital content.

"It's not a bad idea, but it is an idea that doesn't go far enough," says David J. Huber in a review on the Amazon Coins product page. He expressed interest in buying books and magazines with Amazon Coins, and also wants a loyalty rewards program.  Several other comments echoed Huber's sentiment.

Zach B, another reviewer, said Amazon Coins' limited nature makes it a good fit for rewarding kids for doing chores.

"In the past, I've had to use re-loadable visa gift cards to do this," Zach B wrote. "It's a hassle and the kids could use them for anything. The coins limit their purchases to materials available on the Kindle."

Amazon is looking at ways to spend Amazon Coins on "a wider range of content," the company said in an emailed statement.

Limited-use virtual currencies have had mixed successes. Facebook, for example, generated nearly 16% of its revenue last year through payments, fueled in part by its Facebook Credits virtual currency. However, Facebook began phasing out Credits last year, claiming the one-size-fits-all currency is a poor fit for merchants that want to set regional pricing in local currencies.

Another example is Microsoft Points, which Microsoft uses to accept payments for content on its Xbox 360 video game console. Though Microsoft's system is popular, users have criticized it for its odd conversion rate — roughly 80 points per U.S. dollar.

Amazon announced Amazon Coins in February. At the time, it promised to distribute "tens of millions of dollars' worth" of the coins upon launch. Though consumers get a discount of up to 10% for buying Amazon Coins in bulk, Kindle app developers get the same 70% revenue share for sales as they would get from other payment methods.

"It's a sound decision by Amazon," says Jordan McKee, an analyst with Yankee Group. "What the coins will do and what the goals of the whole virtual currency scheme is to bring more developers to the platform … to make Amazon's platform more robust."

The virtual currency's limited nature is appropriate at this early stage, McKee says.

"Right now Amazon is testing the waters with a pretty simple implementation," he says. "In the coming months I wouldn't be surprised to see the virtual currency used in other areas of the Amazon marketplace."

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