May 19 2013
Amazon introduced Amazon Coins last week. Everyone with a Kindle Fire was offered 500 Amazon Coins which equaled $5.00. The coins can be used for apps and games. By using Amazon Coins, Kindle Tablet owners will save 10% automatically on apps and games because you receive a 10% discount when you purchase more coins. But Amazon Coins aren’t the first foray of Amazon into offering an internet currency. Amazon launched Amazon Payments,a Paypal alternative, in 2007 that never really took off. Amazon also has TextBuyIt that allows you to purchase items simply by sending a text message.
Google announced a week ago that you would be able to send and receive money using GMAIL. Google also has Google Wallet, a way to shop on the internet and pay without re-entering all your credit card information.
So how are Amazon Coins different? There really isn’t a difference. While one Amazon coin is equal to one penny, you cannot currently revert back an Amazon coin into real money. Take, for instance, Bitcoin. Bitcoin is an internet currency that is used to transact some business on the internet. It is supported by an open source software and the value of the Bitcoin is based on a daily exchange rate. In many ways, it is traded and speculated on like a commodity. It’s completely unregulated which is part of the appeal to the internet denizens.
Amazon Coins could stand outside of financial regulatory schemes, particularly if the Coins are used solely on Amazon for Amazon purchases.
From a financial standpoint, Amazon Coins reduces the amount of money Amazon pays for credit card fees, fees that are incurred with every transaction that is conducted on Amazon when a customer uses a credit or debit card. (Some of my local merchants will give a discount if you pay with cash these days). Bookstore and publisher, Siren, uses this feature. In order to buy a book under $5.00 at Siren, you actually have to buy “Siren Bucks”.
Amazon Coins are like a gift card balance. You don’t really feel like you are spending money when you purchase something because you already have a balance on your account.
Most importantly, though, it ties a consumer deeper into the Amazon ecosystem. Analysts have estimated that the average Amazon Prime customer spends two times as much as a non Prime member, $1,224 a year compared to $505.
The point of Google Wallet or Amazon Coins or Facebook Credits is for that company to serve as the portal for every shopping transaction that you have on the Internet. Online only retailers grow 27% annually per one report.
I was told by my mentor that you make money when you stand in the place where money trades hands and that is exactly where Amazon, Google, and the like are trying to position themselves.