Amazon Coins – new token currency, same old issues

Amazon announced today that it has introduced Amazon Coins, a token-based economy for use in their Kindle Fire app store.

Amazon coins - more benefit for Amazon than customers
Amazon Coins – who benefits most from the 4% discount? Hint: it isn’t the customer.

Although customers get up to a 10% discount for buying Amazon Coins in bulk, that discount is actually likely to lead to them spending more money, not less, on Amazon’s app store.

  • You must buy Amazon Coins in larger multiples than you need for an individual transaction. That’s the same as giving Amazon an interest-free loan. It will also encourage you to buy more apps, because you now have the (otherwise worthless) coins burning a hole in your virtual wallet.
  • If you buy 500 Amazon Coins for $4.80 (a 4% discount) to buy some 99c apps, then after four purchases you will have a remainder of 84 unusable coins. That breakage is either free money for Amazon, or an incentive to you to purchase more coins.
  • Once you have exchanged cash for Amazon Coins, you stop thinking of them as cash. As tokens, they lose their relationship to real money. Moving from money to tokens removes your concept of their value.

As Lee Hutchinson at Ars Technica writes,

The primary beneficiary of the Amazon Coin system and the obfuscation of costs is none other than Amazon. … Amazon will almost certainly be pushing the new Coins with all their might—it’s too profitable a measure. Any system which serves to cloak the amount of money spent by a customer behind abstract “points” is bad for consumers, plain and simple.

At the moment, it’s not clear whether Amazon will be maintaining a two-currency system within the Kindle Fire store, or whether coins will become mandatory. I’d imagine that they will follow Nintendo, Microsoft, and others in creating a single currency just as soon as they feel customer sentiment is sufficiently on their side.