Amazon Coins – Will Amazon’s Virtual Currency Succeed?

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Amazon is in the works to launch a new way to purchase apps, games and in-app items to their Kindle Fire products, dubbed “Amazon Coins”. The company plans on releasing tens of thousands of free Amazon coins to customers as a way to promote the use of their coins and to boost app sales within the Amazon Appstore.

How are the coins used? One Amazon coin is the equivalent to $0.01 USD, meaning that if your app costs $2.99 USD, it will cost an Amazon customer 299 coins to purchase it. Developers are then paid their same 70% revenue share they currently receive for their app in actual US dollars, regardless of how the customer pays.

By only allowing Amazon Coins to be spent on items within the Kindle Fire digital universe (customers cannot use the coins on other products sold on Amazon) Amazon ensures that money will recirculate within its digital universe.

Amazon is making an effort to ease any fears of any app developers too. Developers don’t have to modify their apps to be sold using the Amazon Coin-system, they simply submit the app to the Appstore as they always have, and as long as it meets the Amazon Kindle Family standards, no additional modifications are needed.

The question still remains though, what incentive does the customer have for using Amazon coins versus their credit card? Clearly customers will be drawn to using Amazon coins initially using the free giveaways coins promised by the company, but I have to wonder why anyone would use the coins in lieu of real money if they didn’t have to. Since the coins cannot be used for other Amazon products, why bother? Amazon might have to consider making their coins more advantageous for customers in the future (perhaps a discounted price for an app when coins are used) to ensure that their coins stay relevant and don’t suffer the same fate as Facebook Credits.

For more information about other types of virtual currency,  The Economist recently wrote an interesting article about the topic called, “Mining digital gold” which features a nice overview of how Bitcoin, a growing virtual currency,  is affecting the financial world. While the two virtual currencies aren’t easily compared (one being used as  ubiquitous currency and the other currency is used only for specific products),they are both very interesting  movements  to follow in the ever expanding world of virtual currency.

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