Amazon Coins: good idea, awful execution

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By Kathleen De Vere Comment

There is no better sales incentive than free money. It’s just a pity that Amazon’s new virtual currency, Amazon Coins, are not a particularly useful sales incentive.

Amazon Coins -- right, but so wrong

The company unveiled Amazon Coins on Feb. 5, explaining they could be used to purchase apps, games and in-app items on Kindle Fire tablets. Most industry watchers praised the announcement, but more than a few pundits questioned the logic of the coins.

While I’ve already made my opinion fairly clear (skip to 0:34 to get to the relevant part), Amazon’s Coins do deserve more analysis, particularly since so many people are convinced they are brilliant. The real rub is that those people are technically right. Stimulating the Kindle Fire economy is an excellent idea, more so because Amazon desperately needs to do it.

Not long after the Kindle Fire was released, many developers boasted that it monetized far better than other Android based tablets, and that its app store was much more lucrative the official Android market run by Google. As interest in the Kindle Fire has dropped off, however, so have the claims that it was the ultra-profitable Shangri-La Android developers were dreaming of. Competition from the Google’s Nexus-branded Android tablets and Apple’s new iPad Mini have squeezed the Kindle Fire’s share of the mid to low-end tablet market, and the device no longer has the “hot gift” cachet it had when it debuted just before Christmas 2011.

The Kindle Fire app store has always had a much smaller pool of apps and users than Google Play and the iTunes App Store, and as interest wanes in the device, so has the influx of excited new users ready to download apps. Amazon knows this is bad news. After all, developers aren’t interested in making apps for a platform without consumers and consumers don’t want devices with a lousy selection of apps.

Microsoft is in a similar situation; its work-around for the problem has been to incentivize development, assuming the consumers will eventually come for the apps. Meanwhile Amazon is trying the opposite approach, supplying the financial incentives to the consumers and letting developers know there will soon be a lot more liquidity in the Amazon app economy.

It’s a fair tactic that doesn’t penalize the developers that bet on the Amazon Appstore before the company started its stimulus efforts, and it’s technically giving both consumers and developers what they really want — money.

So, why not just supply money? Perhaps credit every Kindle Fire owner’s account with a few dollars via a virtual gift card? Kindle Fire owners already understand how to buy apps with real money and Amazon’s customers are already comfortable with the concept of gift cards. Even if Amazon is planning to roll out some sort of rewards program with Coins (i.e. spend $10 on Kindle Fire apps, games or in-app items and get 100 Amazon Coins), why not just use a cash-back system similar to the one many credit card companies already use?

There is also the matter of what Amazon is looking to gain by creating its own virtual currency.  Microsoft Points were designed specifically to make items look cheaper than they are (an item that costs 79 Microsoft Points actually costs $0.99). Amazon Coins meanwhile, convert one for one to real cents, so Amazon clearly isn’t hoping to target bargain hunters.

Perhaps Amazon is hoping to use Coins to convince people to spend money without having to (technically) open their wallets — after all, when Facebook introduced Credits, the idea was that a universal currency would boost conversion. Again, this is a questionable choice since in the end, Facebook Credits ended up being a mixed bag. While developers saw an increase in conversion, others reported a decrease in average revenue per paying user. In the end, Facebook eliminated Credits less than a year after they were introduced opting to use a local-currency system just like Apple, Android and yes, Amazon were already using.

Millions of people already know and trust Amazon with their credit cards, and Kindle Fire users were already using a standardized payment system with the currency they understood best — dollars. Amazon’s new virtual currency is just complicating the matter with a second payment option.

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