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Business Impact

Could Amazon’s Virtual Currency Buy You a Coffeemaker Someday?

Paying for things in the Amazon Appstore may be just the first step for the online retailer’s new virtual currency.

Virtual currency is not yet used to pay for anything more than a few virtual goods.

They might’ve called them Bezos Bucks, or Bezollars, after the company’s wildly successful, not to mention very rich, founder and CEO, but the leading online retailer chose a more sedate name for the shiny gold-colored virtual currency it announced on Tuesday: Amazon Coins.

Amazon Coins, which will be available in May and worth a penny apiece, are meant to be used by owners of Amazon’s Kindle Fire tablet computer to buy apps, games, and items within apps (including other in-game currencies) through the Amazon Appstore. Amazon isn’t changing the revenue agreement it normally offers developers, so it will continue to take a 30 percent cut of revenue brought in from anything paid for with Amazon Coins. Furthermore, the Seattle-based company may be gearing up to allow its customers to use Amazon Coins to buy e-books, song and movie downloads, or even, one day, ordinary products. 

Virtual currency has long been used to buy items within online games (and, more recently, apps). The market for virtual currency totaled about $3.7 billion in the U.S. alone during 2012, according to customer transaction researcher Javelin Strategy & Research.

Amazon hopes the move will drive more revenue to the Amazon Appstore, which would be good for developers and, of course, for Amazon itself. In an effort to kickstart the usage of Amazon Coins, the Seattle-based company says it will hand out “tens of millions of dollars” worth of the currency to U.S. customers to spend in the Amazon Appstore. (At first, only U.S. customers will be able to use the currency.) Customers will also be able to use Amazon accounts to purchase Amazon Coins.

Edward Castronova, an associate professor at Indiana University who studies online games and virtual worlds, believes it’s likely that the currency will move beyond just virtual goods.

“The narrowness in scope is purely a decision,” he says of the rollout Amazon has planned. “If they’re going to do this in this narrow area, they have the technology and the functionality to do it for everything.”

He also suggests that the motive could be to encourage customers to spend more freely. People have a “weird rationality” with virtual currencies, he says, according to which spending it seems safer than spending “real” money. If people buy Amazon Coins but don’t think of them as real money, they’ll be more likely to spend them, he says.

There are potential complications if Amazon branches out, though. Businesses, such as online games, that sell virtual currencies pay taxes on the real-world dollars used to buy their currencies, Castronova says, but they don’t pay taxes on anything the currency is used to buy within their world, like virtual armor, since it’s not considered a real-money transaction. If Amazon Coins takes off, Amazon’s involvement in the virtual currency market could spur a regulatory push affecting the online retailer, online games, and others.

Of course, some virtual currencies simply don’t catch on, even when offered by the biggest players. Facebook Credits were introduced first in 2009 as a way to buy items in games played through the social network. In June, Facebook said it was getting rid of the currency in favor of users’ local currencies.

Colin Gillis, a senior technology analyst and director of research at BGC Financial, says he’s sure Amazon is eventually planning to do something bigger with Amazon Coins, but he thinks it will be more along the lines of redeeming coins for song downloads or other digital media.

Right now, he says, the online retailer’s focus is clearly on its tablet strategy and getting customers to buy more digital content from the Amazon Appstore so that developers will keep making it. Still, “anything is possible,” he says.

An Amazon spokeswoman said the company can’t speculate on whether it may expand the scope of Amazon Coins.

Keep up with the latest in Amazon at EmTech Digital.

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