Amazon Coins: Can New Virtual Currency Help Improve App Sales?

on February 05 2013 2:16 PM
Bezos
Amazon CEO Jeff Bezos Reuters

Amazon Kindle Fire users have a new way to make purchases now with Amazon Coins, a new virtual currency that will come out in May 2013 and work with all app and in-app purchases on the Kindle Fire tablet.

The new Amazon Coins feature will be interchangeable with real money, and developers will still receive the same cut -- 70 percent -- but the new virtual currency could help Amazon bolster up their app and in-app purchases.

Gizmodo writes that Amazon Coins could help prevent excessive spending, especially with those that share their Kindle Fire tablets with their families or children. Hypothetically, with Amazon Coins, each member who uses the Kindle Fire can be given a certain allowance, or limit of Coins, without giving them direct access to the payment method. And, since Amazon will be accepting real money as well -- unlike Xbox Live, which now only accepts virtually currency -- there’s no issue of feeling “locked-in,” as Gizmodo put it.

According to Amazon’s press release, the company will be giving away tens of millions of dollars in Amazon Coins as a promotion to increase the hype and buzz surrounding Amazon’s new virtual currency. Existing apps will be transitioned to accept Amazon Coins, but, in order for a new app to be eligible to use Amazon Coins by the time they arrive in customers’ account, they need to be submitted and approved by April 25.

This new feature could help improve revenue for the publically traded company. Amazon’s (NASDAQ: AMZN) stock is doing well, but the company missed Wall Street estimates when it released their most recent earnings report. According to the Wall Street Journal, one of the reasons Amazon’s stock is still doing so well is because it managed to improve on its “razor-thin” margins, increasing operating income by 56 percent, from $260 million in Q4 2011 to $405 million in Q4 2012. The WSJ notes that Amazon has been trying to improve on its margins even more by adding services like its Amazon Cloud services, Amazon Prime (and its standalone service) and e-books sold on the Kindle and Kindle Fire. App and in-app purchases may play a role in increasing Amazon’s margins so the company can become more profitable.

Profitable margins are especially important for a company like Amazon. Netflix CEO Reed Hastings specifically mentioned Amazon when he discussed how much his company spends on licensing -- Hastings hypothesized that Amazon spent more than $1 billion. Some aspects of Amazon, including device sales, are more profitable than others (i.e. Amazon Prime), so Kindle Fire and Kindle app sales need to balance out how much money the company is spending on licensing deals with Hollywood studios. 

Amazon executives are already trying to use app and in-app purchases to generate revenue. They’ve increased their digital media selection, which includes movies, TV shows, songs, magazines, books, audiobooks and apps -- from 19 million at the end of 2011 to 23 million at the end of 2012, and more apps means more revenue. Be sure to look for an increasing number of apps to become available on the Amazon Kindle Fire in 2013 as the company tries to push its new Amazon Coins feature this coming May.

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