May 13, 2013, 1:19 PM

Amazon gives Kindle Fire tablet users free money

It’s in the form of a new virtual currency, Amazon Coins.

Like business titan John D. Rockefeller giving away dimes to people wherever he went, e-business titan Amazon.com Inc. today has given away tens of millions of dollars in the form of its new Amazon Coins virtual currency to customers using its Kindle Fire tablet. Rockefeller didn’t expect anything in return for his dimes. Amazon, however, seems to be looking to increase customer loyalty, selling Coins at a discount, Coins that can only be used at the Amazon Appstore and within Kindle Fire tablet apps.

Amazon today deposited 500 Coins, the equivalent of $5, into the accounts of every Kindle Fire user. Owners of the Android tablet can now use Amazon Coins to purchase apps, games and in-app items, such as virtual goods or additional game content, in the Amazon Appstore and on Kindle Fire. For customers, Amazon Coins is an easy way to purchase apps and in-app items on Kindle Fire, and for developers it’s another opportunity to drive traffic, downloads and increased app monetization, says Amazon, No. 1 in the Internet Retailer Mobile 400. With discounts of up to 10% for purchasing Coins in bulk, the currency offers an opportunity for customers to save money on their app and game purchases. Customers can purchase Coins by visiting amazon.com/coins.

“We will continue to add more ways to earn and spend Coins on a wider range of content and activities—today is Day One for Coins,” says Mike George, vice president of apps and games at Amazon.

Amazon Coins have the potential to bind consumers closer to the e-retailing giant, experts say.

“The likely benefits for Amazon in creating a virtual currency relate to loyalty, buying behavior and cost,” says Colin Sebastian, senior analyst, equity research, Internet and interactive entertainment, at private equity firm Robert W. Baird & Co. “Customers that purchase and use Coins will be more loyal to Amazon, as they are invested in the platform. Likewise, once a consumer purchases virtual currency, they purchase more products more frequently. In terms of costs, Amazon can probably save some money on credit card transaction fees by lumping fewer and larger purchases of Coins in place of more frequent and smaller purchases of digital media and games.”

Amazon.com did not reply to a request for comment on how consumers can store and track their Coins, and how the merchant plans to build its business using a virtual currency.

In-app purchasing is a major part of mobile apps today. In January 2012, 53% of revenue derived from iPhone apps in Apple Inc.'s App Store came from in-app purchases; that number soared to 76% in February 2013, according to a study from app store analytics firm Distimo. U.S. in-app revenue for games reached $559 million in 2012 and will jump 31.8% to $737 million this year, research firm eMarketer Inc. predicts.

Amazon is not the first Internet colossus to attempt to win over consumers with a virtual currency. Facebook tried and failed. Last year the social network killed its Facebook Credits, a virtual currency designed to be the de facto currency for Facebook in-app transactions.

“Since we introduced Credits in 2009, most games on Facebook have implemented their own virtual currencies, reducing the need for a platform-wide virtual currency,” Prashant Fuloria, product management director at Facebook, wrote last year.

Whether Amazon can succeed where Facebook failed remains to be seen. But by pouring tens of millions of dollars in promotional funds into Coins, Amazon is showing it has high hopes.

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