Analyst predicts final chapter for Amazon Coins

A new report has predicted the demise of Amazon Coins, arguing that the initiative goes against industry trends and could incur a user backlash.

‘Alternative Currencies: Is There Staying Power?’

is a report from Mercator Advisory Group, which specializes in reports to the payment industry. It charts recent developments in four areas: cryptocurrencies, community currencies started regionally, in-game currencies, and loyalty points tied to payment cards.

Jeffrey Green, director of the emerging technologies advisory service at Mercator, and author of the report, argues that Amazon bucked the trend by launching its Coins initiative, in which customers could exchange fiat currency for virtual coins ‘minted’ by the online book giant.

“It's interesting that Amazon is going the altcurrency route when the others like Microsoft and Facebook are phasing out their alternative currencies,” Green said. “They're too complex for the purpose they're addressing.”

Facebook decided to kill off its Credits virtual currency, announcing this month that it would replace it with a local payments API that allows game developers to set exchange rates for their in-game currencies by regional market. This was a response to app developers developing their own currencies for use in games and other apps running on the social networking platform. Facebook Credits will be retired on September 12 this year.

Microsoft also announced this month that it would kill off the Microsoft Points currency that it has used as the financial basis for its Xbox Live gaming platform. Currently, 80 Microsoft Points are worth 1 USD. The company will be returning to fiat currency as the basis for selling games and movies via its online service.

Green predicted that Amazon’s Coins initiative would turn away some customers by making the process of buying products too complex, adding in another step where it was not needed.

Amazon began issuing the coins in May, pegging them at 100 to the USD, which makes it easier to calculate their value than it is for Microsoft Points. To spur the uptake of the coins, it provided $5 in Amazon Coins to all of its US-based Kindle Fire users (the coins are only available to US customers).

“They’re too complex for the purpose they’re addressing,” Green said. “I have the feeling that over time, Amazon may need to follow suit with what Facebook and Microsoft are doing with their own coins.”

“I can see why they want to do it; they have more control and can maybe save some money,” he added.

ArsTechnica has also criticized Amazon, along with the providers of other proprietary currencies, for creating currencies that are difficult to ‘zero out’. This means that customers will often end up with small balances of coins in their accounts that must be topped up by purchasing more coins, creating a perpetual cycle of spending and locking people into the currency. To be fair, though, Amazon’s exchange rate of 1 coin = 1 cent makes them easier to map to the US dollar than Microsoft Points.

Amazon’s coins are part of its in-app purchase flow, and can be used to buy other content in the digital app store. The company has also built a healthy business from electronic publishing, in which authors can publish their own books and set pricing online. Those authors can receive up to 70% of the profits from the sale of electronic books on the Kindle, whether the purchaser pays in Amazon Coins or fiat currency. The company recently furthered its self-publishing business by offering a Fan Fiction service, enabling fans to publish their own stories based on popular works. The service, Kindle Worlds, would compensate the fan authors for their work.

The company also filed an application with the US patent office in April that would enable digital currency to support anonymous mobile payments.

Apple is expected to follow Amazon's move to launch its own currency after it was found to have filed a patent for 'iMoney'.