Amazon launches a virtual currency

Amazon launches a virtual currency

By Barney Jopson in New York and Tim Bradshaw in San Francisco

Amazon has underscored its desire to rival Apple’s App Store by launching a virtual currency through which it will in effect subsidise developers joining its own service.

The online retailer said it would give customers “tens of millions of dollars” worth of Amazon Coins to spend on developers’ applications and games. Developers will receive 70 per cent of the currency spent and Amazon will convert the digital money into dollars.

The initiative – which was announced on Tuesday and will launch in May – is the latest example of Amazon’s willingness to sacrifice profits to win market share, as it bets that by attracting a broader range of developers it will entice more customers.

Amazon Coins will be given only to US customers at the launch and can only be spent on apps and games that are available on its Kindle Fire tablet.

Amazon did not say which customers would be eligible or how much they would receive.

“It’s another thing that is going to squeeze those margins,” said Colin Gillis, technology analyst at BGC Partners. “It’s a big opportunity they are chasing after. They are in the race. The issue is: will there be long-term gold?”

Apple, Google and Amazon are battling to draw consumers into their own systems of commerce, advertising and devices. Amazon’s app platform, which is closely tied to its Kindle Fire tablet, still lags behind Apple’s App Store and Google Play.

Benedict Evans of Enders Analysis said the digital currency was “part of a steady drumbeat of moves by Amazon to build up an alternative mobile device ecosystem . . . to bypass Google”.

He said Amazon’s moves to build or buy mapping and voice-control services were part of that effort. “If Amazon were wanting to do phones, a lot of those components would be more important,” he said.

Amazon says it has more than 200m active customers, while Apple says its iTunes service – which includes the App Store – has more than 400m.

Paul Ryder, vice-president of apps and games for Amazon, said in a statement: “Now we have another new way to help developers reach even more of our millions of customers.”

Amazon’s push into virtual currencies comes after Facebook last year decided to phase out its own digital money, Credits, in favour of conventional money, as it sought to simplify transactions.

Anthony DiClemente, an analyst at Barclays, said that Amazon, through its digital currency, was seeking to attract both non-Amazon customers as well as existing shoppers who were buying only physical – not digital – goods.

“Amazon is certainly looking at different ways to boost revenue [by making] things easier, with less friction to the consumer. That is always the paramount concern,” he said.

Amazon has sold 10m-15m Kindle Fires since launching the device in 2011, Mr Evans estimated. Apple sold 23m iPads in the last quarter of 2012.