Amazon launched its first digital currency

Amazon launched its first digital currency today with a giveaway: 500 free Amazon Coins for every Kindle Fire customer. The coins, which are worth $5, can be used to buy games, app, and in-app purchases – only in U.S. for the moment. Tens of millions of dollars worth of Amazon Coins are now in customers’ accounts to spend on developers’ apps.

Kindle Fire customers who wish to buy apps or make in-app purchases can purchase Amazon Coins at a rate of 100 for every $1, but they can also get up to a 10 percent discount. Buying 10,000 coins earns you the full discount, and will cost Amazon customers $90.

“Today is Day One for Coins,” Amazon VP of apps and games Mike George said in a statement. “We will continue to add more ways to earn and spend Coins on a wider range of content and activities.”

Amazon announced the virtual currency back in February, when the company also said it would give away tens of millions of dollars worth of free Coins to customers. That’s a hint about the number of Kindle Fires sold — 10 million Kindle Fires would account for $50 million in free coins — as Amazon has never given device sales figures.

Virtual currencies can be useful for gift purposes, for children’s allowances, and for, perhaps, making it easer for customers to spend actual money since they may feel they are only spending virtual money. However, it is another layer of complexity, both for people and for the company issuing the currency, and mobile competitors Apple and Google have not released virtual currencies.

One of Amazon’s biggest goals is expanding the sale of digital content.

A full 12 of the 15 business highlights the company chose to include in its first-quarter 2013 annual earnings release were digital-content related. And that’s what Amazon Coins is all about: increasing the sale of virtual goods, which don’t have to be warehoused, packaged, mailed, and delivered.

As Mike George said:

“We are giving Kindle Fire owners $5 worth of Coins to spend on new apps and games, or to purchase in-app items, such as recipes in iCookbook, song collections in SongPop or mighty falcon bundles in Angry Birds Star Wars.”

One important point for developers: They’ll receive their full 70 percent revenue share when customers buy items with Amazon Coins, even if the users earned a 10 percent discount on their initial coin purchase.

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

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 quoted by Financial Times, 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.

The initiative launched today 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 – official press release