Amazon, the company that doesn’t care if it makes money, has hit upon a really great alternative to making money—give it away to other people:
Today we announced the upcoming launch of Amazon Coins, a new virtual currency for U.S. customers to purchase apps, games, and in-app items on Kindle Fire. When Amazon Coins launches in May, we will be giving out tens of millions of dollars worth of Coins to customers to spend on Kindle Fire apps, games, or in-app items.
Each Amazon coin is worth one cent and can be redeemed by Kindle store vendors. In macroeconomic terms, you can think of this as a program of aggressive monetary expansion to stimulate the Kindle Fire economy. By delivering a helicopter drop of Amazon Coins to Kindle owners, Amazon is hoping to boost consumption of Kindle Fire content. Not for the sake of increasing consumption as such, but because higher expected demand for Kindle Fire content should stimulate investment by third-party firms in the development of Kindle content. In that sense, the monetary stimulus isn’t merely a short-term expedient to make Kindle owners happy. It’s part of a longer-term strategy to strengthen the overall Kindle platform (and increase its differentiation from generic Android) by exploiting the positive feedback dynamic between market size, app quality and quantity, and desirability of joining the market.
So that’s a nice boost in the short term. In the longer term, if Amazon Coins prove to be a popular way of conducting transactions, it opens up new vistas for Amazon to involve itself more deeply in various quasi-banking functions or at a minium gain access to a large pool of super-cheap loans from its own loyal customers.
I sometimes poke fun at Amazon’s staggering P/E ratio and lack of profitability, but I really do mean to be serious in my praise. This is a firm that is extremely aggressive about plowing its revenue into new investments and finding new ways to serve customers and the greater glory of the brand. This idea had me scratching my head when I first saw it yesterday, but after 12 hours of cogitating it’s kind of genius. And it’s exactly the kind of thing that’s easier to pull off if investors aren’t obsessed with your quarterly earnings.