It’s a Virtual Currency! It’s an Old-Fashioned Marketing Campaign! It’s Both!

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Amazon announced today that it will soon launch Amazon Coins, a new “virtual currency” that customers can use to buy stuff on their Kindles. They’re planning to give away tens of millions of dollars worth of Amazon Coins. Matt Yglesias comments:

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.

Matt writes an economics blog, so he talks about this in economic terms, something that Amazon is encouraging by calling their coins “virtual currency.” My background is in marketing, so I say bravo to Amazon for a clever marketing stunt. Amazon Coins are no more a virtual currency than frequent flyer miles or the coupons that you clip out of the Sunday paper, but it sure sounds cool to call it that! After all, virtual currencies are considered sort of a hot topic these days.

Alternatively, of course, you could say that both frequent flyer miles and newspaper coupons are virtual currencies too and always have been. It’s just that nobody’s been smart enough to call them that. And I suppose that’s true. Either way, Amazon isn’t really doing anything new here. They’re just pouring a bunch of marketing dollars into a launch promotion for one of their new products. If it works, every new marketing campaign that involves building up points or credits or loyalty bucks or whatnot will suddenly become the latest virtual currency. I expect the primary result of this will be a bubble in doctoral dissertations on closed economies on the internet.

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