Why Amazon Created Its New Virtual Currency, Amazon Coin

Amazon Coins Worth one real penny. Amazon

Amazon mostly soaks up cash for real world stuff, but as they move further into the Kindle and Android worlds, the company is getting more and more digital. Now the retail giant wants users to buy their Android virtual stuff with a new currency--"Amazon Coins." The currency, if successful, could allow Amazon to build loyalty in their Android ecosystem.

In May, Amazon will give "tens of millions" of free Amazon Coins to Kindle Fire customers in the US for apps and in-app purchases, which include stuff like Farmville chicken coops. The move will help butter up customers and get them used to the idea. No word on how Amazon will choose to divvy the coins among the Kindle Fire crowd of roughly five million.

Amazon Coins joins a few other virtual currency minting operations like Bitcoin, Second Life's Linden Dollar, Facebook Credits, Microsoft Points, and Nintendo Points. But some of those, while pinned to the US dollar, had bizarre exchange rates, leading to confusion. So Amazon kept it simple: one Amazon Coin is worth one penny. Developer payouts remain unchanged; devs earn 70 percent of the take, but new apps will need to be approved by April 25 to get in on the Amazon Coins flood.

It's a smart move by Amazon to more easily capture micro-payments and disguise the pain of spending real money--theoretically, you might just think "Oh, it's just a few Amazon Coins." Of course, it's Amazon's way to rake in the long tail of transactions. All those pennies add up (unless you ban them) to real dollars.

While it's a win for Amazon and developers, for customers, it's hard to see any added value in the new Amazon Coins world. It's not difficult to purchase digital items with regular dollars, and it's not clear why users would bother converting money in this way. On the bright side, it's a chance for you to gift someone with 1,000 Amazon Coins and not feel like a cheapo.