Verge:
Despite the failures of Facebook Credits, Microsoft Points, and the dot-com virtual currency Flooz, Amazon has decided to mint its own money. The ecommerce giant announced today that customers will soon be able to use a new virtual currency called Amazon Coins to buy apps and make in-app purchases in the awkwardly-named Amazon Appstore for Android on Kindle Fire.
---------------------Gamers loathe this practice
Customers tend to dislike, nay abhor, the unnecessary process of transferring between their home currencies and virtual tender — just look at Microsoft, which forces customers to spend $1 to buy 80 Microsoft Points in order to make purchases in the Xbox Live Marketplace. With the Nintendo Points system, customers must buy a different set of points in order to purchase games for the Wii versus the handheld DSi console. Gamers loathe this practice, which at the very least forces them to do math before they can tell how much a rental or purchase truly costs.
Amazon can tie its currency to the dollar simply enough by rebranding them as discount coupons, and discount coupons have worked for a hundred years, just fine. The key to discount coupons is simple, the gain from better inventory management exceeds the discount.
Amazon can increase the utility of the discount coupon by offering rates, using variations of the Hyperbolic banker. The point of the hyperbolic banker is to identify the unit of inventory variance, normalizes to one, then force enough coupon money through the system so sellers and buyers can adjust inventory and price. The gain is simply that surprise inventory imbalances can be handled with forward and backward insurance. The insurance rates revealed to all parties, including the coupon banker, at the same time. Hence all parties have the ability to move forward or backward inventory to suit their peculiar circumstances; and no party has the arbitrage.
Nor does Amazon want all of its prices denominated in coupons, only the typical inventory variance from planned stocks.
It is as simple as understanding that the role of counting accurately is the value added. When one party or the other attempts to get the edge with advanced knowledge then the utility of the currency drops. Amazon, being a 100% on line vendor, is in the best position since the ease of saving and borrowing coupons is as simple as a purchase on a credit card.
Where Amazon has to be careful is from its position as a general purpose distributor. Not all inventories are a connected, additive network similar to Wal Mart, which has centralixed inventory management.
Here is an app developer explaining the issue:
Kevin Galligan, an organizer of the 969-member New York Android Developers Meetup and president of Touch Lab, an Android development agency, said his reaction to the Coins announcement was mixed. "Anything that’s going to help Android monetize anything at all is good," he said. "But how do you get Coins? They don’t go into that. If you have to buy Coins, then I don’t understand what’s the difference between that and money."Exactly, the difference has to be this: Money is used worldwide for everything, Amazon app discounts can be used for apps, and apps are a connected market. So apps, being a small part of the total economy, want a small variance in distribution to match, thus app developers can separate out the price variations for apps from the price variation for shoes. Hence, Amazon can set up savigns and loans accounts just for app purchases. Without fear of arbitrage, app purchasers, app developers, and the neutral app banker can meet on common ground. Those deposit and loans balances tell all partier, equally, the correlation of prices due just to apps alone.
Amazon's Next Step:
Take the hyperbolic banker concept and experiment off line for a few days. I just started, and just figured out that accumulant rates, not money rates, are key, but have not gone much farther. A day or two and Amazon can have it worked out and app developers and game developers will be thrilled.
This works, Amazon needs to do this and pay attention to variance, separated between its internal and external components.
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