Amazon Introduces Amazon Coins -- Virtual Currency for Buying Apps and Games

PHOTO: 500 Amazon Coins equals $5.
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If you're a Kindle Fire owner, you've now got 500 free Amazon Coins in your pocket. Of course, that probably means nothing to you at the moment, but those 500 Coins can buy you $5 worth of apps and games in Amazon's App Store.

Today the e-commerce giant announced Amazon Coins, its own digital currency for Kindle Fire owners. You will be able to buy Coins on Amazon.com -- 500 Coins cost $5; 1,000 cost $10; and 10,000, $100 -- and then use them to buy apps and games. If you buy Coins in bulk, Amazon says, you will get a discount on them.

Buy why use Coins and not good old dollars?

Well, Amazon hopes that the Coins will make it easier for customers to buy apps. You buy a chunk of Coins, and you don't have to worry about handing over more cash to Amazon. Amazon also says the Coins never expire and there are no fees.

But Amazon also hopes the Coins will spur more paid app downloads and encourage application developers to look at Amazon's store as an even bigger challenger to Google's Play Store and Apple's App Store.

"For you [application developers], it's another opportunity to drive traffic, downloads and increased monetization," Amazon wrote on its Developers blog in February. "Plus, there's no integration required -- you'll get paid the same 70 percent revenue share whether the customer chooses to use Coins or their own money."

Basically, Amazon wants you to download more apps and spend more money. Microsoft offers a similar coin-based system with its Xbox Live Points. However, Patrick Moorhead, an analyst at Moor Insights & Strategy, believes that these sorts of systems become more confusing to consumers.

"Initially, it gets people to spend more money, but over time it detracts. As Microsoft and other 'faux' coin-based service vendors have learned from experience, new monetary systems confuse consumers," Moorhead said. "Microsoft first thought 'points' were cute and friendly with the hope kids would spend more. They aren't, because their parents wanted to know how much games and services cost."

RELATED: Amazon Kindle Fire HD Review

Amazon built its own Android app store a few years ago to compete with Google's Android Play Store. The store is available on its own hardware devices, including the $159 Kindle Fire, $199 Kindle Fire HD and the $260 Kindle Fire HD 8.9. According to reports, Amazon is currently building its own smartphone and TV set-top box. Barnes & Noble, one of Amazon's closest competitors, had also had its own Android app and media store on its Nook tablets but announced earlier this month that it was going to begin preloading Google's Play Store.

You cannot buy books or movies or videos using Coins at the moment, but Amazon's Vice President of Apps and Games Mike George said this was just the start for the currency. "We will continue to add more ways to earn and spend Coins on a wider range of content and activities, he said. "Today is Day One for Coins."

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