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On Amazon Coins, In-App Purchase, and Mobile Advertising

It appears that the enigmatic “currency of the internet” will be figured out, finally, in the next few years.  And it has been a really long time coming.  I remember listening to a presentation at business school by Dan Lynch who founded CyberCash in 1996 to be the micro-currency of the web.  But traffic tends to find the path of least resistance, and free, ad supported sites got it all.  But content providers and banks really really wanted a paid alternative to work.  So in the ensuing 16 years we have filled graveyard after graveyard with micro-currency and e-wallet startups or failed corporate initiatives.   Paypal is the closest thing to made-for-web cross-platform payment we ever got.  But it is hardly that ubiquitous “currency of the web” Dan Lynch envisioned.  It grew up solving peer-to-peer payment, and morphed into a credit-card alternative.  So, today, we still have no way to micro-pay.

But something important has changed.  Ads don’t support mobile content because the screen can’t show compelling ads.  And consumers of mobile content still want it to be free, but are truly annoyed by the ads they see.  To date, nobody has figured out an ad experience tolerable to consumers with conversions high enough to support app developers.  I think conditions are right for a micro-currency to emerge.

Enter Amazon Coins.  This product has everything.  A made-for-web currency from a trusted source (sorry Facebook Credits) where we already have a payment relationship (Sorry everyone but Apple), on an open OS (Sorry Apple) with a great, usable SDK (I assume it will be).   Perfect, right?  There is only one way they can screw this up.  And they are doing it!

Taking their cue from that consumer favorite, the wireless carriers, and following Apple’s lead, Amazon is skimming an absurd 30% of all Coins transactions.  Compared to 3% for MC/Visa this is userious.  I expect other entrants to force Amazon down to a 5-10% range over time, but if they were smart they would go there today, not leave such an obvious foothold for competitors (retail banks/MC/Visa).

The main point here is, the Android ecosystem has created a consumer tolerance for micro-payments that will finally launch the eWallet we have been talking about since the Netscape era.