Time is Money

Residents of certain countries in Africa have resorted to using mobile phone credit as a stable, defacto currency.  According to the Economist, it has become a preferred payment method in countries whose economies have been wracked by instability and inflation.  In Zimbabwe, while the US greenback has largely replaced the Zimbabwean dollar, the scarcity of US paper currency has made it popular for shop owners to give small change in the form of mobile minutes. 

This trend of using mobile credits as cash has opened up some valuable business opportunities for marketers looking to expand their reach into developing markets. JANA Mobile, a Boston based marketing and research company has access to over 2.1 billion consumers in 85 developing countries around the world.  Their business is simple.  They offer consumers phone credit to complete marketing surveys about their buying preferences.  Alternately, they can offer phone credit rebates to incentivize certain purchases of partner brands.

Paying consumers for market information is nothing new.  Recently I was given $50 to fill out a survey for the Twin Registry of the University of Washington. What is striking about JANA’s case is their ability to recognize mobile minutes as an easy and effective payment system in emerging markets and use it for marketing purposes. Consumers are happy because in addition to phone time, they can also buy groceries and even pay their utility bill with these credits.

The article in the Economist  has sparked a bit of fascination for me in alternate monetary systems.

Many of you have heard of Bitcoin, the world’s most widely used alternative currency.  Developed in early 2009  by a psydeonomymous  hacker named Satoshi Nakamoto, Bitcoin is not released by a central bank or government, but is distributed via a decentralized peer to peer network of computer users.  Unlike fiat currency, it is released at a predetermined  geometric rate that will cease once the amount reaches 21 million bit coins in total distribution. Currently, the value of the world’s Bitcoin is approximately 200 million USD and is accepted by about 1,000 merchants. The history of this currency, as well as the method of disbursing bitcoins, a process called bitcoin mining, is fascinating, and I would encourage you to read more about it here.

While these developments are interesting, it is hard to imagine that small “hobby currencies” would have much in impact in the world of global finance and central banks. 

Or is it?

Amazon recently announced that it would be releasing “Amazon coins” an online “currency” that can be used on their marketplace as tender to purchase developer apps and electronic purchases.

At first glance it is difficult to know why Amazon would go to such trouble to market these coins, which many see as just another unnecessary step in the transaction process.

A possible reason came to me last night in Portland when I overheard the bartender inform a disgruntled customer that there was a $5 minimum for credit card purchases. I had cash that night, but the exchange reminded me of similar rebuffs that I had experienced trying to buy a 78 cent packet of tic tacs or a two dollar cup of coffee from the 7-Eleven. 

Whenever a retailer swipes a credit card, it has to pay around 3 percent of the amount to the merchant bank which oversees the transaction, this is called a merchants fee.  This percentage is higher for small purchases and highest for online sales.  In fact, a recent act of congress last year increased the maximum allowable fee for small purchases.

Amazon, as most of you know is pursuing a strategy that increasingly emphasizes apps and ebooks as a primary revenue stream.  Because of the vast majority of these apps are 1-2 dollars, it makes sense for them to find ways to maximize profit by minimizing their loss to these fees.  By bundling numerous $0.99 app purchases into a larger single purchase of Amazon coins, they are reducing the amount that they have to pay to these credit card companies and adding to their bottom line.

Secondly, Amazon plans to give away millions of dollars of these Amazon coins to consumers over the first months of its release.  Because these can only be used on digital content, like apps and ebooks, it will do much to “prime the pump” of profitable e-sales, and hopefully induce more customer engagement in this down the road. 

I don’t see Amazon coins attempting the same paradigm shift that mobile money or bitcoin is trying to achieve, but it shows a very shrewd strategy to increase app sales while minimizing expenses to credit card companies.  Then again, Amazon is a huge company with over $61 Billion in sales last year, they could be a trendsetter in this money frontier.

Only time will tell.