Amazon Coins: Jeff Bezos’ brilliant plan to give free money to Kindle Fire owners

http://www.slate.com/articles/technology/technology/2013/02/amazon_coins_jeff_bezos_brilliant_plan_to_give_free_money_to_kindle_fire.html     / November Amazon unusual issued $3 billion bonds no particular reason excellent credit rating no outstanding debt could borrow money cheaply announced the coming launch of Amazon Coins virtual currency use to buy Kindle Fire content announced part of the launch giving out tens of millions of dollars worth of Coins to users coins that content vendors can redeem for actual dollars Specifically, each Amazon Coin will be redeemable for 1 cent. What kind of company borrows money just to give it back to customers and suppliers? A brilliant one that understands the underlying economics of the technology platform wars better than its rivals The competition among Amazon, Apple, Google, Microsoft, and others to become the dominant firm of the mobile era can be analogized to the problem faced by developing countries. Industries want to locate where skilled workers and advanced supply chains already exist. But workers and other supply chain participants only have the incentive to invest if they’re confident industries will be around. The solution, typically, is “industrial policy” deliberate state-led efforts to subsidize specific sectors in order to foster their growth as exporters South Korea, for example, has used a model state-led capitalism to go from poor to rich with amazing speed. But it can also work out quite poorly, as in Egypt and many other middle income countries stuck in a web of crony capitalism and corruption A perhaps savvier approach is China’s much-derided currency manipulation By keeping the yuan cheap relative to the dollar and the euro, China in effect offers a subsidy to any firm that wants to use China as an export base Thus, even a country with a fairly high overall level of corruption has been able to rapidly industrialize by letting the international marketplace decide which particular subsidized exporters succeed The parallel problem in the technology platform wars is the feedback loop between market size and app development. Because Apple was first out of the gate with an app-friendly smartphone and first out of the gate with a popular tablet, it’s gained a huge built-in advantage. The large market of iOS users makes iOS development an attractive proposition, and the large quantity of iOS apps makes iOS attractive for customers. Microsoft has been trying to vanquish this problem by offering direct subsidies to app developers to make sure that Windows 8 phones have versions of the most popular mobile apps. One problem with this central planning strategy is that it relies on Microsoft executives doing a good job of guessing which apps are most important to potential customers. A bigger problem, however, is that it largely serves to encourage subsidy farming—delivering a product that’s good enough to qualify for the check—rather than a real focus on excellence. Last and by no means least, this is a terrible way to encourage innovative new apps to emerge on the platform Amazon’s strategy is more like China’s or an aggressive program of quantitative easing /