Microsoft Points – what's next for the company's virtual currency?

MicrosoftWhen Microsoft launched the Xbox Live Marketplace for the Xbox 360, they introduced Microsoft Points to the world. Instead of exchanging money for items in the marketplace directly, you purchase points and redeem those for the content you want. A quick Internet search today for Microsoft Points will return a bunch of results related to the Xbox. That makes sense as the Xbox Live Marketplace and the Zune Marketplace are the only two places you can use the points right now. But will that always be the case? Could Microsoft have bigger things in mind for their points system? Let’s take a look.

What are Microsoft Points?

Microsoft pointsYou can think of Microsoft Points as a sort of virtual currency. In a lot of ways, they act just like real money. If you see a movie you want to buy on Xbox Live, you just need to make sure you have enough points available in your account. The main difference, of course, is that you don’t “purchase” money, but you do purchase Microsoft Points.

Microsoft Points can be purchased online using a credit card, or from a participating retail location in the form of a Microsoft Points Card. As with airtime minutes on your mobile phone, you purchase allotments of points at once, ranging from 400 to 5000 points. The price varies all around the world, but in the United States 80 Microsoft Points is equal to $1. If you live in a country with government sales tax, you’ll pay that on top of the price of the points.

Microsoft didn’t invent this kind of system – there are many other payment systems similar to Microsoft Points. Along with gift cards and other forms of currency substitutes, they are are called scrips.

Why did Microsoft create the points system?

If they act just like real money, why not use real money? Perhaps the initial reason Microsoft created the points system was to help cut down on costs. Many items available at the Xbox Live Marketplace may have a low price to you, but the transaction fees that Microsoft is charged by payment processors quickly add up. It’s the same reason that many restaurants and shops require you to make a minimum purchase before they’ll accept debit or credit cards. Small transactions are just very costly to process.

Another reason that Microsoft Points exist is because they obfuscate the true cost of the items you’re purchasing. Which sounds better for the price of a movie: $5.99 or 480 points? If you’re like most people, you’ll say the latter. It’s just more difficult to realize you’ve spent six bucks on a movie when you pay using Microsoft Points. If you ever wondered why the ratio of points to dollars is not 1-to-1, that’s the reason. We’re used to doing money math in our heads, but converting from Microsoft Points to dollars is just too much work (here’s a handy converter to make it easier).

Another advantage of Microsoft Points is that they allow for transactions to happen very quickly, because you don’t have to wait for any payment processing to occur.

What can you buy with Microsoft Points?

XBox LiveAt the Xbox Live Marketplace, games, movies, television shows, themes, images, and other content can all be purchased using Microsoft Points. The price for games, themes, images, and other content varies, but movies and television shows are fixed. HDTV shows cost 240 points, and SDTV shows are 160 points. New HD movies are 480 points, and classic HD movies are 360 points. New SD movies are 320 points, classic SD movies are 240 points.

At the Zune Marketplace, you can purchase individual songs at a cost of 79 points each.

The global currency for Microsoft products

When Microsoft launched the Zune last year, they indicated that it would not be the only service to adopt Microsoft Points. As the company sells more and more products and services online, having a common currency between them becomes very attractive. Already you can purchase Microsoft Points from the Zune Marketplace and use them on Xbox Live, and vice-versa. Perhaps the Windows Marketplace will be the next service to adopt Microsoft Points.

Last month web statistics company Compete mentioned that Microsoft’s Live Search Club has become very popular. The club allows you to play games for points which you can then redeem for Microsoft products. The system uses something called “tickets” at the moment, but it’s a good example of another way that Microsoft could make use of their points system.

Windows Live Payments

Windows LiveBill Gates caused quite a stir earlier in the year after he made some remarks about “micropayments” at the World Economic Forum in Davos, Switzerland. Gates bemoaned the high cost of clearance and settlement fees charged by credit card companies, and said “you won’t have to manage some funny thing or pay some big credit charge where half of it goes to the clearing” under a Microsoft system.

Microsoft blogger Robert McLaws picked up on the idea back in January, and speculated that it might be called Windows Live Payments. He also pointed out that “a point is a point is a point,” regardless of where in the world you might live. In an increasingly interconnected world, that idea makes a lot of sense.

No announcements have been made since Gates made his remarks, but with the company continually rolling out new Windows Live products and services, we may see a payments service before long.

Final Thoughts

Almost all of the major forces in the digital living room have a payments system of some sort. Sony has the PlayStation Network Card, Nintendo has Wii Points, Google has Checkout, and Amazon recently launched FPS. Sony and Nintendo’s systems are virtual currencies, whereas Google and Amazon’s are payment services. Microsoft could be the first company to offer both by opening up Microsoft Points to the world.

last100 is edited by Steve O'Hear. Aside from founding last100, Steve is co-founder and CEO of Beepl and a freelance journalist who has written for numerous publications, including TechCrunch, The Guardian, ZDNet, ReadWriteWeb and Macworld, and also wrote and directed the Silicon Valley documentary, In Search of the Valley. See his full profile and disclosure of his industry affiliations.

6 Responses to “Microsoft Points – what's next for the company's virtual currency?”

  1. David Mackey says:

    I’m looking forward to a virtual currency like this. I agree with Gates, there are far too many and too large transactional fees – especially for small purchases. Ideally, a large number of individuals/organizations would use the points system and there would be no need to cash out (causing transaction fees) except in rare cases. e.g. You’d be able to receive payment in points for work you do, spend it on groceries, etc.

  2. steve matlock says:

    We already have this financial transaction system called “money.” It’s backed by the full faith and credit of a government.

    Points are kept in the system, whereas money is fungible & transferrable. (Try to get a refund of points.)

    Services that provide micropayments and other fractional or periodic disbursements of money will win over systems that deal with points.

  3. Dan says:

    If the government has borrowed more in the past 5 years than the 224 years previous, and its currency’s value is on a steady decline, then perhaps these “points” could be more valuable than “money” backed by that government.

  4. Michael says:

    In your list of why Microsoft created points, you didn’t mention the float. We’re all invited to deposit real money into the Bank of Microsoft, earning no interest to us, and providing no value until we decide to purchase something. Meanwhile, Microsoft has free use of our actual, fungible cash for currency trading, investment, or what have you.

  5. peter says:

    i think the idea of points is good, but i just got xbox live and an account. i made a name and began to play. i realized that i wanted to change my name because i wrote it without really thinking. as i went to change it i realized that it would cost me 10 dollars which is rediculous just to change a name. i like the points but some of the content is not worth as much as it is

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