Merchants have the choice whether or not to hold bitcoin. It's probably fair to say many or most merchants will choose to receive dollars because their costs are in dollars, and the price of bitcoin is still volatile. But the price is volatile only because bitcoin is still nascent and not widely held. As it becomes more widely held and more liquid, the volatility will go down, and the willingness to accept and hold bitcoin will increase (i.e., there will be an increase in reservation demand). Merchants who are willing to accept and hold bitcoins will also benefit from lower transaction costs - those who have the conversion done for them are implicitly paying the transaction cost related to the volatility and bid/ask spread in the market (or perhaps more likely it is the consumer paying this implicit transaction fee).

It's also important to realize we're in the very very early days of bitcoin. This is really like 1994 for the Internet.

strictly speaking, you don't know this. I believe these services let you choose what percentage you want to be paid in USD, and what percentage you want to keep in bitcoin. So although they may choose to be paid entirely in USD, they could also choose to keep some amount of bitcoin ... that's an internal matter that they may or may not make public

I think that's reasonable, but ultimately I'm not sure it matters. It doesn't change the fact that a consumer can spend it at a given location. The ability to spend coins directly, from the consumers' perspective does impact acceptance. I'd argue that's the most important thing here, not whether merchants actually hold the Bitcoins.

How would that make a difference to the consumer? Imagine that, for all we know, Amazon currently converts all of its USD revenue into another currency. That makes absolutely no difference to the consumer, who still uses USD.

1. Amazon instantaneously converts most of its USD into services and products that their suppliers and employees provide.

2. If you want to try dealing with Bitcoin, step zero is to allow people to pay in it. Then, if you happen to have more suppliers whom you can pay in BTC directly, you can keep some part of your cash in BTC. But making the first step is your competitive advantage - you already attract target audience and learn how the thing works.