Why Amazon Spent $1.1 Billion for Twitch's Video Platform

 
 
By Chris Preimesberger  |  Posted 2014-08-26 Email Print this article Print
 
 
 
 
 
 
 
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NEWS ANALYSIS: "Social video for gamers" has a mobile video-game streaming platform that serves more than 55 million visitors per month.

Ten- and 11-figure buyouts are becoming astonishingly commonplace in the IT industry lately. There was the $19 billion buy of WhatsApp by Facebook in February, the $11 billion acquisition of Autonomy by HP in 2011, and a slew of smaller 10-figure deals during the last few years.

Amazon contributed its own such transaction Aug. 25 and at the same time pulled a fast one on Google-owned YouTube with the acquisition of little-known Twitch for $1.1 billion--$970 million of that in actual cash. The acquisition, already approved by Twitch's shareholders, is expected to close later this calendar year.

The "fast one" part plays a role because only a few weeks ago, the rumors were flying that Google YouTube was all set to buy Twitch for a bit more than $1 billion. But apparently somewhere along the way, negotiations soured, Amazon was a bit more persuasive, an extra $100 million was thrown in for good measure, and it was ultimately "See ya, Google!"

Three-year-old, San Francisco-based Twitch describes itself as "social video for gamers." It has a mobile video-game streaming platform that serves more than 55 million visitors per month. These users subscribe to the service to broadcast, watch and chat with each other globally about gaming. Twitch works with both the Sony PlayStation 4 and Microsoft Xbox game consoles.

Serves as Backbone for Video Game-Connected Services

Twitch's video platform serves as a backbone for both live and on-demand distribution of the entire video game ecosystem. This includes game developers, publishers, media outlets, events, user-generated content and the e-sports business.

In February 2014, the Wall Street Journal ranked Twitch as the fourth-largest Website in terms of peak internet traffic in the U.S., ranking behind Netflix and Google and ahead of Hulu, Facebook and Valve.

Broadband networking provider Sandvine reported that Twitch's traffic comprises 1.35 percent of all downstream traffic in the U.S. during peak viewing times. Amazon Video, with 1.9 percent of all traffic, isn't that far ahead, and Amazon has about a seven-year head start on Twitch.

Privately held Twitch is a rarity in the IT world; it's a start-up that is already quite profitable, according to people in the know. Estimates are that the company is already bringing in about $72 million to $75 million per year from subscriptions and paid advertising. The company, headed by CEO and co-founder Emmett Shear, has built a well-engaged audience in a short amount of time, certainly a huge interest factor for companies as large and successful as Google and Amazon.

Shear said that in 2013, its viewers watched an average of nearly two hours on the site per day; more than half of them watched an average of 20 hours per week.

Why the Battle for This Little Company?

Why were Amazon and Google so interested in this company?

"This is a very interesting deal from many perspectives, but mainly from the fact that Amazon is diving much deeper into the game ecosystem," Gartner Research Director Brian Blau told eWEEK. "They have been investing in games for some time now with game studios, a game focus for their devices, and of course on the back end with game developer technology and services, and now the inclusion of Twitch into their portfolio means they are really expanding their efforts as it now appears they want to be a big player in the video game space.

"I think this is a smart move by Amazon, even at the $1.1 billion level, as Twitch is a really unique product with a unique and hard-to-reach audience, something that Amazon (or really any company) would have a difficult time building and growing on their own."

What Was Behind the Deal

What was behind this move by Amazon, and with whom are they competing?

"Amazon is building a top-level consumer ecosystem and all of its parts, such as devices, content, business services, etc., are an important part of their strategy," Blau said. "This investment in Twitch will mean they will now be more known in the game community, but it's unclear how this will impact device sales, because game players already have many device options from iPhones, iPads, Android devices and, of course, the popular game consoles from Microsoft, Sony and Nintendo."

Amazon is only getting started in the game industry, and it will need to invest heavily over the coming years to really build a game audience that comes to rely on Amazon for their technology and game content, Blau said.

"Empire building takes time and resources, and it appears that with the Twitch acquisition that Amazon is ready for that challenge. Video games are a very competitive market, and it will take time before Amazon will have an impact," Blau said.

 
 
 
 
Chris Preimesberger

Chris Preimesberger is Editor of Features & Analysis at eWEEK. Twitter: @editingwhiz

 
 
 
 
 
 
 
 
 

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