Why Amazon paid $970m for Twitch

Tuesday 26 August 2014 12.53

 

Amazon already offers gaming services through its Fire TV set-top box

Amazon already offers gaming services through its Fire TV set-top box

By Will Goodbody, Science & Technology Correspondent

@willgoodbody

The owners of Twitch must be feeling pretty smug this morning. Last night they sealed a deal which will see them sell their mere three year old streaming service for just shy of $1bn. But while the price tag may be surprising to many, the buyer is even more unexpected. Because until a few months ago Twitch was reportedly in talks with Google with a view to a prospective tie-up.

So why Amazon, and why $970m? Few outside the world of gaming will know much about Twitch. But if you are a gamer, you’ve probably spent countless hours of your life using it. Twitch is a  video service for games, allowing them to stream and upload their gaming activities as they play to potentially millions of viewers who can follow every explosion and carjacking in real-time. A non-gamer might ask why? The 55 million unique visitors to the site, who together viewed over 15 billion minutes of content, would clearly respond why not?

To Amazon, Twitch holds great potential on two fronts. First, Amazon continues to expand its presence in gaming, through its own development studio. Its Fire TV set top box introduced earlier this year boasts several games like Minecraft-Pocket Edition, The Walking Dead, and Monsters University and has an optional gaming controller. It also sells games on its website, of course. Online gaming is a big and growing business, and it probably makes sense for an expanding Amazon to go after a slice of the action, by connecting directly into the community via this most popular of platforms.

But the second main reason for the purchase is just as valid. Amazon wants to become a big player in TV. Already its Prime Instant Video service offers a library of streaming movies, TV shows and original content. So far its efforts haven’t posed much of a challenge to Netflix, and to the user generated content of Google’s YouTube. But Twitch may allow it to expand its presence in both areas, by acquiring the technology and user base necessary to achieve a critical mass.

How exactly it will make enough money from the venture to justify the purchase in the short to medium term isn’t clear. Amazon’s expertise lies more in retailing that ad selling. But it will need to exploit the potential of Twitch’s existing subscriber and user bases to make the acquisition pay for itself.

It will also be interesting to watch what happens to the governance and strategic direction of Twitch, which is still very much a community run for its users. Twitch CEO Emmet Shear has written in a letter to them that it will keep its office, employees, brand and independence. But that’s probably what Instagram and WhatsApp thought when they got into bed with Facebook. One wonders do they think the same thing now?

Amazon’s shareholders will also be watching closely. Its share price has experienced a bumpy ride in recent months, amid concerns it’s not focusing on its core competencies.

This move may be seen as a risky one in the internet video game of thrones. Tune into Twitch to see what happens next!

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