Billion-Dollar Bet: The Real Reason Amazon and Google Wanted Twitch

Real Reason Why Amazon Acquired Twitch | OpenView Blog
Twitch cofoundersI first met Emmett Shear and Kevin Lin two summers ago, sitting across a small wooden table for three at Tarallucci e Vino in New York’s Union Square. They had flown in from San Francisco the night before and carved out an hour to learn more about Bessemer Venture Partners, where I was an investor at the time, and to introduce me to the little known live video platform and community they were building for gamers called Twitch.
Earlier this week, Amazon announced that it would acquire Twitch in a deal worth at least $970 million — the largest acquisition in the online retail giant’s 20-year history. In winning the deal, Amazon beat out Google, which was rumored to be in talks to acquire Twitch since May and whose YouTube platform seemed like a more natural home for the live video game platform. In fact, for many Amazon seemed like a less obvious (and somewhat perplexing) buyer.
So, what compelled Amazon to spend one fifth of its available cash to bring Twitch into the fold?

The Reason No One is Talking About

The New York Times surmised that it gave Amazon access to the world’s largest arena of online gamers and, consequently, an enormous platform for ad delivery. A post on Bloomberg, meanwhile, suggested the deal was a clear indicator of Amazon’s entertainment ambitions and its desire to tap into an online forum of more than 55 million monthly active users. Both of those things are true and they were very likely motivators of the deal. Twitch, after all, ranks fourth in peak US Internet traffic (ahead of Hulu, Facebook, and Amazon itself), and tapping into that audience could allow Amazon greater opportunity to grow advertising and retail revenue.
But that’s not the whole story. In fact, focusing only on those factors ignores one of the critical reasons Ethan Kurzweil, David Cowan, and myself — the Bessemer team that led the first round of funding dedicated to Twitch in the summer of 2012 — were so excited by Twitch. And it’s the same reason Amazon, Google, Microsoft, and Yahoo all pursued Twitch so fervently: Infrastructure.
More specifically, the most efficient video streaming infrastructure on the planet — technology that began with the launch of Justin.tv in 2007, the same year Netflix released its streaming video service to the world.

The Most Efficient Video Streaming Infrastructure on the Planet

Unlike Netflix, which was a public company with a market cap of over $1B, Justin.tv was supporting the growth of its live streaming video platform with a single $8m investment. Incredibly, Justin.tv not only grew to 30 million monthly unique visitors over the next four years on that relatively small investment, it also reached profitability without raising another dime of venture capital.
Much of the credit for this efficiency goes to Emmett Shear, who was then serving as founding CTO of Justin.tv, and his team, who collectively solved a problem Netflix and YouTube didn’t have to – how to build video streaming infrastructure with global reach on a shoe-string budget. In 2012, the Justin.tv team decided to focus its efforts on gaming and rebranded the company as Twitch, now with Shear at the helm as CEO. Fast forward to this past July, the lean streaming infrastructure they built allowed the platform to serve 15 billion minutes of content to 55 million unique visitors at a radically lower cost structure than its public company peers.
Ultimately, that’s what makes Twitch such an incredibly valuable acquisition for Amazon, a company that hasn’t been shy about its desire to amplify its presence in digital media, streaming video, and more broadly as one of the core platforms on the internet.
Therefore, justifying Amazon’s purchase really isn’t about deciding whether the company just purchased the next ESPN (a fair question considering more peopled played Call of Duty in the last seven years than played football, basketball, baseball, tennis, and golf in the US — combined). Instead, it’s really about deciding if it made sense for Amazon to spend nearly $1 billion to buy the most efficient streaming infrastructure on the planet.
From my perspective, the answer seems fairly clear.
After all, as streaming video becomes an increasingly important pillar of the Internet, superior infrastructure to support it will prove to be a significant competitive advantage — especially if your goal is to achieve Internet platform supremacy. For Amazon, access to the team and technology that provides that advantage is what brought them — and nearly all of the major platform players including Google, Microsoft, and Yahoo — to Twitch’s table. That’s why Amazon was willing to spend 20 percent of its cash for a gaming community.

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