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Amazon’s acquisition strategy is one of the biggest secrets that the Seattle-based business manages. Announcements for small acquisitions are generally not done and the industries that are being canvassed for targets are also a closely guarded secret. In 2014, Amazon shocked the entire digital industry by acquiring Twitch. Twitch started as Justin.Tv that changed their business model to allow customer to stream the video games that they are playing with the world. Amazon acquired Twitch after Google had regulatory concerns over adding Twitch to their long list of assets.
According to Insider, Amazon’s Twitch buy was an investment in bolstering Amazon Web Services (AWS), the company’s $7 billion-plus cloud-computing juggernaut. How does a $970 million dollar acquisition bolster a giant revenue generating business?
The reason for the acquisition was never clear
The e-commerce and digital markets contained various ideas on the reasons behind the acquisition. According to Insider, Amazon’s Twitch buy was an investment in bolstering Amazon Web Services (AWS), the company’s $7 billion-plus cloud-computing juggernaut. How does a $970 million dollar acquisition bolster a giant revenue generating business? It provides Amazon the opportunity to add game development to Amazon Web Services (AWS) business. Plausible but providing startups and developers with a low cost development platform is a secondary reason for the purchase.
Amazon has a long history of being content centric and own a variety of businesses that provide customers with valuable content that are niche-specific. IMDB, Preview were acquired to provide Amazon with content that they could leverage to drive purchases. Twitch I believe was acquired with a broadcasting specific end-result. Remember, nothing that Amazon does is not tracked via analytics that provide deep insights into long term revenue generation. Currently only Amazon can provide advertisers who utilize their advertising business with deep insights into products customers are searching for and purchasing.
The video game industry
According to Newzoo, the US video game market is worth $26.4b that does not really have a market leader. According to Prophet, In addition to selling an interactive product, video game makers are also able to embed themselves into the digital lives of customers in unprecedented ways, across every touchpoint of their journey. These brands can interact with customers to create lasting affinity. It’s no longer about what the brand says. Relevant experiences are built on how the brand interacts with customers. Loyal video game buyers have only been marketed to by game developers such as EA Games, Activision Blizzard and others, Amazon looking to enter and generate revenue from this loyal segments makes total sense. Amazon via its Prime business have taken loyalty and purchase behaviour to heights that should concern competitors.
Twitch consuming Amazon DNA
In late 2016 and 2017, Amazon started influencing Twitch’s business operations. Keep in mind that Twitch is an independent subsidiary of Amazon. Amazon added a retail element to Twitch operations as it makes sense – these loyal customers spend hours watching game play on Twitch and would likely be purchasing merchandise and games from another business prior to this change.
According to TechCrunch, in late March 2017, Twitch added game sales to its business.
The Partnered streamers who have opted into this new commerce program will earn 5 percent from the sales from their channel, Twitch says. The game publishers, meanwhile, earn 70 percent of revenue for the game sales.
However, unlike traditional online retailers, Twitch offers several incentives to encourage Twitch users to buy from its site. Game buyers will receive a free Twitch Crate, which will include an assortment of items that can be used on its site while watching streams and interacting with other users. At launch, there will be around 50 titles and related in-game content available for purchase, Twitch says, up from the couple dozen announced earlier.
The Partnered streamers who have opted into this new commerce program will earn 5 percent from the sales from their channel, Twitch says. The game publishers, meanwhile, earn 70 percent of revenue for the game sales. This commission based model is something that Amazon uses across its entire marketplace to entice sellers which in this case are game publishers to provide them with products which Amazon / Twitch customers can purchase.
In middle 2017, TechCrunch reported that Amazon was allowing partners and affiliates to sell to Twitch customers. Being able to create additional revenue from the loyal customers ensures that twitch becomes sustainable and less dependent from Amazon’s investment.
The move into game sales gives streamers another way to make money – something that’s needed to grow a strong creator community. However, the changes could also have an impact on the type of content featured on Twitch – subtly shifting streamers to favor those games from publishers working with Twitch over the ones they would have otherwise chosen.
Twitch Affiliates will be a much larger group than Partners, which greatly expands Twitch’s ability to sell games. While there are only 17,000 Partners out of a total of 2.2 million unique streamers per month, Twitch invited “tens of thousands” of non-Partnered channels to its Affiliate program.
By late 2017, Twitch merchandise sales also started on Amazon and on Twitch. According to GeekWire, the Twitch Online Store featuring Twitch shirts, hoodies, community inspired apparel and home goods. Items can be found at amazon.com/twitchmerch or twitch.tv/store. Purchases require an Amazon account.
In 2016,Twitch introduced Twitch Prime, a bundle of Amazon Prime benefits specifically aimed at gamers like discounts on game pre-orders and new releases, a rotating selection of free digital titles, in-game bonuses, and an ad-free Twitch experience that includes a free monthly Twitch channel subscription.
Twitch Prime is available to those who pay for an Amazon Prime membership in the U.S., Canada, Italy, France, Germany, Belgium, Austria, Spain, and the U.K. It’s also accessible to customers in countries where Amazon Prime not offered, but monthly Prime Video subscriptions are available. Essentially Amazon is adding the benefits of Twitch to existing Prime customers and marketing Amazon Prime to a new group of customers who can purchase a subscription to Twitch and over time become regular Amazon customers. According to Rolling Stone, More than five million games were pre-ordered via Twitch Prime.
The real reason for the Twitch acquisition
It took nearly 4 years for Amazon to show the world the reason for purchasing Twitch.
It took nearly 4 years for Amazon to show the world the reason for purchasing Twitch. As I mentioned, generating retail sales from loyal gaming fans and helping streamers generate revenue are seen as the primary reason for the acquisition by sum.
Broadcasting content was the real reason for the acquisition. Amazon has been challenging YouTube with tools, according to Ars Technica, As explained in Twitch’s blog, a new part of the upload workflow will be “Premieres,” which is a different category of video than “Live” or “Rerun.” Creators must make landing pages for all Premiere videos, which seems to mean that any premade, uploaded video will need a landing page. Viewers can set reminders from a video’s landing page for an alert before the video is available. Creators can also use a countdown timer to build anticipation for the release of their newest video. Reruns, which are separate from Premiers, are exactly what they sound like: videos that already aired that creators have scheduled to play again.
Amazon has also been tapped by Activision (a major game developer/publisher) to stream an eSports league. According to The Star Malaysia, Activision Blizzard Inc will televise matches for its new professional league for players of the video game Overwatch on Amazon.com Inc’s Twitch, betting that fans of the service for gamers will embrace professionally produced competitions. Twitch will stream the Overwatch matches in English, Korean and French and will be the exclusive provider everywhere but China. eSports is a fast-growing industry which has seen investment via team ownership stakes (think sports franchises for video games) and getting these rights provides Amazon with an opportunity to drive Amazon Prime Video / Twitch adoption in these markets.
According to Recode, The NBA and Twitch have also been doing a trial with the hope of appealing to younger audiences they imagine want a reinvented take on sports TV.
So here are the first set of trials: Twitch, which lets lots of people watch and comment while other people play video games, will give a dozen of its better-known commentators, like “GoldGlove,” the ability to do their own play-by-play for G League games.
Viewers can also call up interactive graphics with player and team data that will overlay the games while they’re streaming; there’s also a feature that rewards fans for interacting with the streams by giving them “loyalty points.”
What must brands do?
Video game brands would be foolish to not look deeper at Twitch. First party relationships with Twitch could ensure that your products are seen via Twitch Prime by a loyal audience that are large in numbers and always looking for new interactive games. Marketing via Twitch influencers that are relevant to the sector of your content also should be looked at as these channels have loyal members that are influenced by channel personalities. Video game brands must ensure that their products are eligible to be found on Twitch as failure to be seen by the Twitch community will lead to marketing costs to generate sales. Third party sales that are done via an agency should provide these brands with a healthy revenue channel.