Three reasons why Amazon splashed out almost $1 billion on Twitch

Forget user metrics or Amazon's gaming ambitions. This company gets digital.

What's Amazon thinking? That’s what some in business circles may be asking after the company committed close to $US1 billion to buy out a three-year-old video game streaming platform. That’s right; Amazon’s latest big buy, Twitch, is a service that simply allows you to watch other people play games.

Many have attempted to justify the buy through Twitch’s amazing user metrics and advertising potential. The viewing habits of its more than one million users accounted for 2 per cent of total internet traffic in the US in February. Others claim Amazon is looking to wade into the gaming sector, harnessing Twitch’s loyal user base for the launch of its own gaming console.

There’s likely some truth in both of these justifications. Comments from Amazon and Twitch appear to point to the latter explanation. But there are some deeper synergies at hand here that may have been glossed over. For a mere video game streaming service, Twitch has harnessed some of the digital trends spruiked about in today’s business world to great effect. This may go some way in justifying its eye-popping $US970 million valuation.

1. Twitch has established itself as an authority on gaming and competitive gaming

Twitch is universally considered to be the home of e-sports. Just like you would tune into channel Seven on Saturday night to watch the footy, gamers from around the world flock to Twitch to watch the world’s best gamers duke it out in various games. The most popular being Riot Games' real-time strategy title, League of Legends. To give you some idea of the scale of these events, last October the League of Legends championship drew about 32 million viewers worldwide.

Part of the secret to Twitch’s success comes from the way it honed in on the niche market and then pulled in content from across the web to establish itself as an authority on gaming. Twitch actually started out as a general online broadcasting service called Justin.TV, named after one its founders Justin Khan. After realising the popularity of e-sports, the company rebranded itself as Twitch, and began pulling in video content from other gaming websites, started broadcasting gameplay videos and expert tutorials for eager gamers looking to improve their skills. It would be fair to call Twitch TV an expert curation service of video game content rather than an outright online broadcaster.

In some ways, Twitch’s approach is counterintuitive to how many companies (and even publishers) consider the web. It argued that by broadening out and covering more, you cater to a larger audience. But in Twitch's experience is may be just as fruitful for companies to hone in and own a particular niche topic rather than attempt to cater to everyone.

2. Twitch wields gaming nostalgia to great effect

Never underestimate the power of memories. Beyond the masses of people watching real-time strategy games, such as League of Legends, there’s actually a significant portion of Twitch’s audience that prefer to watch gameplay videos of older games, such as the Nintendo 64 classic Super Mario 64.  As time goes on, it often becomes difficult to get a hand on older games. To the frustration of many gamers, not all of them have been digitised by the major gaming outlets, making gameplay videos of them increasingly valuable.

Graph for Three reasons why Amazon splashed out almost $1 billion on Twitch

Here's some of the older games currently being hosted on Twitch's service. 

Perhaps there’s an opportunity here for Amazon’s retail division to take on the difficult task of sourcing older games and consoles for Twitch’s viewers?

The key point here, however, is that sometimes harnessing what’s old and memorable can be just as effective as coming up with something new. Of course, it has to be tasteful. Twitch's archive of old game videos is not its main drawcard; it's just an added service that helps build its authority and its user loyalty.

3. Twitch has built a loyal online community and gets creative when it comes to maintaining that loyalty

It would be remiss not to mention the main reason why Twitch has been featured in press over the past couple of months. The event also likely piqued Amazon’s interest in the company. It’s worth questioning whether this this near $1 billion takeover started with one highly unusual walk-through of the Gameboy classic, Pokemon Red.

The campaign, 'Twitch plays Pokemon', attempted to crowdsource the gameplay of a single-player game. To play, gamers took a turn at punching a single command into the controller. Participants had to work together to beat the game. Although, in some instances, anarchy reigned, which made the event all the more interesting to watch.

Graph for Three reasons why Amazon splashed out almost $1 billion on Twitch

About halfway through the initial play-through it was reported that about 6.5 million viewers had tuned in to watch the crowd work through Pokemon Red. At one point, the masses of traffic crashed Twitch.

Twitch has since broadened out its gameplay experiments. It’s playing through other Pokemon games, and has set up a channel where a fish is using the same algorithm to play through Pokemon Red. Oddly enough, it’s actually making progress.

Graph for Three reasons why Amazon splashed out almost $1 billion on Twitch

But perhaps the key thinking behind this is in how Twitch found a way to harness its existing audience to generate new buzz and traffic to the site. This is actually a lot harder than it sounds, as there’s always a risk that either the crowd will descend into pointless anarchy or alternatively not take interest in the exercise.

It’s already well documented that Amazon harnesses data to optimise its e-retail operations. Perhaps Twitch can help Amazon harness the crowd rather than its leftover bits of information?

Got a question? Let us know in the comments below or contact the reporter @HarrisonPolites on Twitter.