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16 November 2015

Twitch

3Frameworks
10Insights

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Frameworks in this episode

Strategy5 steps

Acquisition Asset Classification

Classify a deal by the primary asset and operating role the buyer is acquiring.

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Strategy6 steps

The Toy-to-Platform Test

Look past a toy-like wedge to evaluate the expanding behavior and market beneath it.

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Innovation5 steps

Usage-Pattern Product Discovery

Prototype ideas, observe real behavior, and build around the use case that sticks.

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Insights & moments

The myth-busts, hot takes, explainers, and tools worth keeping.

Hot Take· 3

Hot Take23:30

Why Streamer Tips Could Become Twitch's Biggest Business

Streamers were assembling unofficial tip jars with third-party software while Twitch captured none of the transactions. The hosts saw native tipping as a major latent opportunity because highly committed viewers were already making exceptionally large voluntary payments.

  • Third-party tools enabled tips outside Twitch's native product
  • Tipping resembled payments to live street performers
  • Some viewers acted like mobile-game whales
  • A native system could let Twitch take a transaction cut

“Streamers are hacking this together with with third party software”

David Rosenthal · 23:30

“People they're whales that have given like thousand dollar tips, ten thousand dollar tips like at once.”

David Rosenthal · 24:00
#tipping#streamers#creator economy#payments
Hot Take34:00

Did AWS Give Amazon an Information Advantage on Twitch?

Because Twitch ran much of its technology on AWS, Amazon may have had unusually close visibility into the company's infrastructure growth. The hosts speculate that AWS can function as a dashboard into which technology startups are becoming hot, potentially helping Amazon recognize undervalued acquisition targets.

  • Twitch returned to AWS after earlier infrastructure changes
  • AWS powered much of Twitch's technology platform
  • Cloud usage may expose growth patterns to Amazon
  • The hosts present the information advantage as speculation

“being acquired by the very company that powers your entire technology platform.”

Ben Gilbert · 34:30

“Amazon with AWS they kind of have this like dashboard into like what's actually hot among tech companies at all times”

David Rosenthal · 35:00
#aws#amazon#infrastructure#strategy
Hot Take36:00

How Twitch Turbo Could Feed a New Generation Into Prime

Turbo and Amazon Prime share a prepaid subscription structure that exchanges recurring payment for accumulated benefits. Folding Turbo into Prime could make Prime an obvious upgrade for Twitch's younger audience, adding shipping and video benefits while preserving the ad-free Twitch proposition.

  • Turbo and Prime both use prepaid recurring subscriptions
  • Twitch's audience skews younger than the hosts
  • Prime could bundle ad-free Twitch with broader Amazon benefits
  • The bundle could introduce younger users to Amazon Prime

“You know Prime looks an awful lot like turbo.”

Ben Gilbert · 36:00

“imagine someday soon turbo becomes prime and is part of Amazon Prime, and then you've just hooked a new generation on Amazon Prime.”

David Rosenthal · 37:00
#amazon prime#twitch turbo#bundling#subscriptions

Explainer· 2

Explainer10:00

How Games Became Persistent Services

Twitch's rise coincided with games shifting from packaged, finite software into continually evolving online services. Titles such as World of Warcraft, League of Legends, Dota, and Hearthstone sustained communities and recurring viewing because the games themselves continued changing.

  • Packaged games traditionally ended after a finite player experience
  • Online games became persistent services
  • MOBAs created large durable audiences
  • Regular resets and updates sustained engagement

“But now uh at this time, games started becoming living, breathing services.”

David Rosenthal · 10:30

“World of Warcraft was the first example of this, but then it's just completely uh come to to revolutionize the whole industry, this model.”

David Rosenthal · 11:00
#gaming#mobas#live services#twitch
Explainer18:30

Inside Twitch's Three-Pronged Monetization Model

Twitch combined advertising, a paid ad-removal subscription called Turbo, and revenue sharing on subscriptions to individual streamers. The mix gave Twitch several ways to monetize the same audience while allowing broadcasters to earn directly from their communities.

  • Advertising supplied a conventional media revenue stream
  • Turbo charged $8.99 monthly to remove ads and add status features
  • Channel subscriptions cost $5 per month
  • Twitch retained half of streamer subscription revenue

“Twitch makes money in three ways today.”

David Rosenthal · 19:00

“subscribe to that streamer for five dollars a month, and then Twitch keeps half of that, $250 a month.”

David Rosenthal · 20:00
#monetization#subscriptions#advertising#creator economy

Story· 4

Story05:00

Justin.tv's Radical 24/7 Lifecasting Origin

Before Twitch, Justin Kan strapped a camera to himself and broadcast his life continuously over the internet. The concept was unusually ambitious in 2007, before smartphones and consumer live video were mature, but the initial lifecasting idea and later general-purpose platform failed to establish a clear winning use case.

  • Justin Kan broadcast his life continuously
  • The experiment began around the arrival of the first iPhone
  • Justin.tv later opened live streaming to anyone
  • Piracy and weak use-case clarity limited the platform

“Justin Kahn strapped a camera to himself and broadcast what he was doing all the time 24 7.”

David Rosenthal · 05:00

“And ultimately it didn't work.”

Ben Gilbert · 05:30
#justin.tv#livestreaming#startups#history
Story06:30

Socialcam and the Facebook Growth-Steroid Era

Justin.tv's team also pursued Socialcam, an “Instagram for video” product that achieved rapid distribution through Facebook's graph. Autodesk acquired it for $60 million less than a year after its spinout, but the product did not establish enduring broad consumer adoption.

  • Socialcam emerged from the Justin.tv organization
  • It positioned itself as an Instagram-like product for video
  • Facebook graph mechanics accelerated adoption
  • Autodesk acquired Socialcam for $60 million

“Instagram for video, quote unquote not a thing, or at least not a thing at that point in time.”

David Rosenthal · 07:00

“social cam spins out from Justin.tv uh in 2011, ends up getting acquired less than a year later by Autodesk.”

David Rosenthal · 08:00
#socialcam#facebook#consumer apps#acquisitions
Story13:00

Amazon's Surprise $970 Million Twitch Deal

Google and YouTube appeared to be the natural buyers while acquisition rumors circulated in 2014. Instead, Amazon announced an all-cash $970 million purchase on August 25, surprising observers and acquiring Twitch before its audience nearly doubled.

  • Google and YouTube were widely expected to buy Twitch
  • Amazon paid $970 million in cash
  • The deal was announced on August 25, 2014
  • Twitch later passed 100 million monthly unique viewers

“Amazon buying Twitch, 970 million dollars in cash.”

David Rosenthal · 13:30

“However, Twitch has continued post-acquisition to just grow like a rocket ship.”

David Rosenthal · 16:30
#amazon#acquisition#twitch#youtube
Story25:30

The Venture Memo That Said No to Twitch

While preparing to intern at Meritech, David researched a late-stage Twitch financing and wrote a memo recommending against investing. He believed gaming was too small for a derivative category to support a major company, only to watch Twitch sell for far more and continue appreciating strategically.

  • Meritech considered a late-stage Twitch investment
  • David researched the company before beginning his internship
  • He rejected the opportunity because he underestimated the market
  • The episode illustrates how humbling venture investing can be

“Basically can't recommend we we do this.”

David Rosenthal · 27:30

“Wait, what venture capital is a humbling business.”

David Rosenthal · 27:30
#venture capital#investing#meritech#mistakes

Takeaway· 1

Takeaway49:30

The Biggest Threat to Twitch Was Amazon Integration

Amazon initially preserved Twitch's operational identity, with Emmett Shear remaining CEO rather than becoming a divisional executive. David argues that deeper integration into Amazon's monolithic culture could weaken Twitch's ability to attract world-class talent and preserve the ownership mentality behind its growth.

  • Amazon initially kept Twitch largely independent
  • Emmett Shear retained the CEO title
  • Twitch needed talent with meaningful ownership and autonomy
  • Turning Twitch into a conventional division could erode its momentum

“I'm not the SVP of the Twitch division division at Amazon, I'm the CEO of Twitch.”

David Rosenthal · 50:30

“If at some point they decide to more deeply integrate this, make Twitch the Twitch division of Amazon, I think they could really lose a…”

David Rosenthal · 50:30
#integration#culture#leadership#amazon