Analyzing Amazon's key strategies to increase its margins (Part 11 of 12)
Amazon acquired Twitch for about $1 billion
Amazon (AMZN) acquired Twitch a few months back for a valuation of around $1 billion. Twitch is a popular website for video game enthusiasts who want to broadcast their games to other people or watch other people play video games in real time. During the 3Q14 earnings call, Amazon’s management mentioned that it’s excited to have Twitch as part of its overall team. Management also mentioned that Twitch will complement its efforts in video gaming.
Twitch is less than three years old. The most impressive thing about it is that it’s now the fifth-largest video streaming website in the US. According to a report from Qwilt and as the chart below shows, Netflix (NFLX) dominates Internet traffic in the US among all websites, with a share of 57%. Google’s (GOOG)(GOOGL) YouTube, Amazon, and Hulu are some of the other players before Twitch in the list of top five players driving US Internet traffic.
Twitch could help Amazon in a number of ways
Firstly, Twitch should help Amazon drive Internet traffic. It will also help Amazon boost its Prime membership program because it could offer ad-free access on Twitch to its Prime members. Currently, Amazon offers ad-free video content to its Prime users for free, and it could extend this to Twitch content as well. Incidentally, Amazon could introduce new ad-supported streaming service in future , but it will be separate from its Prime video service.
Secondly, Twitch could help Amazon drive its Fire TV set-top box business. Amazon could force Twitch gamers to start broadcasting their video games through Fire TV instead of Microsoft’s (MSFT) Xbox and Sony’s (SNE) PlayStation.
The video gaming industry is growing at a fast rate, which is what prompted Amazon to undertake such an expensive acquisition. To learn more, read Why the video gaming industry is attracting so much investment .
Browse this series on Market Realist: