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Amazon’s acquisition strategy is one of the Seattle-based business’s most closely guarded matters. Announcements of small acquisitions are rarely made, and industries that Amazon is canvassing as targets are typically a well-kept secret. That’s why in 2014, after months of rumors of an impending Google purchase of the company, Amazon shocked the entire digital industry by acquiring Twitch.

Twitch is an Important Amazon Business

(Source: Recode)

The reason for the Twitch acquisition was never clear

Twitch started as Justin.Tv, and evolved toward a business model that allowed customers to stream the video games they were playing with the world. Amazon acquired Twitch after Google had regulatory concerns over adding Twitch to their long list of assets.

After Amazon snatched up Twitch, commentators in the e-commerce and digital markets offered theories on the reasons behind the acquisition. According to Business Insider, Amazon’s Twitch buy “was an investment in bolstering Amazon Web Services (AWS), the company’s $7 billion-plus cloud-computing juggernaut.” How exactly does a $970 million dollar acquisition bolster a giant revenue-generating business? It provides Amazon the opportunity to add game development to AWS’s business. This is a plausible explanation—but providing startups and developers with a low-cost development platform was in fact a secondary reason for the purchase.

Twitch, I believe, was also acquired with a broadcasting-specific end result.

Amazon has a long history of being content-centric and owns a variety of businesses that provide customers with valuable, niche-specific content. IMDB and DPreview were both acquired to provide Amazon with content that they could leverage to drive purchases among specific audiences. Remember, everything Amazon does is tracked via analytics that provide deep insights into long-term revenue generation potential. 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 is a natural fit for Amazon

According to Newzoo, the US video game market is worth $30.4 billion—but it doesn’t really have a market leader. And, according to Kevin Grubb, writing in Prophet, video game brands today have to look beyond just the product they make and sell in order to succeed:

“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.”

Until recently, loyal video game buyers had only been marketed to by game developers such as EA Games, Activision, Blizzard, and others. In this context, Amazon’s desire to enter the market and generate revenue from this loyal segment makes total sense, especially given the heights Amazon has ascended in terms of customer loyalty and purchase behavior via its Prime business.

Twitch acquisition

(Source: Geekwire)

Twitch is consuming Amazon’s DNA

Since the acquisition, Twitch has gradually become part of the fabric of Amazon.

In 2016, Twitch introduced Twitch Prime to the growing family of Prime benefits. This set of benefits is aimed specifically at gamers and includes discounts on game pre-orders and new releases, free digital titles, in-game bonuses, and a no-ad option on Twitch, along with a free monthly Twitch channel subscription. Twitch Prime is available to Amazon Prime members in the US, Canada, Italy, France, Germany, Belgium, Austria, Spain, and the UK (as well as customers in countries where Amazon Prime isn’t offered, but monthly Prime Video subscriptions are available). Essentially, Amazon is providing existing Prime customers the benefits of Twitch, as well as marketing Amazon Prime to a new group of customers who might purchase a Twitch subscription and eventually become regular Amazon customers.

In late 2016 and 2017, Amazon started influencing Twitch’s business operations, adding a retail element. According to TechCrunch, in late March 2017, Twitch added game sales to its business. This move made sense given that Twitch is an independent subsidiary of Amazon—its loyal customers spend hours watching game play on Twitch and would likely have been purchasing merchandise and games from another business prior to the introduction of this offering.

However, unlike traditional online retailers, Twitch offers several incentives to encourage Twitch users to buy from its site, including a free “Twitch Crate” containing items that can be used on the site while watching streams and interacting with other users.

The partnered streamers who opt into this new commerce program earn 5 percent from the sales from their channel, while game publishers earn 70 percent of revenue from game sales. This commission-based model is one Amazon uses across its entire marketplace to entice sellers—in this case, game publishers—to provide them with products Amazon/Twitch customers can purchase.

In mid-2017, TechCrunch reported that Amazon was allowing partners and affiliates to sell to Twitch customers. Being able to drive additional revenue from loyal customers ensures that Twitch becomes sustainable and less dependent on Amazon’s investment. Although, as TechCrunch noted, the move gives streamers another income-generation tool, “something that’s needed to grow a strong creator community,” these changes could also affect “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.”

Then, in late 2017, Twitch merchandise sales kicked off on Amazon and Twitch, featuring Twitch shirts, hoodies, community-inspired apparel and home goods, available for purchase to anyone with an Amazon account.

The real reason for the Twitch acquisition

It took nearly four years for Amazon to show the world why it purchased 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. Getting a foothold in the content broadcasting game, however, was the real reason for the acquisition. And Amazon has been taking further steps to do that since acquiring Twitch.

First, Amazon has been challenging YouTube with its tech, according to Ars Technica, adding tools that “make it easier for loyal fans to never miss a new video.”

Amazon has also been tapped by Activision (a major game developer/publisher) to stream an an eSports league. According to Bloomberg, Activision Blizzard Inc will televise matches in English, Korean, and French for its new professional league for players of the video game Overwatch on Twitch. Twitch will be the exclusive provider of these streams everywhere but China. Esports is a fast-growing industry that has seen investment via team ownership stakes (think sports franchises for video games), and getting these rights provides Amazon with a opportunity to drive Amazon Prime Video/Twitch adoption in these markets.

And, according to Recode, Twitch has partnered with the NBA on a trial aimed at younger audiences that may want “a reinvented take on sports TV.” As part of the first trial, Twitch gave some of its commentators the ability to provide their own play-by-play for the NBA’s G League. That’s not all, though; says Recode, team and player data is overlaid on the screen while viewers are streaming, and interacting with the streams will earn viewers something similar to loyalty points.

What must brands do?

I believe that brands that are in the video game space 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 large and loyal audience that’s always looking for new interactive gaming experiences. It’s also important to consider marketing via Twitch influencers that are relevant to your niche, as their 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 additional marketing costs to generate sales. Teaming up with an agency to drive third-party sales should help brands kick start a healthy new revenue channel in this exciting arena.