In today’s Exponential Investor…
- Google beaten by…?
- What is a Twitch?
- Why are the FANNGs into this?
In early 2014 rumours were circulating that Google was about to make a big acquisition.
It was believed they had agreed in principle to buy the game streaming and broadcasting platform Twitch for around US$1 billion.
Twitch had done a tie-up with YouTube and it appeared there was enough synergy there to get the deal done.
However, the deal wasn’t done.
At the last minute, a new offer came in and Twitch sold to the most unlikely of suitors.
Why spend so big, so early?
In fact Google were gazumped by Amazon in August 2014. Amazon swooped in and paid US$960 million for Twitch.
Back then, now six years ago, most people had never heard of Twitch. Today, most people have never heard of Twitch.
However, most people still don’t represent a thriving daily active user fanbase of more than 15 million people. In February this year Twitch reported 3.8 million streamers broadcast in the month.
Compared to 2.2 million streamers just two years prior, that was a healthy increase of 72% in a short period of time. Apply that again and by 2022 Twitch could be looking at over 6.5 million streamers per month.
Again, it doesn’t sound like loads, but when you understand what Twitch does, you quickly find that’s a valuable active group of participants in Twitch’s ecosystem.
Remember that’s just the active streamers, the viewers on Twitch exceed 15 million. That’s roughly one tenth the number of subscribers that Netflix has.
However with Twitch, it’s all about gaming. It’s all about streaming gameplay, tournaments and a little more recently music.
Twitch is the new breed of content platform that is all about the people who use it being the ones who deliver the content. Strangely that makes it an incredibly compelling place to exist in. It’s also weirdly addictive.
When Amazon bought Twitch in 2014, it was a little unexpected. YouTube made sense, Amazon…not so much.
However the last couple of years the pieces of the puzzle have started to fall into place. Amazon is building a huge, robust and comprehensive gaming ecosystem. They want to get into online game streaming in a big way.
That’s why they recently launched their own game streaming service, Luna and associated Amazon game controller. This meant that along with Microsoft, Google and NVIDIA, Amazon would have a dedicated game streaming service.
I’d always postulated that perhaps we’d see Netflix in this game streaming arena too. And I’ve not completely discounted that yet. That’s because it seems that gaming, game streaming and a game ecosystem is something that all ‘Big Tech’ wants in on.
Yesterday, Facebook announced their move into this arena as well.
It all starts at the Farm
Even further back in late 2013 I wrote some essays on Facebook and what I believed was a strategic move into banking and ultimately their own digital currency.
What started this idea was the immense numbers Facebook was doing through some of the most popular games on Facebook, Farmville and Candy Crush Saga. At the time (September 2013) I wrote,
Farmville is a game created by the publicly listed company Zynga. Recently Farmville 2 was released, which is an updated version of Farmville. The Farmville series has over 8 million daily users, and 40 million monthly users. When Facebook launched their IPO, Zynga games made up over $445 million of Facebook’s total revenue. And just recently the in-app purchases in Farmville surpassed the $1 billion mark.
Let me clear that up for you. Real world people have spent over a combined $1 billion playing the Farmville game. Now hold that thought.
Candy Crush Saga is the other big Facebook game that’s destroying gaming records. In July Candy Crush had 20.7 million daily users on Facebook. And it makes approximately $850,016 per day from in-app purchases, that’s well over $310 million per year.
If you’ve any doubt that people don’t give their credit card details to Facebook, the numbers above should clear that up for you.
You see for over $1 billion to flow through Farmville and $850,016 per day through Candy Crush people need to give card details. And importantly they only need to do it once.
As I say this was about people giving over card details, and using those for automatic purchases within Facebook’s ecosystem. Also that I believed ultimately, Facebook would end up with their own ecosystem currency (I called them Facebook Dollars).
But the story today is that Facebook has known for some time the value in which hit games can contribute to their company. That’s why they’re ‘levelling up’ their gaming offer.
They’ve been able to run games like Farmville for ages – relatively simple gameplay. Now to deliver the kinds of more complex gaming that players want, they’ve had to juice up their systems and deliver that content.
For Facebook though, it’s not the hardcore gamer they want. It’s the casual gamer. The kind of gamers that will pump billions through a game like Farmville – but a little more modern. Really it’s all about advertising and getting advertising content through the Facebook platform.
That’s why Facebook gaming is going to be free. As explained by The Verge,
One of the big differences between this and competitors is that Facebook isn’t trying to sell you games. The business model is very different. On the web, Facebook takes a standard 30 percent cut of in-app purchases, while on Android it takes nothing. It also takes a cut of money earned through advertising. The goal of these cloud games isn’t to sell you a subscription: it’s to keep you on Facebook.
Google, Amazon, Microsoft might charge you for games to make money from the games, but with Facebook Gaming it’s all to make money from you in Facebook.
Either way, the fact all of the biggest tech giants in the world are aggressively pursuing the gaming market isn’t a coincidence. They know there’s an opportunity there to be had and they’re all competing for the big prize – your attention and money.
Editor, Exponential Investor