Amazon made its largest acquisition yet when it announced it was paying just under $1 billion to acquire the video platform and community for gamers, Twitch, at the weekend. The deal, which saw Amazon gazump Google at the last-minute is yet another signal that it is determined to fight for leverage in new entertainment markets on many fronts at the same time.
Even while its retail business is in the middle of protracted disputes with suppliers (notably Hachette, Disney and Warner Bros) over discounts on books and films, it has shipped its first smartphone (the Fire phone); expanded operations in China; made substantial changes to the graphic novel platform Comixology that it acquired in April 2014; and announced a new eBook subscription service, Kindle Unlimited. To announce all these developments in less than six months certainly shows tremendous energy, but it also suggests that in living up to the soubriquet 'the Everything Store' Amazon is beginning to lose focus.
Some analysts have suggested that Amazon buying Twitch is a key part of its play to build a video advertising network. Twitch originally began as an adjunct to the now defunct justin.tv site which allowed gamers to record or livestream themselves playing video games. It now attracts 55 million visitors per month, many of whom are among hard-to-reach young male demographics. Despite its popularity Twitch doesn't seem like it has a solid monetisation strategy yet. It has a select partnership scheme which allows popular users to charge subscriptions to view their content, but as a User Generated Content (UGC) business it has reportedly struggled to sell advertising on its network.
Amazon is a business that understands subscriptions like few others. While it never releases hard numbers on how many customers pay for its Prime service, it's widely acknowledged that these are its most profitable users. It also has a better record on monetising UGC than possibly any other company apart from Google thanks to the success of its Kindle Direct Publishing platform for self-published authors. Each time a reader pays to download an eBook published via KDP, Amazon takes 30% of the sale price. This makes it one of very few instances where UGC has been turned into a business that can make substantial money for the producer (the author) and the platform (Amazon). But while KDP has been a runaway success, Amazon has also had some high profile failures with UGC. For example, only last week GigaOM reported that Kindle Worlds, Amazon's highly touted platform for licensed fan fiction had so far proved 'a bust' in terms of attracting writers and readers.
Much will be decided by where Amazon will choose to sit a business like Twitch sits within itself after the acquisition, as this has lasting implications for what Amazon is doing in the video streaming business. Will Twitch continue as a standalone enterprise, or will it be folded into Amazon's existing video-streaming service (which itself started off as the separate business Lovefilm)? If it does merge them, this could take Amazon's video streaming businesses in one of two very interesting directions:-
1. An ad-supported streaming service? - If the objective behind acquiring Twitch is to buy an video advertising network, does this mean Amazon may drop the subscription wall on some streaming content and fund it by selling advertising instead? This would bring it into direct competition with a new category of business - broadcasters - and redouble competition with subscription-based streaming services like Netflix.
2. A KDP for Video - By bringing UGC within the subscription paywall, Amazon may well be saying that it sees the paid-for video entertainment of the future coming from individual users rather than professional producers. This strategy would set producers of popular online video - the ThatcherJoes and Zoellas of YouTube - up in direct competition with the TV and film production companies who currently supply Amazon with original and exclusive content. It could be the beginnings of a Kindle Direct Publishing, but for video producers.
There is of course a third, more mundane option: that Amazon simply wanted to buy a business which has a good record in targeting young men and will suck up its insights in order to sell good and services to this audience. If this is the case, the billion dollar price tag suggests it has paid handsomely for it.
Regardless of what Amazon chooses to do with Twitch, the fact remains that acquiring and running it as a going concern means Amazon has more not less competition than yesterday. It has added YouTube to a list of competitors that now includes everyone from Apple to Ali Baba. What everyone watching its next move should ask themselves is how long this rush of energy can last.