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How does Twitch make money | Business Model

I guess I belong to that 90s era who still enjoys playing Mario, Contra, etc. Let’s not be nostalgic. Though I know you are. I was introduced to Twitch last year by my gamer friend Siddharth Thakur. I could never have imagined that such a technology exists to live stream gaming activities. Twitch is one example that emphasizes that we are moving towards a virtual age. That made me interested in learning about Twitch’s business model and more so about how Twitch money? Before we delve into the technicalities, let’s get some basic clear.

What is Twitch

Twitch is an American video live streaming service that focuses on video game live streaming, including broadcasts of esports competitions. In addition, it offers music broadcasts, creative content, and, more recently, “in real life” streams. Content on the site can be viewed either live or via video on demand.

Justin Kan and Emmett Shear founded Justin.tv in 2007 with several content categories. Justin.tv allowed anyone to broadcast videos online and encouraged users to broadcast a wide variety of user-generated live video content, called “broadcasts.”

The gaming category grew especially fast and became the most popular content on the site. In June 2011, the company decided to spin off the gaming content as TwitchTV. Twitch attracted $35Mn of investments till 2013, and by then, it was already profitable. Twitch has become the most popular e-sports streaming service by a large margin, leading some to conclude that the website has a “near-monopoly on the market.”

Even though there are multiple gaming services these days like YouTube Gaming, Facebook Gaming, DailyMotion but Twitch has dominated the market. As per Statista Global Consumer Survey, 59% of U.S. gamers said they used Twitch in the last 12 months, ahead of YouTube Gaming’s 50%.

You will find more infographics at Statista

Twitch is available on almost any device, including their website, mobile apps (Android and iOS), gaming consoles (PlayStation, Xbox, etc.), or via Smart TVs. There are over 10Mn unique streaming channels on Twitch and has approximately 8Mn active streamers as of September 2021.

Grand Auto Theft V is the most-watched game on Twitch, with 237,000 unique viewers in June 2021 who collectively spent 170Mn hours. Refer to the infographic below for more insights.

You will find more infographics at Statista

What makes Twitch business model so unique?

Twitch is designed to be a platform for content, including esports tournaments, personal streams of individual players, and gaming-related talk shows. Twitch hit 3.2 million users per month within its first year. 

In 2014, Google was rumored to be in talks with Twitch for acquisition for $1bn but later on backed out. Amazon took this opportunity to enter into the gaming space and add another jewel to its Prime Model. Amazon acquired Twitch for $970 Mn in an all-cash deal, and Twitch, as per some estimates, is now valued at $15bn, giving Amazon a 1400%+ return on its investment. While Netflix, Disney, and Prime competed for streaming TV, Twitch maintained its dominance in streaming games.

Amazon Prime covers the entire gamut of services a user needs & ends up spending more than double compared to non-members. What is Amazon Prime’s business model?

Some of the statistics that prove the success of the Twitch business model:

Twitch is used as a teaching tool for video game tutorials. The presence of mass numbers makes Twitch an attractive proposition for learners to interact with each other and the instructor in real-time. Twitch is also used for software development learning, with communities of users streaming programming projects and talking through their work.

Twitch Acquisitions:

How does Twitch make money?

Twitch works on a Freemium business model. What does that mean? Twitch platform offers its services free of charge to streamers and consumers. A consumer can unlock some advanced features through premium subscriptions and in-app purchases.

Slack also uses the freemium business model which fits from a very small team to a larger organization with capabilities and features. What is a Freemium model?

This model works best for Twitch as its target audience is teenagers who have little spending power, but the mass volume of these consumers (~7 Mn a month) has carved out another revenue stream: video advertising. 

As per Backlinko, Twitch made an estimated $1.54 billion revenue in 2020, primarily from subscriptions and In-app purchases. So, the three clear revenue streams through which Twitch makes money:

Twitch adopts local subscription pricing. Twitch subscription prices are adjusted to reflect better the cost of living where a subscriber lives. This program lowers the price of subscriptions for viewers in most countries. Twitch claims that a simultaneous increase in volume will compensate for lower revenue. It’s a clear growth strategy adopted by Twitch to increase its subscriber base.

As per Statista, Twitch generated ~$218Mn of revenue in 2020 through In-app purchases and has already generated ~$195Mn of income in H1 of 2021. In Oct ’21, Twitch stated that viewers on iOS could purchase recurring subscriptions by updating their Twitch app to the most recent version. Once the Twitch app is updated and any remaining Sub Tokens are redeemed, viewers can subscribe with as little as three taps. Subscribe. Confirm. Approve purchase.

What does the future hold for Twitch?

The success in this space is a function of two factors: the user’s interest in playing online games and the user’s interest in watching content.

YouTube Gaming has poached TimTheTatMan and DrLupo, two massive Twitch stars, in exclusive deals. But Twitch, which holds 70%+ hours watched, has nothing to be afraid about. But what it needs to be careful about is data leakage. 

In Oct ’21, there was a data leak as confirmed by Twitch: “The exposed data primarily contained documents from Twitch’s source code repository, as well as a subset of creator payout data.” Although the company claims that no passwords were leaked and consumer impact was minimal, it raises a serious question on data security.

Nevertheless, Twitch has the unsaid advantage of being the first mover with all the loyal userbase and functionality. Competition in business is always healthy. With YouTube sharing 70% of revenue with creators and Twitch only sharing 50%, what would be interesting is to see that how this space evolves in terms of technology and interest from future entrepreneurs.


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