Twitch just sold for $1 billion dollars. That’s not really news. We’ve become inured to the never-ending stream of tech acquisitions that instantly transforms entrepreneurial techies into some of the richest people on the planet. No, what’s interesting about Twitch is if we slow down long enough to think about how this particular start-up managed to create $1 billion in value.
A billion dollars is a lot of money. If we looked back just 50 years, a billion dollars in assets would make a company number 40 on the Fortune 500. If Twitch were somehow teleported back to 1964, it would rank just eight slots under Procter and Gamble (assets worth $1.15 billion) and three slots above Sunoco (assets of $0.88 billion). Coca-Cola would be left in the dust with a mere $485 million in assets. Today a half billion dollars is chump change in Silicon Valley terms.
This becomes more amazing when you consider that Twitch is only three years old. And it really started as an accident.
Remember "EDtv"? Probably not. It was a pretty forgettable 1999 movie (based on a 1994 Quebec film called "Louis 19, King of the Airwaves") starring Matthew McConaughey. The idea was that Ed would be followed by cameras 24 hours a day, 7 days a week, making his life a reality TV show. 1998’s "The Truman Show" had a similar theme (albeit with better box office numbers). Anyway, the point made in both movies was that an average life, if televised, could be entertaining enough to make people watch. In 2006, Emmett Shear and Justin Kan decided to test the premise. They launched Justin.tv. Soon they invited others to simulcast their lives as well.
What Kan and Shear did, although they probably weren’t intending to at the time, was create a platform that allowed anyone to be a real-time broadcaster with zero transactional costs. They created a perfect market for live TV. Last week I talked about AirBnB, TripAdvisor and VRBO.com creating a more perfect market for tourism. The key characteristic of a perfect market is that barriers to entry are reduced to zero, turning the market into an emergent sandbox from which new things tend to pop up. And that’s exactly what happened with Twitch.
Shear and Kan found that one group in particular embraced the idea of livecasting: gamers. They liked being able to communicate with other gamers, as well as showing off their mad gaming skills. Using the Justin.tv platform, Twitch was launched for the gaming industry in 2011. And thanks to Twitch, gaming has become a spectator sport -- at a massive scale.
Twitch’s “stars” -- like 30-year-old Tessa Brooks, who goes by “Tessachka” and broadcasts an average of 42 hours of programming a week -- post their schedules so that their audiences can tune in. Twitch has about 55 million viewers per month who consume over 16 billion minutes of video programming. According to SocialBlade.com, this month, Riotgames is the top-ranked Twitch broadcaster, with almost a million followers and over 18 million channel views.
Again, those are big numbers. A network show that pulls in 18 million viewers would be the 4th most popular show of the year in the Nielsen ratings. And while Netflix’s "House of Cards" or "Orange is the New Black" may have made waves at the Emmys, The Atlanticestimates that only 2 million to 3 million people watch a newly posted episode in the first week. On a good week, Riotgames could blow that away without twitching a trigger finger. And thanks to Twitch, the broadcaster can do it without distribution deals or contract disputes with stars demanding a million dollars an episode.
Twitch not only created a platform that generates audiences, it also generated a marketplace. Where there are eyeballs, there’s revenue potential. Twitch gives its gamers a cut of the advertising revenue. I couldn’t find numbers on how lucrative this could be, but I suspect Tessa Brooks may be able to quit her day job.
As I said, the Twitch story is interesting, but what is vastly more interesting is the market dynamics that it has unleashed. Amazon’s $1 billion bid is not for the technology. It’s for the community and the market that comes with that community. When it comes to leveraging the potential of zero-transactional-cost markets, Amazon knows a thing or two. And one of the things it knows is that in frictionless markets, if you can navigate the turbulence, tremendous value can be created in an amazing short time. Say, for instance, $1 billion in just three years. It took Procter and Gamble 127 years to be worth that much.