One of Amazon.com's (AMZN 1.83%) best-kept secrets is Twitch, a popular site where gamers live-stream their gameplay. It's basically a social network for gamers where viewers can tune in, learn how to play a new game, chat with other gamers, and be entertained by their favorite streamers. The most popular streamers can even earn a living off of their viewership through subscriptions and real-money tips.
Amazon.com's acquisition of Twitch in 2014 for $970 million is starting to look like a really clever move. Game streaming is one of the hottest markets shaping the video game industry. This market is expected to generate $4.6 billion in revenue in 2017, and the latest evidence from third-party research shows it's picking up speed -- with Twitch far out in front.
Twitch is killing it
The game streaming audience numbers 665 million viewers, according to SuperData, which dwarfs the viewership of HBO, Netflix, and ESPN combined. This impressive audience reach is attracting investment from major tech companies, including Microsoft (MSFT 1.78%), Alphabet (GOOG 2.23%) (GOOGL 2.12%), and Twitter (TWTR), but recent data show Amazon is outshining its tech rivals with Twitch.
Every quarter, Streamlabs -- a leading software provider for streamers -- releases data it gathers from its users. The latest report (for Q3) showed a 20% increase in total streamers across the leading game streaming destinations that Streamlabs supports, including Microsoft's Mixer, Alphabet's YouTube Gaming, Twitter's Periscope, and Amazon's Twitch.
In Q3 2017, Twitch was the leader, with 737,000 concurrent viewers, which measures the number of viewers who are watching streams at the same time. This is more than double YouTube Gaming's 281,000. Microsoft's Mixer trails Twitch and YouTube with only 10,000 active streamers in the third quarter. Twitter's Periscope, however, saw the biggest jump in the quarter, with 80% growth in concurrent viewers. However, Periscope still trails the leaders with concurrent viewership of only 41,000.
After six months of stagnant growth, Twitch took off in Q2, growing 54% in monthly active streamers. This growth slowed down in Q3 to 16%, but Twitch's concurrent streamers increased 67%. Overall, recent strong growth in these metrics suggests engagement on Twitch is still healthy and growing.
Twitch's recent acceleration followed the introduction earlier this year of new features designed to make it easier for viewers to discover new content, as well as enable the purchase on Amazon.com of the game being viewed. There were also improvements put in place to make it easier for new streamers to build a following and monetize their stream.
Twitch has a big moat
One way Amazon is fueling the growth of Twitch is by integrating its Prime membership program, giving members who sign up for Twitch Prime free in-game content. Twitch also has a partnership with Activision Blizzard to offer free in-game content for several of the company's games, as well as an agreement to stream Blizzard esports events.
Perhaps the biggest thing going for Twitch is that it generates 37% of the total game-streaming revenue across the market, putting it firmly in the lead. Most importantly, 51% of Twitch's revenue is from its cut of subscriptions and tips made direct to streamers. This gives Twitch an important network effect competitive advantage, since more streamers may choose to go with Twitch if it's perceived to be an easier site to earn money. This, in turn, could provide Twitch with the best content creators, which would help attract more viewers over time, which leads to more advertising and more direct spending from viewers.