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The Competition Between Twitch and YouTube Gaming Is Heating Up

By Evan Niu, CFA - Sep 27, 2015 at 10:00AM

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Can Twitch become YouTube before YouTube Gaming becomes Twitch?

There's nothing like a little competition to get a market going, and that's exactly what's happening with Amazon.com's ( AMZN -1.81% ) recently acquired Twitch and Google's ( GOOG -0.58% )( GOOGL -0.60% ) recently launched YouTube Gaming. For a while, Twitch was the only video game live streaming name in town. That all changed this summer, when YouTube officially entered the live-streaming game, after reportedly opting not to acquire Twitch when it had the chance last year.

Lacking competition, companies often don't have much incentive to innovate aggressively. With YouTube Gaming's entry into a barren marketplace, the video-game live-streaming market is bound to innovating at a faster pace, benefiting consumers.

Twitch continues to grow like crazy
Twitch hosted its first-ever TwitchCon convention last week, and announced a handful of new features. While Twitch live streaming is already directly integrated into next-generation consoles, the PlayStation 4 will soon get a dedicated and full-featured Twitch app. That will allow users to not only stream from the PS4, but to also watch live streams.

There are now 1.7 million Twitch broadcasters, up from the 1.5 million unique broadcasters per month that Twitch enjoyed in 2014. So far in 2015, Twitch has had a peak concurrent audience of 2.1 million viewers, more than double the peak 1 million concurrent viewers from last year. The average user watches 1.5 hours of content per day. Twitch's growth has been nothing short of breathtaking, which is why it was no surprise that larger tech giants wanted to acquire the company last year, with Amazon ultimately taking home the start-up.

The company is also finally ditching Flash and will transition its site to the more modern HTML5 standard. Twitch is also improving its private messaging capabilities. But perhaps the most notable new feature is the ability to upload saved videos directly, a feature that will roll out next year.

Twitch and YouTube Gaming want to become each other
To date, Twitch has only supported live streams and archived live streams. It should go without saying that uploading videos is a hallmark of YouTube, which should underscore how serious Twitch is taking its newfound rival. YouTube and Twitch have represented different sides of the video content coin: YouTube is king of uploads while Twitch is the first mover in live streaming.

But as the two services begin to compete more directly for eyeballs and ad dollars, they are bridging the gaps. This is an important transition, since individual content creators are often more willing to dedicate time into higher production values for uploaded videos, lest all that effort go into waste during a live broadcast that only fetches a small number of viewers. In other words, by adopting uploaded videos, Twitch opens the door for higher quality content, which in turn boosts engagement.

Building network effects from scratch
On the back-end side of things, YouTube is easily the most capable competitor to Twitch. With the depth of Google's infrastructure capabilities, YouTube Gaming should have no problem scaling its live streaming on the technical front. But YouTube Gaming's biggest challenge will not be technical. The search giant has a long ways to go when it comes to actually attracting both content creators and viewers away from the dominant force in video-game live streaming.

A big part of that is console integration, which makes it remarkably simple for average users to live stream. YouTube Gaming will need to score this same level of integration eventually if it hopes to meaningfully compete, but that shouldn't be hard for Google.

As the live-streaming market heats up, consumers will be the ultimate winners.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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