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Episode 3: Twitch

Episode 3: Twitch

Mon, 16 Nov 2015 17:00

Ben and David discuss Amazon's acquisition of Twitch in 2014. Unlike previous episodes, this recent acquisition still has a lot of open questions, and Amazon hasn't publicly reported growth of Twitch since the purchase. Ben and David talk about Justin Kan's original product with, and the transformation into the Twitch that Emmett Shear is running today.

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Alright David, you ready? I'm ready Ben. Alright. Welcome to episode three of acquired. This is the one where we talk about Twitch. Today we're gonna try something a little bit different. We've been listening to our listeners and getting a lot of feedback that not only do David and I agree too much but we're doing softballs. Feedback is a gift Ben. Thank you. We really like hearing from everyone and well originally our goal was to set out and only review the super stellar spectacular ones that only went super well. What we can learn from those, it's a little boring. People are telling us they want some space. Yeah, so we're gonna do obviously Twitch has been a little bit more recent. It's a 2014 acquisition and here recording in November of 2015 and there's still a lot of open questions. And I think people are generally positive and optimistic and there's an exploding market there but a lot more to talk about. But whole let's talk about as always thank you everyone for the reviews for the feedback. You can check out our website at We're on Twitter at acquired FM. And please keep the feedback coming. Our presenting sponsor for this episode is not a sponsor but another podcast that we love and want to recommend called the Founders podcast. We have seen dozens of tweets that say something like my favorite podcast is acquired and Founders so we knew there's a natural fit. We know the host of Founders well David Senra. Hi David. Hey Ben. Thank you for joining us. Thank you for having me. I like how they group us together and then they say it's like the best curriculum for Founders and Executives. And really as we use your show for research a lot I listen to your episode of the story of Akio Maria before we did our Sony episodes is incredible primer. You know he's actually a good example of why people listen to Founders and to acquired because all of history's greatest entrepreneurs investors they had deep historical knowledge about the work that came before them. So like the founder of Sony who did he influence Steve jobs talked about him over and over again if you do the research and I think this is one of the reasons why people love both of our shows and there's such good compliments is unacquired. We focus on company histories you tell the histories of the individual people you're the people version of acquired and where the company version of Founders listeners. The other fun thing to note is David will hit a topic from a bunch of different angles so I just listen to an episode on Edwin land from a biography that David did David it was the third fourth time you've done Polaroid. I've read five biographies of Edwin land and I think I've made eight episodes of them because in my opinion the greatest such a print or ever do it my favorite entrepreneur personally is Steve jobs and if you go back and listen to like a 20 year old Steve jobs he's talking about Edwin lands my hero. So the reason I did that is because I want to find out like I have my heroes who were their heroes and the beauty of this is the people may die but the ideas never do. And so Edwin land had passed away way before the apex of Apple but Steve was still able to use those ideas and now he's gone and we can use this ideas and so I think what acquires doing what founder trying to do as well is find the best ideas in history and push them down the generations make sure they're not lost history. I love that well listeners go check out the founders podcast after this episode you can search for it in any podcast player lots of companies that David covers that we have yet to dive into here on acquired. So for more indulgence on companies and founders go check it out. So we're we're changing locations a little bit tonight we are in the wonderful den of David's home here on the creative and secure SSID of default to. We're really creative in the show like Rosenfall household yes yes so thank you so much for your generous generous hospitality David and Jenny. Always happy to been and you listeners as well. All right let's jump into it so right about was this 14 months ago there had been acquisition rumors swirling about a young three year old live streaming network primarily used for streaming games called Twitch. TV which itself has has a crazy history crazy history if you were watching either of the previous incarnations of this company you you wouldn't have seen this end coming and the incarnations being first just in that TV which I believe was one of the first white of the data companies and right there yeah I don't know what batch one of the one of the early was like 2007 I think just in TV is this incredible before smartphones before a lot of the or before smartphones got big anyway. I'm kind of before GoPro and all that just in con. Strapped a camera to himself and broadcast what he was doing all the time 24 seven. I'm going through why commentator with the kind of that yeah the crazy state how crazy that was in 2007 this is like. Either pre iPhone or like right when the first iPhone came out and the idea that you would stream your life 24 seven on the internet yeah YouTube was already out there but that was recorded video live and this was a crazy concept yeah ultimately it didn't work no even they got a little bit. I came a platform or anyone could stream anything live there competitors there was you stream what was the other big one so this was sort of an era where there were platforms coming up this classic build the platform before the use case where there's platforms coming up for people to stream whatever they wanted live there's incredible amounts of piracy a whole bunch of CD stuff and there wasn't a clear winner yet for what the thing was that was going to win in live streaming and what the purpose of it was yeah so that was 2007 fast forward a couple years total fail didn't work Instagram which we talked about on our last show had happened was not yet acquired by Facebook but was a thing and Justin TV still kicking along and what do they do they work on a new pivot spin off this company called social social cam remember social cam then interesting yeah and that was that was kind of funny because that was actually I remember I think they launched it south by Southwest because I was down there that was where I first saw a whole bunch of the marketing for it now that you know super cool concept I think that was in parallel I think that Justin TV was still running at that time and yeah I think that might have been right it's like some employees left Justin TV or maybe was under the same umbrella company and I think it was and social cam being this is one of those things that like as B.C.s we often hate this for that companies although sometimes they work but in this case Instagram for video quote unquote not a thing or at least not a thing at that point in time yeah great great idea though I mean I think that there's some there's a nugget there and it's actually one of the most well designed kind of consumer apps that had launched around that era yeah I remember thinking that boy there's a killer team behind this seems highly reputable they're really touching on a very human nerve here but much like Justin TV never found wide consumer option well and it's interesting it got wide adoption with this was the era of the Facebook steroid era is like the baseball steroid era of you know the 90s when before Facebook went public and anyone who could figure out how to leverage the Facebook graph and get adoption on on mobile apps and and and websites they were one of those those call the graph they stole the graph and so and so crazy you know social cam spins out from Justin that TV in 2011 ends up getting acquired less than a year later by auto desk auto desk been acquires social cam for $60 million crazy Vity which was another one that did the same thing I don't know what ended up happening with happening to them they Peter Dell maybe they got acquired by somebody anyway that was chapter two of this company then chapter three right around that same time is twitch and twitch for for anyone is not a gamer out there actually was looking into a little bit today kind of where the name comes from and and because that is a certain field to when you go to the site and it's purple and it's got definitely the kind of gamer vibe and it attracts a pro gamer audience and that sort of sort of archetype and twitch gameplay is the is a reference to you know that there are games that are much more strategy based and there are games that are kind of turn based so twitch twitch gameplay refers to any game where you have to very quickly move the mouse around the screen and you know if it's a first person shooter or something and you got to get one guy quickly move over get the other guy quickly move over and it's kind of like it's a touch and finesse and moving very to to do very physical actions rather than a slower kind of strategy game. Yep and and so twitch was a dedicated streaming platform for streaming yourself playing video games on your computer which you know I think most of our listeners some of our listeners I can't really guess the percent but a lot of people today understand how big twitch is and understand how big increasingly you know universes and there's gaming is itself I mean coincided around this time with the development in the gaming industry of thing of of MOBAs and things like League of Legends and and Dota and basically games becoming services and products that could live on and develop these huge audience but you know in the past before that about this time games would be you know package software that you buy on a disk and you stick in your console or PC and you play it by yourself and you have an experience maybe play for a hundred hours and then you beat it you're done. But now at this time games started becoming living breathing services world of warcraft was the first example of this but then it's just completely come to to revolutionize the whole industry this model and so now you have games that just live on and on as experiences the weekly reset it's incredible to see you know that with with the weekly or monthly hardstone as the monthly reset journey year one year two I mean it's it's a whole different model. Yup and if you it's so funny thinking about sort of the the old ones if you to told me in 2009 that you know a company be acquired for a billion dollars that let people watch other people play video games I played crazy it's it's almost as if in 2007 when the iPhone came out somebody would have told you that what did we just said was 11 people were looking for Instagram when it was acquired or something 11 12 13 something like that that accompany with number of employees in the teens that made an app whatever that was for this smartphone would get acquired by Facebook for a billion dollars in 2012 you thought they were crazy and it's interesting how it reflects a lot on the tenacity of the Justin TV team I mean I think that they touched on something where they probably you know they obviously didn't know what the use case that would hit was of live streaming but they had a sense around live streaming and it you know at at Pioneer Square lives one of the things that we do is like we don't really trust our gut until we prototype stuff and we get feedback and see what sort of catches on and I think that it really goes to show you don't know and they were seeing on Justin TV a lot of people using it for gaming purposes which is why they they kind of decided to open twitch as a dedicated I think they spent some some time where there were several months where they were just working on Twitch not improving Justin TV re-opened yeah twitch to the public and it goes to show you don't really know what's going to stick until you start watching usage patterns of how people are using your stuff totally so let's let's get into topic of the show which is an acquisition but so just to start that off I don't think we've actually said the actual facts August 25th 2014 acquisition world rumors have been swirling about twitch for months people think Google and YouTube are about to buy the company makes sense to me makes a lot of sense YouTube number one you know video platform online thinking about getting into streaming and live video becoming more of a thing and of course it makes sense that this would be a great channel on YouTube August 25th announcement drops Amazon buying twitch 970 million dollars in cash by the way who could have foreseen this huge strategic error by the twitch management team and board not negotiating for stock here so Amazon closing share price on August 25th 2014 $300 and 3434 and two cents Amazon closing share price today 14 months later 665 dollars and 60 cents it's a it would be a win if I actually own property here in Seattle to shame of still renting you just mentioned something about not negotiating for stock do we know that this is an all all cash it was an all cash deal it was all cash deal so that's what a billion dollars in cash looks like could have been $2 billion but that's a that's a technical technical detail everybody was still happy in the moment and probably still however twitch has continued post acquisition to just grow like a rocket ship so when twitch was acquired I believe they had about 55 million monthly unique viewers that was in August 2014 they announced in January 2015 that they passed 100 million unique monthly viewers they haven't announced any stats since then so that's the latest we have but that was 10 months ago which is you know thinking about in the context of the last you know acquisition we talked about right this is yeah last on Instagram celebrating now years after the acquisition hitting 400 million monthly active users now these visitors are not necessarily logged in but there I guess they're probably tracked by IP address or something so they know exactly you know how this is like any web property not count repeat sessions but 100 million monthly active visitors it's crazy I mean it's got to be like every the demographics are wider spanning than this but like every teenage boy in America not not America I think this is one of the key things about twitch too like it's America but like that's only a small part of it it's everywhere yeah around the whole world South Korea is the kind of the hub of the gaming right capital the world yeah professional gaming capital the world and it's a it's pretty amazing platform so one of the other really cool things I think about twitch unlike a lot of oh we should there's one other stat to throw in there 1.5 million broadcasters so that's actually a little bit above but it's always interesting to think about you know the the adage that for every you know 100 in the red at terminology 100 lurkers you have you have one one poster or one content and that that ratio roughly holds here yeah one of the things that I think is particularly interesting about twitch as a internet and digital media property is that it's got a really robust and diverse monetization strategy and has for much of its life so what would you call it three pronged approach and and it's interesting you know it could easily be a four pronged approach if twitch we don't eventually they will get their act together but basically for our viewers who don't know twitch makes money in three ways today they have advertising that they sell on the site for anyone who's visited twitch and knows you get about three seconds of gameplay before you have something really abrasive yes very but not to mention all the take over ads and banner ads all over the site and then they have twitch turbo which is basically a nine dollar eight ninety nine a month subscription that you can pay to get rid of that advertising on twitch is true when you get you know there's a variety of other things you can have you know colors of your text and custom emojis and a badge and a lot of the sort of gamified and virtual goods but like that's a lot of money just to remove vads from one website yep a lot of money we're talking that's more hundred dollars a year that's more than netflix to simply remove ads from one website on the internet all Spotify or I mean I guess on the family plans Spotify but yeah yeah then I think this is just brilliant the other half of twitch's business model comes from revenue shares with their broadcasters which are referred to as streamers in the form of subscriptions they make it really easy which is a button on the site on the page of a streamer to quote subscribe to that streamer for five dollars a month and then twitch keeps half of that to fifty a month half this blows my mind thinking about like marketplace businesses where you can take a you know 15% take or a 20% take or you look at like the real estate business where you get like or Airbnb has a six percent take it's like 12 to 14% but still okay but 50% 50% 50% 50% so their twitch is getting away with murder basically getting away with my and then let's let's just run through some of the stats here so this is this is some some numbers that are publicly available on the internet we do some back of the envelope math here there about a hundred million twitch viewers out there they announced that in January 100 million unique viewers roughly the conversion rate on viewers to subscribers is about one percent and we know this from a few twitch streamers have openly talked about in quote open source to their economics so so can we assume there's like a million is so you can assume there's about a million is subscribers they're paying five dollars a month and subscribers or subscriptions I'm assuming subscriptions okay so they're probably a fewer than that who actually subscribe but they might subscribe to multiple channels if this is simple data based on an individual this is one individual streamer the percentage of people that watches channel to convert so I think it would be actual subscriptions yeah on the site it could be higher so if it's 1% of his viewers subscribe it's likely that or it's possible that that viewer also subscribes to a different channel too I don't know the behaviors is probably not you know to it might be one point something but yeah we're keeping the numbers simple here so a million subscriptions let's assume on twitch at five dollars a month and at a 50% revenue share to twitch that's 30 million dollars a year in basically 100% margin I mean I guess twitch is paying credit card fees out of that so take six double it because they're only taking half of the revenue share so they're paying credit card processing fees on the whole so take six percent out of that but so 95% margin not margin that be their take right because like the margin we're not figuring in you know AWS costs or but this is this is just complete they're still monetizing other ways through advertising and turbo this is just like yearly incremental marginal yeah yeah yeah true to twitch no literally no it is except for credit card processing fees and putting a little purple button that says subscribe on their site I'm sure there's some engineering cost there too but like incremental margin what are you talking about one line of code yeah not to mention synergies with AWS it's pretty incredible it's pretty incredible and then and then this might be end up being the biggest form of of monetization for twitch in the long term is tips so there is this behavior that's emerged on the Twitch platform where stream twitch doesn't enable this is all at all streamers are hacking this together with with third party software where as they're streaming and speaking to their to their fans and their viewers as they're streaming the games they're playing they'll solicit tips just like you know a street performer would they've got a tip jar and they're using third party plugins to to do this and and people are paying them like an incredible amounts of money so I mean streamers have made people have given it's just like the mobile games business you know people their whales that have given like thousand dollar tips ten thousand dollar tips like at once and right now twitch isn't monetizing any of this but you got to imagine they are planning to bake this natively into the platform and take a cut out of this I'm trying to imagine a scenario where something happens that's awesome enough in some gameplay that I'm watching where I decided to worth a thousand dollars people that spend thousands of dollars on clash of clanspan yeah but yeah but this is differential pricing for entertainment I'd argue but I know some says I know scary all right basically I think the punchline of this discussion here is twitch has very quickly remember this this whole business even though it was a spin out from Justin TV was started in 2011 yeah it's funny when we say it's four years old you you would think in all of this you know pivoting around and changing companies and spinning out other companies that this this gets extremely expensive and you know a lot of times like you look at like a job on or any companies that take like a series E and F round and get into the private equity and you know that that sort of thing that they take huge sums of money they only took three of the funding and it was only 42 million dollars so I vividly remember I can they kept it real I mean 42 million dollars a lot of money but they kept it relatively cheap yes during the outcome I think I can talk about that won't use any numbers or names but when I was in business school I interned the summer between my first and second years at a one of the top really really amazing venture capital firm called merit tech and they're a late stage venture capital firm they only do late stage investments and it was late spring and I it already lined up my internship I was going to spend the summer with them and I got a call from one of the partners there and said hey I'm looking at this deal for a company that's raising money the company is called Twitch if you ever heard of it you know anything about it and I didn't know anything about it and I looked and I did a bunch of research and you know being a eager soon to be intern to impress I thought I'm going to do some research I'm going to write up some thoughts you know help them look at this even though I haven't started working yet I really can't wait to dive in and I just looked at the space and I thought you know there's no way this is but like it's interesting what's happening here but there's just no way this is going to be big I mean this is like a this is like a derivative of a sector of the economy that itself is like not that big and gaming right like it can't be that big and the valuation they wanted for this round was at the time seen like a very large valuation was much less than the eventual acquisition price and so I I wrote a long email I remember I was I was Jenny and I my wife Jenny and I were in Sonoma for the weekend for a business school trip and I spent a bunch of the weekend writing up these thoughts you know in this memo San it's a partner basically can't recommend we do this and this goes to show you I have so many stories like this wait what venture capital is a humbling business what company name were you not going to say there I mean I wasn't going to talk about any of the numbers Oh yeah but suffice to say had merit I invested in in twitch in this round that happened and I forget who did lead the round but a very nice return but you know it's interesting would have been a very nice return and especially as a late stage investor where you're trying to get a you know what three extra turn is a good return a five extra turn is a great return and you're talking total fund like to yeah but but actually as a late stage investor it's it's on individual investments because you're hoping that most of your investments you're going to get a good return on right not just risk yeah yeah yeah I'm not a fail in one but I think is amazing to think about this acquisition when twitch was acquired for a billion dollars even I hadn't thought much about twitch since that summer but wow I was wrong like guess it did turn out to be a big company but now look at twitch a year later billion dollars is pretty cheap yeah so this is the fun part of the show you know I think there's one of the reasons we wanted to do this was because I think there's a lot of first of all easy numbers to look up and very it's almost it's the same reason that gossip is fun conversation to have it's because it's it's low hanging fruit everyone can very clearly draw the dotted line everyone can laugh about it and everyone everyone can you know real man to size and fantasize in which they were picking that winner and you see oh my God 42 million and funding going to a billion dollar acquisition oh my God I can do the math and know exactly how big that that multiple is and that conversation happens over and over again and I think the thing that we just don't talk about that much is great a billion dollars so now you know let's say Amazon's an individual person that person is now a billion dollars in debt how do you grow that investment how do you get your money back and then some and what are the kind of market forces and things going on within Amazon right now that actually make that fun to watch and we haven't a part of the rationale for wanting to do this episode to is we're here in Seattle and Amazon is one of the most impressive near times articles about the company and workplace culture now we're standing one of the most impressive and greatest technology companies not only of our time but probably ever I mean the innovation that is driven within that company is just incredible that continues to be driven and the companies are you know a hundred billion dollar revenue run rate and still innovating like a tiny startup which is amazing and the impact that it's had on Seattle on the ecosystem physically on the city is just incredible so we really wanted to have an excuse to talk about Amazon we haven't really talked about Amazon yet but what's amazing they they've left which pretty much alone yeah we've seen we saw something launch a couple weeks ago but you know you would think after something like this gets acquired like well they'll take some of the video technology and make it available very quickly as a higher abstraction layer in AWS or they'll start bucketing in some part of twitch with prime or they'll you know throw the Amazon bar on top or did I do single sign in yet can you log in with an Amazon I don't think so I don't think so either the first thing they launched was not a unification with the rest of Amazon's properties it it was twitch creative yeah you know they did this Bob Ross super super clever you know marathon of watching Bob Ross paint to kick off you can watch creative people perform their craft while they're while they're live streaming it like you would watch anybody do their game while they're streaming it and you know too soon to really know anything about that but it really interesting how the company did indeed largely leave it alone yeah and over time maybe we'll see them integrated more into in in some ways into Amazon you know I think about when we're talking about Instagram in our last episode and how Instagram also has been largely left alone by Facebook however behind the scenes we talked about ad buying and how Facebook's been very open especially on their earnings calls with about house successful selling joint ad buys to add to advertisers between Facebook and Instagram has been and it's interesting you know we talked about some of the direct monetization aspects that twitch has but advertising still by all estimates we don't really know but by all estimates is probably the biggest revenue stream for twitch and Amazon a lot of people don't know this but has a very big advertising business and you can imagine Amazon has a big advertising business especially to companies trying to sell products on Amazon a lot of video game companies both console manufacturers PC gaming accessory manufacturers and and games themselves advertise and sell on Amazon they also advertise on twitch you could imagine that being a synergy in the future yeah yeah it's a really interesting business for Amazon because one of the things that they're able to do you know by having that that ad network and and letting you view products on other sites and that you know that little I frame advertisement that you see for an Amazon account product or any other thing that they're using to on their ad network is they get a good picture of what websites you shop on so it's or even just visit so if you come to Amazon dot com they can use that an aggregate with your purchase history or if you're not assigned in user to just understand sort of what sites you've been visiting what sort of things you're going to buy you know if having twitch as a first party property and integrating some of that technology with the you know large advertising business that is twitch there's yeah there's a lot of potential and and let's think about where twitch is going now and might be going in the future with twitch creative potentially other channels these are all that's a creative for example painting digital tool creative tools these are all areas that they're very natural advertising opportunities and very natural product selling opportunities can imagine integrations with Amazon on that front yeah on an integrations with Amazon is to two kind of points I want to bring up looking back at old post from the the Justin TV folks in the early days I think they started on AWS moved off for at the time what was what was cost reasons and customization reasons I think they just needed a little bit more granular control with their whole streaming video stack but then at least by some point between 2012 and 2014 had pretty much totally moved back on AWS so being acquired by the very company that powers your entire technology platform I mean that's there's a lot of a lot of things to come the Amazon you could say Amazon might have had a real window you know for me I worked in the venture capital business I did spend a lot of time thinking about tech and twitch was like totally under the radar stream for under the radar screen for me but Amazon with AWS they kind of have this like dashboard until like what's actually hot among tech companies at all times like is it what did they see this and say like gosh twitch is twitch is undervalued we should buy it because we have the data I don't know but again back to the you know the point we made earlier about the impact that Amazon has had on the entire tech ecosystem but the huge impact here in Seattle I mean everybody here is you know zero degree connect degrees of separation away from Amazon and everything in this ecosystem here yeah so the end yeah I can't second that enough so the the other point that I wanted to make on top of the fact that they're integrating with their technology stack in a very vertical way is prime you know prime looks an awful lot like turbo yeah I mean it's a prime is has has become a mechanism where people buy almost three times the number of things on Amazon when they're a prime subscriber and it's an annual subscription fee that you pay up front for later returns of many different things that you would have been through over a long period of time yep and boy turbo is a thing that you pay up front the beginning of the month that pays ahead of time for all the ads you would have seen you have what is historically Amazon has made huge efforts to get young people in the form of students hooked on to prime home with students I think first year free for for students and maybe all the school free what's the average age of a twitch viewer you know it's a you know I wouldn't call well I wouldn't call either of us old but the average age of a twitch viewer is definitely younger than both of us yeah I mean well let's face it and and imagine someday soon turbo becomes prime and is part of Amazon prime and then you've just hooked a new generation on Amazon prime sure is a selling value prop I could pay my what is it eight eight or nine bucks a month for turbo or I could pay ninety nine dollars a year for Amazon prime and get turbo plus everything else in prime all those videos all that free shipping yep yeah drones dropping things off of your doorstep not to be spec you'll live no nothing they haven't announced all right so this section is the part we talk about you know does it fall in the category of people technology product or business line where is it another thing completely and you know that this is a pretty good framework to sort of understand I think we've talked about you know the various reasons why they would do this acquisition but to sort of give a framework for what buckets to drop certain things into and it's a good opportunity for David and I to be a little bit to so David what do you think I'm a little torn here could be a product however I'm going to go business line because I think especially thinking back to I really think you're on to something with this prime when we talk about the value of the acquisition and and measuring its success and again being speculative here but if you imagine the value to prime here which is one of the core parts of Amazon twitch adds a new layer of benefit to prime you know there was prime instant video before which you could argue is somewhat similar but I think this is a different thing you know that's like movies versus television and this adds the television to to Amazon's offerings and to to prime and what what prime subscribers get so I think and I really do think that this is going to give a foreshadow what I'm going to talk about in the section I like I think twitch overtime will be more than games I think it will be a platform for watching live watching people do things live on the internet almost like Justin TV originally was formed for I know I said I was going to disagree but like I think that's the obvious correct choice I you know I'd say as a product if it's something that was already sort of being integrated but they're using this as a completely different channel to a completely different audience and and we're really not seeing kind of like the the the it would I would call it more of a product acquisition if you could somehow get to twitch from Amazon but you just can yeah it's a it's a completely different access to a completely new set of customers with a different business line and one that despite all the sort of integrations and yeah synergy that we've talked about I think it's a self-sustaining business and we don't know that you know for sure Amazon doesn't or hasn't yet broken that out in earnings but super data releases research reports saying that the gaming video content market is worth $3.8 billion dollars that was earlier this year in 2015 and they're saying that twitch is going to generate $1.6 billion of that revenue this year I think there's no way that that can be right but still even even even if it's half of that like you know these research reports are always a little bit it would thank you for the folks at super data for doing this great research for us but like even if it's a third of that right like let's say it's like $500 million like that's growing quickly the deal price was only a billion were if it's not already you know a profitable decision to purchase this company on its own without combining any of these other things were a year out yeah I think it's going to happen real fast okay so my favorite segment that I want to make sure we keep is what does this acquisition what technology theme does this acquisition illustrate for you one thing Ben and I talk about a lot now that I some of my favorite things to talk about is like these lasting themes and technology technologies of space that changes super quickly but there these themes that that last generation to generation and you know like the idea that technology comes in waves or you know scale ability all sorts of things how fast things change I've got some benefit view if you have thoughts go ahead but I've got well go first for me twitch really illustrates this this theme that I just love in technology which is things oftentimes things that end up being really really big and world changing when they start out they look like a toy and twitch there's like this is like the definition of it looked like a toy in the beginning when I was writing that memo it looks like a toy to me video games what's that there's no way even if this wins that category it's not that big but I totally missed the boat that like a video games were themselves being transformed into something way bigger than they used to be but be video games were just the start for twitch and this is speculative here it's still mostly video games but I think twitch creative again for shadows a future or pre-sages a future where twitch is about the original Justin TV version which was people doing things live on the internet television on the internet live TV on the internet and and I just I just think this is such a great example of the this was something so many people dismissed as small as toy like in the beginning but is actually become really huge yeah so what you're sort of to pattern match a little bit here to hear what you're saying is that you know you're looking at something and you're aware of the incumbents and it looks sort of like a toy to you and that can't possibly displace whatever the current thing you're using is because it's merely games or it's just a little thing where people are watching other people play video games what sounds a lot like disruption theory like it sounds a lot like the clout you know Clayton Christians sort of well I think the twist here is that I'm not sure even I don't know but you could certainly imagine that even the twitch founders and management team themselves wouldn't have envisioned this yeah I don't think I'm not gonna do yeah or any more than I don't know if the Airbnb founders envisioned that one day you know they would have more Airbnb would have more hotel you know night stays in it in a single night then all the other hotel chains in the world like I don't if they're not there they will be sitting yeah it's interesting so I think like if we are thinking of in the context of disruption theory and let's say it's like you know Google Docs sort of you know scaring the heck out of office what are what's the incumbent like what are they displacing here where it was yeah it was a toy and what's what's the thing they're splicing television because it's you know what I don't have the stat off him but something like the average twitch user watches 50 hours of twitch yeah it's insane yeah I've got to say it's yeah 58% of twitch users so that's 58 million people that are tuning in at all during the day yep it's not 58 because it's not on a daily basis instead of okay still watching for more than three hours I mean this is like like once you pop it's on don't say that's the thing love it speaking of television and commercials and yeah what does that sound like that sounds like television where people who watch television watch like on average six hours a day yeah crazy crazy um vent what's your grade wait so are we doing this grade today or grade in the future I think we have to get it right let's grade as if we are historians judging Jeff Bezos so we're in the future we are future historians to weighty task yeah yeah as a future historian looking back at Amazon deciding if this was a good decision or not and you know the dust is still still settling you know we have pluses and minuses some are gonna pay plus this but I think it's an a even on the conservative basis of how this business line does alone it'll it'll it's payback period is incredibly short at the time to be two years or less well at sorry it's hard to throw an exact number on that we don't know the numbers but yeah it's it's it's gonna do well it's not a long payback period and the the ways that they're tying into all the existing parts of the business are you know not evident yet but there's a lot of potential there and Amazon is so good at testing this stuff it's just hard to imagine that they're gonna screw that part up I think that you know they have had some acquisitions where they did not do that well in the past but I think that you know if we see them do kind of this prime turbo combination or we see them leverage any of the ad technology sharing or you know or even if it helps AWS's business grow and further develop their their video platform for other people yep I think that they just bought elemental technologies which is a very video encoding very early focused on building out the video platform yep yeah it's it's a solid a okay so here's like I mean again we've been very know we're looking for disagreement here it's hard it's really hard to disagree with if you if twitch stays on the trajectory it's on no doubt this is like I really think this could be an Instagram style acquisition what would have to happen for it not okay so here's what I was gonna go and by Instagram style I mean like when we as we talked about on the last show Facebook buys Instagram for a billion dollars two years later city city group puts out a equity research report on Facebook valuing Instagram at thirty five billion dollars within Facebook I really think the same thing could happen here whether it'll be two years I don't know but you know in a short period of time here's how it could go wrong if we're thinking from the future Amazon is incredibly strong at a lot of things Amazon is also a company and a culture that is very model ethic and the senior leaders at Amazon the people who drive the business make decisions every day they they're the same people they've been in place for ten plus years all of them Andy jassy who runs AWS he's been in Amazon at least fifteen years Amazon itself is only twenty years old Jeff Blackburn Jeff Wilkie all the some all the senior people at Amazon Jeff Jeff Bezos his quote S team now twitch very smartly like Instagram they've kept it totally independent image share the CEO of twitch is still the quote CEO of twitch I was reading an interview with him and he says I'm not the SVP of the twitch division and Amazon I'm the CEO of twitch but let's Amazon has done this before we're up here in Seattle this is not Silicon Valley twitches in Silicon Valley if at some point they decide to more deeply integrate this make twitch the twitch division of Amazon I think they can really lose a lot of the mojo here what you mean if it looks like I'm D. B. or maybe sort of a little bit more like audible yeah you know and like those the way if twitch is going to stay on the joth growth to direct trajectory it's on it needs world-class people and world-class talent and people who are motivated and typically the way you do that in technology companies and in Silicon Valley is with equity and with both literal equity and like metaphorical equity and ownership of the business can I have metaphorical equity in this podcast yeah right and Amazon's not a place that gives that to people you know within core Amazon it's like you're on the ST or you're not so I think that's how they could mess it up so far they're making the right moves but that's my my doom and gloom scenario that didn't come with a letter oh yeah well gosh in that case it would be I don't know B- I mean of course it would still be great but it would have been not realizing its potential I don't think they're going to do that the way you have to sign like a likelihood percentage to that screw up yeah they're doing all the right things so far yeah so we'll say minds based on the non-dum and gloom perspective which I think we both agree is no more likely path but the the kind of impressive thing there is be might as even if they managed to kind of screw it up in a long term integration because it's gonna return cap seems obvious that they got a bargain here yeah thanks so too all right we the future will tell let us know what you think of this episode the speculative nature the more freeform nature we'll see you next time thanks everyone