How Did Twitch Become a Live Stream Giant: Business Model Analysis
What is Actually Twitch's Business Model?
Every month, more than 100 million viewers visit Twitch’s website to watch the best gamers play their favorite games. Basically, the company benefits from a snowball effect as broadcasters share their games live on the platform and thus inspire viewers to interact and become broadcasters themselves. This effect could explain the immense growth in users, especially in 2013 when the number of broadcasters on Twitch tripled. In recent metrics (2014), Twitch is 4th in peak internet traffic in the U.S. Leveraging the dynamics of the community and turning the passive viewers into revenue generating partners is an important part of the business model.
With the acquisition by Amazon in 2014, Twitch captured the opportunity to rely on a large company that can help scale its technology and infrastructure it needs to grow. Thus, having a supportive parent company and appropriate methods for knowledge transfer can boost the further development of the company.
Twitch takes great advantage of the rising popularity of eSports (electronic sports) which is promoted by higher-bandwidth connections and mobile viewing apps. In the U.S., one in four gamers have watched or participated in eSports, and an average viewer watches 19 times per month for an average session length of 2.2 hours. As this business is profitable for advertisers, operating businesses should think of how to attract and retain them in the best way. The power of the community plays a major role here.
Competition
Twitch already holds more than half of the live video streaming market. However, that makes the company a target for competitors. Some big names such as YouTube and Facebook have already ventured into the market with their own products.
Ad blocking
Ad blocking technology has existed for a long time. Through ad blocking tools, users can remove ads from websites, stripping them from any ad revenues. Twitch relies on similar income. Therefore, ad blocking poses a significant threat to Twitch’s revenues and business model.
Digital Security
Any company that operates a digital business model faces the issue of digital security. Twitch is also a company that can suffer from such issues
Action oriented insights
Every month, more than 100 million viewers visit Twitch’s website to watch the best gamers play their favorite games. Basically, the company benefits from a snowball effect as broadcasters share their games live on the platform and thus inspire viewers to interact and become broadcasters themselves. This effect could explain the immense growth in users, especially in 2013 when the number of broadcasters on Twitch tripled. In recent metrics (2014), Twitch is 4th in peak internet traffic in the U.S. Leveraging the dynamics of the community and turning the passive viewers into revenue generating partners is an important part of the business model.
With the acquisition by Amazon in 2014, Twitch captured the opportunity to rely on a large company that can help scale its technology and infrastructure it needs to grow. Thus, having a supportive parent company and appropriate methods for knowledge transfer can boost the further development of the company.
Twitch takes great advantage of the rising popularity of eSports (electronic sports) which is promoted by higher-bandwidth connections and mobile viewing apps. In the U.S., one in four gamers have watched or participated in eSports, and an average viewer watches 19 times per month for an average session length of 2.2 hours. As this business is profitable for advertisers, operating businesses should think of how to attract and retain them in the best way. The power of the community plays a major role here.
2 of 13 Business Model Patterns behind Twitch
1. Digitalization
An important pattern that Twitch has followed from the beginning is digitalisation. The company has jumped on the trend perfectly and has not let small successes stop them. They have constantly worked on the functions of their platform and improved it; today it is the largest streaming platform in the world.
2. Emotions (Image)
If you are looking for entertainment, Twitch has a great deal to offer. Daily, millions of people stream on Twitch, so you are certain to find something you enjoy.
The interactive nature of Twitch contributes to the platform's immense popularity. Since Twitch is live-streamed, it is possible to communicate with others in real time. You are not required to leave a comment and wait days or weeks for a response.
Because the stream is live, you can also observe your viewers' responses to what you say. If you post something humorous or cool, you can observe their reaction in real time.
This is cool because it creates the illusion of a conversation. You will have even more opportunities to interact with streamers and viewers in smaller streams, because there are fewer people and fewer events to manage.
Numerous alerts are also highly interactive. Numerous streamers have notifications for follows, subs, and donations. Some people enjoy seeing the cool animations, so they donate or subscribe solely for the alert.
Lastly, you can communicate with other channel viewers via chat on Twitch. These communities are a fantastic way to meet individuals with similar interests.
How Does Twitch Make Money?
According to reports, Twitch became profitable in 2013, but how do they generate revenue? The platform generates revenue through monthly subscription fees, Bits, video advertisements, and the sale of merchandise. Creators of content receive a portion of this revenue.
The great thing about Twitch is that users and content creators can interact. Users can subscribe to creators' channels, interact with them during live broadcasts, and financially support them.
Twitch Subscriptions
There are three subscription tiers available, priced at $4.99, $9.99, and $24.99 per month, although lower subscription fees have been announced for the majority of global regions. Twitch receives 50% of these fees.
Twitch Bits
Users can cheer on and support their favorite streamer with Bits. These bits are available in quantities ranging from 100 bits priced at $1.40 to 25,000 bits priced at $308.
Twitch Ads
Twitch has enabled video ads on both pre-recorded and live streams in an effort to monetize its free users. Streamers are compensated based on their CPM or per 1000 visitors. These costs can range between $2 and $10 per 1000 impressions.
Twitch Merchandise
The final source of revenue is merchandise. This is the clearest example of Twitch's partnership with Amazon. Through the "Loot Cave" official Twitch store on Amazon, the platform's most devoted fans can purchase apparel, accessories, dog wear, and gift cards.
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