Twitch

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 Justin.tv, and the transformation into the Twitch that Emmett Shear is running today. Sponsors: Vanta: https://bit.ly/acquiredvantaServiceNow: https://bit.ly/acquiredservicenow26Legora: https://bit.ly/acquiredlegoraStatsig: https://bit.ly/acquiredstatsig26 More Acquired! Get email updates https://www.acquired.fm/email with hints on next episode and follow-ups from recent episodesJoin the Slack http://acquired.fm/slackSubscribe to ACQ2 https://pod.link/acquiredlpMerch Store https://www.acquired.fm/store! © Copyright 2015-2026 ACQ, LLC

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

  All right, David, you ready?

• 0:02Speaker 01

  I'm ready, Ben.

• 0:03Speaker 00

  All right.

• 0:21Speaker 00

  Welcome to episode three of Acquired. This is the one where we talk about Twitch. Today, we're going to 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. And, you know,

• 0:38Speaker 01

  Feedback is a gift, Ben.

• 0:40Speaker 00

  Yeah, thank you. We really like hearing from everyone and, you know, while originally our goal was to set out and only review the super stellar, spectacular ones that only went super well and what we can learn from those, it's a little boring.

• 0:57Speaker 01

  People are telling us they want some spice.

• 0:59Speaker 00

  Yeah, so we're going to 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, you know, people are generally positive and optimistic and there's a exploding market there, but a lot more to talk about.

• 1:22Speaker 01

  Whole lot to talk about. As always, thank you, everyone, for the reviews, for the feedback. You can check out our website at acquired.fm. We're on Twitter at acquiredfm. And please keep the feedback coming.

• 1:36Ben Gilbert?

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• 1:55David Rosenthal?

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• 2:16Ben Gilbert?

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• 2:38David Rosenthal?

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• 2:56Ben Gilbert?

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• 3:24Speaker 00

  So 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 2.

• 3:37David Rosenthal?

  We're really creative in the Sholik-Rosenball household.

• 3:40Speaker 00

  Yes, yes. So thank you so much for your generous, generous hospitality, David and Jenny.

• 3:46David Rosenthal?

  Always happy to, Ben, and you listeners as well.

• 3:50Speaker 00

  All right, let's get on with it.

• 3:50Speaker 01

  Let's jump into it. So, right about, uh, what was this, 14 months ago, uh, there had been acquisition rumors swirling about a young, three-year-old live streaming network, uh, primarily used for streaming games called twitch.tv.

• 4:15Speaker 00

  Which itself has, has a crazy history.

• 4:19Speaker 01

  Crazy history.

• 4:21Speaker 00

  If you were watching either of the previous incarnations of this company, you, you wouldn't have seen this end coming.

• 4:27Speaker 01

  And the incarnations being first Justin.tv, which I believe was one of the first Y Combinator companies. Am I right there?

• 4:34Speaker 00

  Yeah, I don't know what batch. One of the, one of the early ones.

• 4:37Speaker 01

  It was like 2007, I think.

• 4:39Speaker 00

  Justin TV is this incredible, um, you know, before smartphones, before a lot of the, or before smartphones got big anyway, um, kind of before GoPro and all that. Um, Justin Khan strapped a camera to himself and broadcast what he was doing all the time 24/7. Um, ended up going through Y Combinator with the kind of the, the crazy.

• 4:58Speaker 01

  It's hard to overstate 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 24/7 on the internet, yeah, YouTube was already out there, but that was recorded video live. I mean, this was a crazy concept.

• 5:22Speaker 00

  Yeah.

• 5:22Speaker 01

  And ultimately, it didn't work.

• 5:23Speaker 00

  No, even when they, they, you know, they got a little bit, um, became a platform where anyone could stream anything live. There were competitors. There was Ustream. What was the other big one? So, this was sort of an era where there were platforms coming up. This is classic build the platform before the use case, where there's platforms coming up for people to, to stream whatever they wanted live. There was incredible amounts of piracy, a whole bunch of seedy 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.

• 5:55Speaker 01

  Yep. So, that was 2007. Fast forward a couple of years, total fail, didn't work. Instagram, which we talked about on our last show, uh, had happened, uh, was not yet acquired by Facebook, but was a thing. And Justin TV is still kicking along. And what did they do? They work on a new pivot spinoff this company called SocialCam.

• 6:23Speaker 00

  Yeah.

• 6:23Speaker 01

  You remember SocialCam, Ben?

• 6:25Speaker 00

  Interesting. Yeah. And that was, that was kind of funny because that was, uh, actually I remember, I think they launched it South by Southwest because I was down there and that was where I first saw a whole bunch of the, the, um, marketing for it. Now that, you know, it was a super cool concept. I think that was in parallel. I think that Justin TV was still running at that time and

• 6:40Speaker 01

  Yeah, I think that might've been right.

• 6:41Speaker 00

  It's like some employees left Justin TV or maybe it was under the same, uh, umbrella company. And, um, I think it was

• 6:47Speaker 01

  We should, we should say, and SocialCam being, this is one of those things that like as VCs, 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.

• 7:04Speaker 00

  Yeah. Great, great idea though. I mean, I think that, um, there's, there's some, there's a nugget there and I, it was actually one of the most well-designed kind of consumer apps that had launched around that era.

• 7:13Speaker 01

  Yeah.

• 7:13Speaker 00

  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 adoption.

• 7:24Speaker 01

  Well, and it's interesting. It got wide adoption, uh, with, this was the era of the Facebook steroid era. This is like the baseball steroid era of, you know, the nineties 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.

• 7:46Speaker 00

  Oh, were they one of those companies that stole the

• 7:47Speaker 01

  They were one of those companies.

• 7:48Speaker 00

  The graph?

• 7:48Speaker 01

  They stole the graph. And so, and so crazy, you know, SocialCam spins out from Justin.tv, uh, in 2011, ends up getting acquired less than a year later by Autodesk. Autodesk, Ben, acquires SocialCam for $60 million. Crazy Viddy, which was another one that did the same thing. I don't know what ended up happening with, happening to them. They petered out. Maybe they got acquired by somebody. Anyway, that was chapter two of this company. Then chapter three, right around that same time, uh, is Twitch.

• 8:26Speaker 00

  And Twitch for, uh, for anyone who's not a gamer out there, I actually was, was looking into a little bit today. Um, kind of where the name comes from and, and, cause it has a certain feel to it and you go to the site and it's purple and it's got definitely the, um, kind of gamer vibe and it attracts a, um, you know, a pro gamer audience and that sort of, sort of archetype. And Twitch gameplay is the, uh, 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, yeah. 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 gotta get one guy quickly move over, get the other guy quickly move over. And it's kind of like,

• 9:07Speaker 00

  it's a touch and finesse and, and, and moving very quickly to, to do very physical actions rather than a slower kind of strategy game.

• 9:15Speaker 01

  Yep. And, and so Twitch, uh, was a dedicated streaming platform for streaming yourself playing video games on your computer.

• 9:28Speaker 00

  Which, you know, I think, uh, most of our listeners or 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 esports, you know, universe is and there's.

• 9:41Speaker 01

  And gaming is itself, I mean, coincided around this time with, uh, the development in the gaming industry of thing, of, of MOBAs. And things like League of Legends, uh, and, and Dota, uh, and, um, basically games becoming, uh, services and products that could live on and develop these huge audience. But, you know, in the past, before about this time, games would be, you know, packaged software that you'd buy on a disc and you'd stick in your console or your PC and you'd play it by yourself and, you'd have an experience, maybe you'd play it for a hundred hours and then you'd be, you'd beat it and you're done.

• 10:21Speaker 01

  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 revolutionize the whole industry, this model. And so now you have games that just live on and on as experiences.

• 10:40Speaker 00

  The weekly reset. It's incredible to see, you know, the with with the weekly or monthly Hearthstone as the monthly reset.

• 10:46Speaker 01

  Yep.

• 10:46Speaker 00

  Journey, year one, year two. I mean, it's, it's, it's a whole different model.

• 10:51Speaker 01

  Yep. And

• 10:52Speaker 00

  If you, it's so funny thinking about sort of the, the old ones. If you'd have 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'd call you crazy.

• 11:08Speaker 01

  It's, it's, it's almost as if in 2007, when the iPhone came out, somebody would have told you that, what did we just say? Was it 11 people working for Instagram when it was acquired or something? 11, 12, 13, something like that?

• 11:22Speaker 00

  Yeah, in the teens.

• 11:23Speaker 01

  That a company 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'd have thought they were crazy.

• 11:38Speaker 00

  Yeah. And it's interesting how it reflects a lot on the tenacity of the, 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, a sense around live streaming and it, you know, at Pioneer Square Live is one of the things that we do is like, we don't really trust our gut until we prototype stuff and until we get feedback and see what sort of catches on. And I think that it really goes to show you, 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

• 12:23Speaker 00

  Justin TV reopened Twitch to the public. And it goes to show, you don't really know it's going to stick until you start watching usage patterns of how people are using your stuff.

• 12:33Speaker 01

  Totally. So let's, uh, let's get into the topic of the show, which is an acquisition. So to start that off, I don't think we've actually said the actual facts. August 25th, 2014, acquisition rumors have been swirling about Twitch for months. People think Google and YouTube are about to buy the company.

• 12:52Speaker 00

  Makes sense to me.

• 12:53Speaker 01

  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 in cash. By the way, who could have foreseen this huge strategic error by the Twitch management team and board, uh, not negotiating for stock

• 13:28Speaker 01

  here. So, uh, Amazon closing share price on August 25th, 2014, $334, $334.2. Amazon closing share price today, 14 months later, $665.60.

• 13:46Speaker 00

  It's a, it would be a win if I actually owned a property here in Seattle. It's a shame of still renting.

• 13:54Ben Gilbert?

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• 14:08David Rosenthal?

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• 14:22Ben Gilbert?

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• 14:32David Rosenthal?

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• 14:49Ben Gilbert?

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• 15:06David Rosenthal?

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• 15:22Ben Gilbert?

  And in a future that isn't going to be one AI, it's going to be thousands of AI agents working across every function of the company. But the question is, who's managing them all?

• 15:31David Rosenthal?

  So if you're trying to turn AI ambition into real business outcomes and make it work safely, securely, at scale, go check out servicenow.com/acquired and tell them that Ben and David sent you.

• 15:43Speaker 00

  You just mentioned something about not negotiating for stock. Do we know that this was an all cash?

• 15:48Speaker 01

  It was an all cash deal. It was an all cash deal.

• 15:50Speaker 00

  So that's what a billion dollars in cash looks like?

• 15:53Speaker 01

  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.

• 16:32Speaker 00

  Which is, you know, thinking about in the context of the last, you know, acquisition we talked about, I guess it's, yeah, last one, Instagram, you know, celebrating now years after the acquisition, hitting 400 million monthly active users. Now, these visitors are not necessarily logged in, but they're, I guess they're probably tracked by IP address or something, so they know exactly, you know, how to-

• 16:52Speaker 01

  Just like any web property.

• 16:54Speaker 00

  Not count repeat sessions, but 100 million monthly active visitors.

• 17:00Speaker 00

  It's crazy. I mean, it's gotta be like every the demographics are wider spanning than this, but like every teenage boy in America.

• 17:08Speaker 01

  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.

• 17:18Speaker 00

  Yeah.

• 17:18Speaker 01

  Around the whole world.

• 17:20Speaker 00

  South Korea is the kind of the hub of a lot of tournaments right now, right?

• 17:24Speaker 01

  Capital of the world. Yeah. Professional gaming capital of the world and it's a, it's a pretty amazing platform. So one of the other really cool things I think about Twitch, unlike a lot of.

• 17:39Speaker 00

  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 Reddit terminology, 100 lurkers you have, you have one, one poster or one content creator.

• 17:56Speaker 01

  And that, that ratio roughly holds here.

• 17:58Speaker 00

  Roughly, yeah.

• 18:01Speaker 01

  One of the things 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.

• 18:16Speaker 00

  Would you, would you call it a three-pronged approach?

• 18:19Speaker 01

  You could call it a 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.

• 18:38Speaker 00

  For anyone who's visited Twitch and knows you get about three seconds of gameplay before you have something really abrasive.

• 18:43Speaker 01

  Yes, very brave. Not to mention all the takeover ads and banner ads all over the site.

• 18:49Speaker 01

  And then they have Twitch Turbo, which is basically a $9, $8.99 a month subscription that you can pay to get rid of that advertising on Twitch.

• 19:00Speaker 00

  It's true. And 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, and virtual goods, but like that's a lot of money just to remove ads from one website.

• 19:16Speaker 01

  Yep. It's a lot of money. You're talking a hundred dollars a year.

• 19:20Speaker 00

  That's more than Netflix. To simply remove ads.

• 19:25Speaker 01

  From one website on the internet.

• 19:27Speaker 00

  Or Spotify, or I mean, I guess on the family plan Spotify, but yeah.

• 19:32Speaker 01

  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 with just a button on the site, on the page of a streamer to quote subscribe to that streamer for $5 a month. And then Twitch keeps half of that, 250 a month.

• 20:00Speaker 00

  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 can get like, or Airbnb has a 6% take.

• 20:11Speaker 01

  Yeah, it's like 12 to 14%, but still.

• 20:14Speaker 00

  Okay, but 50%?

• 20:17Speaker 01

  Yeah, 50%, 50%.

• 20:19Speaker 00

  So they're Twitches getting away with murder.

• 20:22Speaker 01

  Basically getting away with murder. And then 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'll do some back of the envelope math here. There are about 100 million Twitch viewers out there. They announced that in January, 100 million unique viewers. Roughly, the conversion rate on viewers to subscribers is about 1%. And we know this from a few Twitch streamers have openly talked about and quote, "open sourced" their economics.

• 20:55Speaker 00

  So can we assume there's like a million-ish?

• 20:57Speaker 01

  So you can just assume there's about a million-ish subscribers. They're paying $5 a month.

• 21:03Speaker 01

  And.

• 21:04Speaker 00

  Subscribers or subscriptions?

• 21:07Speaker 01

  I'm assuming subscriptions.

• 21:08Speaker 00

  Okay.

• 21:09Speaker 01

  So there probably are fewer than that who actually subscribe, but they might subscribe to multiple channels.

• 21:14Speaker 00

  If this is sample data based on an individual?

• 21:17Speaker 01

  This is one individual streamer, the percentage of people that watch his channel to convert. So I think it would be actual subscriptions.

• 21:26Speaker 00

  Yeah.

• 21:26Speaker 01

  On the site.

• 21:30Speaker 00

  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 behavior is, it's probably not, you know, two, it might be one point something, but yeah.

• 21:44Speaker 01

  We're keeping the numbers simple here. So, all right, a million subscriptions, uh, let's assume on Twitch at $5 a month.

• 21:53Speaker 01

  And at a, a 50% revenue share to Twitch, that's $30 million a year. In basically 100% margin. Uh, I mean, I guess Twitch is paying credit card fees out of that. So, take, uh, 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 6% out of that. But so 95% margin.

• 22:18Speaker 00

  Not, not margin, that'd be their take, right? Cause like their margin, we're not figuring in, you know, AWS costs or.

• 22:24Speaker 01

  But, but this is, this is just completely, they're still monetizing in other ways through advertising and, and turbo. This is just like purely incremental marginal.

• 22:34Speaker 00

  Yeah, yeah, yeah. It's true. It costs them no additional.

• 22:36Speaker 01

  No, literally no, except for credit card processing fees and putting a little purple button that says subscribe on their site. And I'm sure there's some engineering costs there too, but like incremental margin.

• 22:47Speaker 00

  What are you talking about? It's one line of code.

• 22:51Speaker 01

  Not to mention synergies with AWS. Um, it's pretty incredible. It's pretty incredible. Um, and then, and then this might be, end up being the biggest form of, um, of monetization for Twitch in the long term is tips. So there is this behavior that's emerged on the Twitch platform, um, where, uh, streamer, Twitch doesn't enable this as all, at, at all. Streamers are hacking this together with, with third-party software. Where, uh, as they're streaming and speaking to their, to their fans and their viewers as they're streaming the games they're playing, uh, they'll solicit, uh, tips, just like, you know, a street performer would. Uh, they've got a tip jar.

• 23:35Speaker 01

  And they're using third-party plugins to, um, to, uh, do this and, um, and, and people are paying them like. Incredible amounts of money. So I mean, streamers have made, people have given, it's just like the mobile games business, you know, people, they're whales that have given like thousand dollar tips, $10,000 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.

• 24:06Speaker 00

  I'm trying to imagine a scenario where something happens that's awesome enough in some gameplay that I'm watching where I decide it's worth a thousand dollars.

• 24:14Speaker 01

  There are people that spend thousands of dollars on Clash of Clans, Ben.

• 24:18Speaker 00

  Yeah, but yeah, but.

• 24:20Speaker 01

  This is differential pricing for entertainment.

• 24:22Speaker 00

  I'd argue, but I know some, so.

• 24:26Speaker 01

  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.

• 24:43Speaker 00

  Yeah, it's funny. I mean, we say.

• 24:44Speaker 01

  Four years old.

• 24:45Speaker 00

  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 Jawbone or any of these 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 rounds of funding and it was only $42 million. So.

• 25:09Speaker 01

  I vividly, I can.

• 25:11Speaker 00

  They kept it, I mean, $42 million is a lot of money, but they kept it relatively cheap, considering the outcome.

• 25:16Speaker 01

  I think I can talk about that. I 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, a really, really amazing venture capital firm called Meritech. And they're a late stage venture capital firm. They only do late stage investments. And it was late spring and I had already lined up my internship. I was going to spend the summer with them.

• 25:48Speaker 01

  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's called Twitch. Have you ever heard of it? Do you know anything about it? And I didn't know anything about it. And I looked, I did a bunch of research and, you know, being 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 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 in gaming,

• 26:31Speaker 01

  right? Like it can't be that big. And the valuation they wanted for this round was at the time seemed like a very large valuation. It 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, sent it to the partner. Basically can't recommend we, we do this.

• 27:02Speaker 01

  And this goes to show you, I have so many stories like this.

• 27:06Speaker 00

  Wait, what?

• 27:06Speaker 01

  Venture capital is a humbling business.

• 27:09Speaker 00

  What company name were you not going to say there?

• 27:12Speaker 01

  Oh, I wasn't going to talk about any of the numbers.

• 27:14Speaker 00

  Oh, yeah.

• 27:15Speaker 01

  But suffice to say, had Meritech invested in Twitch in this round that happened, and I forget who did lead the round, but it would have been a very nice return. But you know, it's interesting, it would have been a very nice return, and especially as a late stage investor where you're trying to get a, you know, a three X return is a good return, a five X return is a great return.

• 27:36Speaker 00

  And you're talking total fund, like to,

• 27:39Speaker 01

  Yeah, but, but actually as a late stage investor, it's on individual investments because you're hoping that most of your investments, you're going to get a good return on.

• 27:45Speaker 00

  Right. You're not investing in 10.

• 27:47Speaker 01

  Yeah, yeah.

• 27:47Speaker 00

  You know, as soon as you fail in one.

• 27:49Speaker 01

  But what I think is amazing to think about this acquisition, when Twitch was acquired for a billion dollars, even though I hadn't thought much about Twitch since that summer, thought, 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 was pretty cheap.

• 28:07Speaker 00

  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 low hanging fruit. Everyone can very clearly draw the dotted line. Everyone can laugh about it and everyone can, you know, romanticize and fantasize and wish they were picking that winner. And you see, oh my God, 42 million in 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 and over

• 28:48Speaker 00

  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. Well, that person's 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?

• 29:16Speaker 01

  And we haven't, part of the rationale for wanting to do this episode too is, we're here in Seattle and Amazon is one of the most impressive, New York Times articles about the company and workplace culture there notwithstanding, 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 and that continues to be driven and the company's, you know, $100 billion 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

• 29:57Speaker 01

  excuse to talk about Amazon. We haven't really talked about Amazon yet. But what's amazing, they've left Twitch pretty much alone.

• 30:06Speaker 00

  Yeah, we've seen, we saw something launch a couple of 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?

• 30:31Speaker 01

  I don't think so.

• 30:32Speaker 00

  I don't think so either. The first thing they launched was not a unification with the rest of Amazon's properties. It was Twitch Creative.

• 30:43Speaker 01

  Yeah.

• 30:44Speaker 00

  It was, you know, they did this

• 30:44Speaker 01

  Bob Ross.

• 30:45Speaker 00

  Super, super clever, you know, marathon of watching Bob Ross paint to kickoff. 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 live 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.

• 31:07Speaker 01

  Yep. And over time, maybe we'll see them integrate it more into, in, in some ways into Amazon. You know, I think about when we were 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 how successful selling joint ad buys to advertisers between Facebook and Instagram has been. And it's interesting, you know, we talked about some of the direct monetization aspects

• 31:51Speaker 01

  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.

• 32:05Speaker 00

  Yep.

• 32:06Speaker 01

  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 games themselves advertise and sell on Amazon. They also advertise on Twitch. You could imagine that being a synergy in the future.

• 32:32Speaker 00

  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 letting you view products on other sites. And that, you know, that little iframe advertisement that you see for an amazon.com 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.com, they can use that in aggregate with your purchase history. Or if you're not a signed 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 ad technology with the, you know, large advertising business that is Twitch. There's a lot of potential.

• 33:15Speaker 01

  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, let's take creative, for example, painting,

• 33:28Speaker 01

  digital tool, creative tools. These are all areas that they're very natural advertising opportunities and very natural product selling opportunities.

• 33:40Speaker 01

  Could imagine integrations with Amazon on that front.

• 33:43Speaker 00

  Yeah, on integrations with Amazon, there's two kind of points I want to bring up. Looking back at old, old posts from the the Justin TV folks in the early days. I think they had started on AWS, moved off for at the time, what was what was cost reasons and 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 wholly moved back on to AWS. So. Being acquired by the very company that powers your entire technology platform.

• 34:16Speaker 01

  Yeah.

• 34:18Speaker 00

  There's, there's a lot of margin.

• 34:19Speaker 01

  A harbinger of things to come. The Am- Amazon, you could say, Amazon might have had a real window. You know, for me, I've 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, uh, under the radar screen for me. But Amazon with AWS, they kind of have this like dashboard into like what's actually hot among tech companies at all times. Like, is, 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.

• 35:01Speaker 01

  But the huge impact here in Seattle, I mean, everybody here is, you know, zero degree connect, uh, degrees of separation away from Amazon in everything in this ecosystem here.

• 35:13Speaker 00

  Yeah. So the end of, yep, I can't second that enough. So the, uh, 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.

• 35:26Speaker 00

  Is Prime, you know, Prime looks an awful lot like Turbo.

• 35:33Speaker 01

  Yeah.

• 35:33Speaker 00

  I mean, it's a, Prime is, has, has become a mechanism where, um, 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 upfront for later, um, returns of, of many different things that you would have accrued over a long period of time.

• 35:57Speaker 01

  Yep.

• 35:57Speaker 00

  And, and boy, Turbo is a thing that you pay upfront at the beginning of the month that pays ahead of time for all the ads you would have seen. You have investment in the platform.

• 36:05Speaker 01

  Historically, Amazon has made huge efforts to get young people in the form of students hooked on to Prime.

• 36:13Speaker 00

  Home with students, I think first year free for, for students.

• 36:16Speaker 01

  Yep, and.

• 36:17Speaker 00

  Or maybe all years in school free.

• 36:19Speaker 01

  What's the average age of a, of a Twitch viewer? Or, you know, it's a, you know, I, I wouldn't call, well, uh, I wouldn't call either of us old, but, uh, the average age of a Twitch viewer is definitely younger than both of us.

• 36:31Speaker 00

  We're old, David.

• 36:32Speaker 01

  Yeah, I mean, we're old, uh, let's face it. And, uh, and you imagine someday soon.

• 36:41Speaker 01

  Turbo becomes Prime and is part of Amazon Prime. And then you've just hooked a new generation on Amazon Prime.

• 36:49Speaker 00

  Sure is a compelling value prop. I could pay my, what is it, eight, eight or nine bucks a month for Turbo?

• 36:56Speaker 01

  Or I could pay $99 a year for Amazon Prime and get Turbo plus everything else in Prime.

• 37:01Speaker 00

  All those videos, all that free shipping.

• 37:04Speaker 01

  Yep.

• 37:05Speaker 00

  Yeah.

• 37:06Speaker 01

  Drones dropping things off at your doorstep.

• 37:09Speaker 00

  Not to be speculative.

• 37:12Speaker 01

  No, uh, nothing they haven't announced.

• 37:15Ben Gilbert?

  All right, listeners. Now is a great time to talk about a new partner of ours here on Acquired, Logora, the agentic operating system that is redefining how the world's best legal teams work.

• 37:28David Rosenthal?

  Yep, it's sort of obvious that AI is going to completely change the legal industry. I bet most of you listening have dropped a contract into some sort of AI chatbot out there. Logora took that insight and asked the question, what if you really built something with that power from the ground up for the legal industry?

• 37:45Ben Gilbert?

  So the founders did exactly what great founders do, operate with obsessive customer focus. They embedded inside a massive law firm for months. They sat with the lawyers just watching how the work really gets done.

• 38:00David Rosenthal?

  And that's how you get features that customers love, like tabular review, where you drop in a folder of hundreds of contracts and it pulls every key term into a grid a lawyer can actually work with. Logora's bet here is interesting. Since it lets each lawyer handle more complexity, any given person can increase the quality of their work and do higher value work. And this means that the pie can grow even as each individual task takes less time.

• 38:24Ben Gilbert?

  And they recently launched Logora Agent, offering greater intelligence and performance. The agent lets lawyers set an objective. Then it can handle the planning and the execution and delivery of the final product. Legal teams get to maintain full control and transparency since they're still involved where a judgment is required.

• 38:43David Rosenthal?

  And Logora works where you already work. You can use it within Microsoft Word while redlining or drafting. The early Logora numbers essentially speak for themselves. When they have a head-to-head pilot with their top competitor, they win 70% of the time. Logora now has over 100,000 lawyers on the platform from 1,200 legal teams in 50 countries. And crazily, they went from 1 million to 100 million in ARR in about 18 months.

• 39:13Ben Gilbert?

  Truly insane numbers. And that is the real test. Plenty of things demo well, but the question is whether a busy associate actually reaches for it during crunch time, or whether a partner trusts it before going into a conversation with a major client. If your legal team wants to check it out, whether you're a law firm or you're in-house at a company, you can learn more at logora.com/acquired and just tell them that Ben and David sent you.

• 39:38Speaker 00

  All right. So this section is the part where we talk about, you know, does it, does it fall in the category of people, technology, product, or business line? Or is it another thing completely?

• 39:49Speaker 00

  And, you know, 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 disagree a little bit, too. So David, what do you think?

• 40:08David Rosenthal?

  Um, I'm a little torn here. Um, 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 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.

• 40:43Speaker 01

  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 Prime and what Prime subscribers get. So I think, and I really do think that this is gonna foreshadow what I'm gonna talk about in the section I like. I think Twitch over time will be more than games. I think it will be a platform for watching live, watching people do things live on the

• 41:28Speaker 01

  internet, almost like Justin TV originally was formed for.

• 41:35Speaker 00

  I know I said I was gonna 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 we're really not seeing kind of like the, the, I would call it more of a product acquisition if you could somehow get to Twitch from Amazon, but you just can't.

• 41:58Speaker 01

  Yeah.

• 41:59Speaker 00

  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, oh god, 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, hasn't yet broken that out in earnings, but SuperData released this research report saying that the gaming video content market is worth $3.8 billion. That was earlier this year in 2015, and...

• 42:34Speaker 00

  They're saying that Twitch is going to generate 1.6 billion dollars of that revenue this year.

• 42:40Speaker 01

  I think there's no way that that can be right, but still.

• 42:44Speaker 00

  Even if it's half of that, like, you know, these research reports are always a little bit. 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 dollars, like that's growing quickly. The deal price was only a billion. We're, if it's not already, you know, a profitable decision to, to purchase this company on its own, without combining any of these other things, we're a year out.

• 43:10Speaker 01

  Yeah, I think it's gonna 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 of the things Ben and I talk about a lot, and I, it's one of my favorite things to talk about is like these lasting themes in technology. Technology is a space that changes super quickly, but there are these themes that, that last generation to generation. And, you know, like the idea that technology comes in waves or, you know, scalability, all sorts of things, how fast things change.

• 43:48Speaker 01

  I've got some, Ben, if you, if you have thoughts, go ahead, but I, I've got, well, I'll 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 looked 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.

• 44:31Speaker 01

  But B, video games were just the start for Twitch. And this is speculative here, it's still mostly video games, but I think Twitch Creative.

• 44:40Speaker 01

  Again, foreshadows of future or presages of future where Twitch is about the original Justin TV vision, which was people doing things live on the internet, television on the internet and live TV on the internet. And, um, 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 it's actually become really huge.

• 45:10Speaker 00

  Yeah. So what you're sort of, um, 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, it sounds a lot like disruption theory. Like it sounds a lot like the, you know, Clayton Christensen sort of.

• 45:42Speaker 01

  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.

• 45:53Speaker 00

  Yeah. I don't think, I'm not convinced they would do.

• 45:55Speaker 01

  Yeah. Or any more than, I don't know if the Airbnb founders envisioned that, uh, one day, you know, they would have more, Airbnb would have more hotel, you know, night stays in a, in a single night than all the other hotel chains in the world like combined. I don't, if they're not there, they will be soon.

• 46:13Speaker 00

  Yeah. Yeah. It's interesting. So I think like, if, if we are thinking of it in the context of disruption theory, and let's say it's like, you know, Google Docs sort of, um, you know, scaring the heck out of office. What are, what's the incumbent? Like what are they displacing here where it was, it was, yeah, it was a toy and what's, what's the thing they're displacing?

• 46:34Speaker 01

  Television. Because it's, you know, what, uh, I don't have the stat offhand, but something like the average Twitch user watches like three hours of Twitch a day.

• 46:43Speaker 00

  Oh, it's insane. Yeah. I've got this stat. It's, um, yeah. 58% of Twitch users.

• 46:47Speaker 01

  So that's 58 million people.

• 46:49Speaker 00

  That are tuning in at all during the day.

• 46:51Speaker 01

  Yep.

• 46:52Speaker 00

  It's not 58 because it's, it's not.

• 46:54Speaker 01

  On a daily basis instead of a month. Okay.

• 46:56Speaker 00

  Are watching for more than three hours. I mean, this is like, like, once you pop the fun, don't stop.

• 47:03Speaker 01

  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.

• 47:13Speaker 00

  Yeah. Crazy.

• 47:15Speaker 01

  Crazy.

• 47:17Speaker 01

  Ben, what's your grade? Wait, so are we doing this grade today or grade in the future?

• 47:24Speaker 00

  I think we have to grade. Let's grade as if we are historians judging Jeff Bezos. So we're in the future. We are future historians.

• 47:35Speaker 01

  It's a weighty task.

• 47:37Speaker 00

  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 settling.

• 47:48Speaker 00

  You know, we have pluses and minuses, so I'm not going to A 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, its payback period is incredibly short. It's going to be two years or less. Well, it's hard to throw an exact number on that.

• 48:05Speaker 01

  We don't know the numbers, but.

• 48:06Speaker 00

  Exactly what the, yeah, it's, it's.

• 48:08Speaker 01

  It's gonna do well.

• 48:09Speaker 00

  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.

• 48:20Speaker 01

  Customer acquisition.

• 48:21Speaker 00

  Amazon is so good at testing this stuff. It's, it's just hard to imagine that they're going to screw that part up.

• 48:27Speaker 00

  I think that, um, you know, they have had some acquisitions where they, they did not do that well in the past, but I, I think that. You know, if we see them do kind of this prime turbo combination, or we see them leverage any of the, the ad technology sharing or.

• 48:45Speaker 00

  You know, or even if, if it helps. AWS's business grow and, and further develop their, their video platform for other people.

• 48:54Speaker 01

  Yep.

• 48:54Speaker 00

  I, I think that.

• 48:56Speaker 01

  They just bought Elemental Technologies, which is a video encoding.

• 49:01Speaker 00

  Very clearly focused on building out the video platform.

• 49:03Speaker 01

  Yep.

• 49:04Speaker 00

  Yeah, it's, it's a solid A.

• 49:06Speaker 01

  Okay. So here's like, I mean. Again, we've been very, uh, I 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, I really think this could be an Instagram style acquisition.

• 49:22Speaker 00

  What would have to happen for it not?

• 49:23Speaker 01

  Okay. So here's what I was gonna go with. 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, Citi, Citi group puts out a equity research report on Facebook, valuing Instagram at $35 billion 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, um, is incredibly strong at a lot of things. Amazon is also a company and a culture that is very monolithic.

• 50:01Speaker 01

  And the senior leaders at Amazon, the people who drive the business make decisions. Every day they've, they're the same people. They've been in place for 10 plus years, all of them.

• 50:16Speaker 01

  Andy Jassy, who runs AWS, he's been at Amazon at least 15 years. Amazon itself is only 20 years old. Jeff Blackburn, Jeff Wilkie, uh, all the, some, all the senior people at, at Amazon. Jeff's, Jeff Bezos, his quote, S team.

• 50:34Speaker 01

  Now Twitch, very smartly, like Instagram, they've kept it totally independent. Emmett Shear, 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, division at Amazon. I'm the CEO of Twitch. But let's, Amazon hasn't done this before. We're up here in Seattle. This is not Silicon Valley. Twitch is in Silicon Valley. If at some point they decide to more deeply integrate this, make Twitch the Twitch division of Amazon.

• 51:04Speaker 01

  I think they could really lose a lot of the mojo here.

• 51:06Speaker 00

  Well, you mean if it looks like IMDb or maybe sort of a little bit more like Audible?

• 51:12Speaker 01

  Yeah, you know, and like those, the way if Twitch is going to stay on the growth 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.

• 51:37Speaker 00

  Can I have metaphorical equity in this podcast?

• 51:39Speaker 01

  Yeah, right.

• 51:41Speaker 01

  And Amazon's not a place that gives that to people, you know, within core Amazon. It's like you're on the S-team 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 doom and gloom scenario.

• 52:02Speaker 00

  That didn't come with a letter.

• 52:03Speaker 01

  Oh, yeah.

• 52:06Speaker 01

  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, though.

• 52:16Speaker 00

  I think you have to assign like a likelihood percentage to that screw up.

• 52:21Speaker 01

  Yeah, yeah. They're doing all the right things so far.

• 52:24Speaker 00

  Yeah, so we'll say mine's based on the non doom and gloom perspective, which I think we both agree is the more likely path. But the kind of impressive thing there is B-, even if they manage to kind of screw it up on a long-term integration.

• 52:43Speaker 00

  Because it's going to return capital.

• 52:45Speaker 01

  It seems obvious that they got a bargain here.

• 52:47Speaker 00

  Yeah, I think so, too.

• 52:50Speaker 01

  All right. The future will tell. Let us know what you think of this episode, the speculative nature, the more free-form nature. We'll see you next time.

• 52:59Speaker 00

  Thanks, everyone.

• 53:20David Rosenthal?

  All right, listeners. Now is a great time to talk about one of our favorite companies, Statsig.

• 53:26Ben Gilbert?

  Yes, there is a reason why the best product teams rely on Statsig, whether they are iterating on their core product features or shipping AI-powered experiences at scale.

• 53:37David Rosenthal?

  Yep. In the crazy speed of today's AI world, shipping fast is just table stakes now. It's basically trivial to build and deploy your app constantly. The real advantage is how quickly you learn what changes actually created value for customers and how fast you can use that signal to guide what you ship next.

• 53:57Ben Gilbert?

  This is where Statsig comes in. It brings experimentation, feature flags, and product analytics into one unified system so teams can ship safely, test rigorously, and directly link what they changed to how users actually behaved.

• 54:09David Rosenthal?

  So if you want to make learning your competitive advantage, whether you're building new AI experiences or just evolving your existing core product, go to statsig.com/acquired to get started.