Jonathan Lepre and Adam Wood, Harvard University
Published by Aaron Gose
Innovative Strategy With Patient Future Outlook
When Amazon bought video game streaming service Twitch back in 2014, many analysts’ and shareholders were confused with the $970 million acquisition. At the time it was understood that Amazon was aiming to continue to grow its cloud-computing business called Amazon Web Services. Amazon built out its Lumberyard system, which helps video game developers build games and host them on the AWS cloud. Amazon saw the inherent value in the unique Twitch streaming service, which helps the developers promote their innovations by allowing gamers to watch them play directly. Amazon was ahead of the pack as this combination was extremely desirable for developers. Twitch has over 100 million users, with tens of billions of minutes of video watched. The ability to connect the massive community of gamers and creators can be a deal breaker for the success of one video game over another.
Epic Games mega new hit “Fortnite” has been a perfect storm for Amazon’s plan. A top gamer named Tyler Blevins (Ninja) first recently confirmed he is generating more than $500,000 a month streaming himself playing "Fortnite" on Twitch. He informed the public that a majority of his income is derived from Amazon Prime subscribers, who can donate to his Twitch channel and his 5 million subscribers on YouTube as well. The donations alone prove the growth in this industry. Furthermore, Tyler recently played Fortnite with rapper Drake, and attracted almost 700,000 viewers to the Twitch platform, breaking a platform record.
News this week from Amazon shows the company is now entering the market for hosting gaming tournaments. The company developed the Amazon Web Services powered platform titled “GameOn” for third-party developers, allowing them to quickly add tournaments with real incentives for winners, leaderboards, and leagues to their games. This same type of game style was a reason for the recent success of Fortnite, which impressively attracted millions of players in its database with minimal geographic representation.
Industry Buying Opportunity
The central thesis of this article is to inform how far advanced Amazon is in comparison to its competitors. The company put a strategy in place that took years to develop but has now transformed an industry.
Innovative leaders think ahead of their time and prove to be “buy and hold” companies for sustainable income growth to equity stakeholders. Companies such as Amazon start trends, instead of following suit of competitors.
For example, Fortnite is owned by a private company, called Epic Games. EA and Activision are competitors that are now forced to respond to Epic Games’ success with Fotnite and predicted by Analysts’ to develop games with similar playing styles within the year. The gameplay style is so popular that it is negatively affecting the profit margins of these companies that are not involved. There is an opportunity for EA and Activision to increase profits by adding the favorite style of play called (PUBG) to Call of Duty, Overwatch, Battlefield, and other prevalent games produced by these companies. The trajectory being discussed could pose as a buying opportunity for these stocks over the end of 2018 and beginning of 2019. Below is the declining stock price of Activision to prove the forceful impact of Amazon, Twitch, and Fortnite has had on competitors recently. The stock has lost 10% in the recent weeks and a corresponding 600 billion in shareholder market value.