These Amazing Numbers Tell Us Why Google (Nasdaq: GOOG) Is Buying Twitch

Google Inc. (Nasdaq: GOOG, GOOGL) already owns YouTube, which dominates online video. So why is Google buying Twitch, a website that mostly just live streams people playing video games?

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Just to be clear, the deal isn't official yet. But Variety reported over the weekend that Google had agreed to pay $1 billion for Twitch, and other sources have since confirmed that only a few details remain to be worked out.

For those familiar with the world of gaming, Google's interest in buying Twitch may seem odd. The website consists of live video streams of thousands of gamers playing popular titles like World of Warcraft, League of Legends, and Dota 2.

But the audience for Twitch is much, much larger than any outsider would imagine.

Get this: Last fall, 32 million people watched the League of Legends Season 3 World Championship - more than twice the number of people who watched the World Series between the Boston Red Sox and the St. Louis Cardinals.

Watching other people play video games on Twitch is almost unbelievably popular. The site says it gets 45 million unique visitors every month, 1 million of whom are creating the video streams.

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The average Twitch visitor watches an average of 106 minutes of gameplay a day. As a group, Twitch fans watch 13 billion minutes a month.

According to video and networking firm Qwilt, Twitch accounted for 43.6% of all U.S. live streaming traffic for the week of April 7.

Those are impressive numbers for a service that only launched in June 2011. Since then Twitch has raised just $35 million from investors, which means a $1 billion price tag would be a huge payoff.

No doubt Twitch's rapid growth caught GOOG's attention.

While YouTube has its own live streaming service, YouTube Live, it has not kept up with Twitch. As a cash-flush tech titan, Google probably decided that it's easier to buy Twitch and its rapidly growing audience than to compete with it.

But it's not the millions of eyeballs alone that make Twitch an appealing acquisition for Google.

The Real Reason Why Google Is Buying Twitch

Twitch, like YouTube, runs ads - typically just as you click on a particular live stream.

But unlike YouTube, which has a general audience, Twitch caters to a large and dedicated group of people.

Say what you want about gamers, but many of them take gaming very seriously. Twitch viewers will literally watch for hours, unlike viewers of YouTube, who tend to watch a few short videos at a time.

Plus, Twitch allows viewers to interact in real time with the host (and each other) through a text chat feature. It's a powerful combination, and one that advertisers covet.

"[YouTube] doesn't "have the engagement, and engagement is what drives advertising," Mark Fisher, Qwilt's vice president of business development, told The Wall Street Journal. "Google can try to build this on its own or they can buy something that's already out there and doing well."

The gamers who frequent the site are extremely loyal to Twitch - a key part of the company's success that a behemoth like Google must be careful not to upset, as it would destroy the value of the acquisition.

"For gamers, Twitch is like our ESPN. It's also a social hangout, a place where we connect with millions of other gamers who share our passion," professional gamer Johnathan "Fatal1ty" Wendel told Qwilt researchers.

Currently, YouTube accounts for about $5 billion of Google's $55 billion in annual revenue.

The vast ad potential of Twitch could materially add to that, particularly since the business is still growing and its ads - with such a naturally well-targeted audience - could command a premium price.

With those kinds of incentives, it's easy to see why Google is buying Twitch.

Google (Nasdaq: GOOG) stock was trading up around 1% Monday afternoon at $527.91. GOOGL was at $537.19.

Do you think Google is smart to buy Twitch, or is the tech giant just flushing $1 billion down the toilet? Speak out on Twitter @moneymorning or Facebook.

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About the Author

David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.

Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.

Dave has a BA in English and Mass Communications from Loyola University Maryland.

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