Facebook Gets Serious About Challenging Amazon's Twitch

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Facebook (NASDAQ: FB) recently introduced a programming kit that lets developers integrate Facebook live streaming into their games without third-party software. Facebook likely hopes the new kit, which it plans to launch within the "coming weeks," will help it gain ground against Amazon's (NASDAQ: AMZN) Twitch, the market leader in video game streaming.

Many publishers currently integrate Twitch streaming directly into their games. But to broadcast streams to Facebook, gamers often use other software like NVIDIA's GeForce Experience or Microsoft's Xbox app. Facebook's new kit might remove some friction from the game streaming experience, but I think it still faces an uphill battle against Twitch.

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Why does Facebook fear Twitch?

Facebook is the world's largest social network with 2.13 billion monthly active users (MAUs) and 1.4 billion daily active users (DAUs). Twitch, which Amazon bought in 2014, has over 100 million monthly unique users, 15 million DAUs, and 2.2 million monthly broadcasters.

In the fourth quarter of 2017, Twitch averaged 788,000 concurrent viewers during its live streams. Its closest competitor, Alphabet's (NASDAQ: GOOG) (NASDAQ: GOOGL) YouTube Gaming Live, reached 308,000 concurrent viewers.

Those numbers indicate that Twitch, while impressive in its own right, is still David to Facebook's Goliath. However, Twitch dominates the rapidly growing niche of live game streams and e-sports. Research firm Newzoo expects global e-sports revenues to rise 38% this year to $906 million, and for its total audience to grow 13% to 380 million.

Twitch's command of that growth market undermines Facebook's plans to expand its video ecosystem, which is bundled together in Facebook Watch, to challenge YouTube.

Why can't Facebook counter Twitch?

Facebook has repeatedly tried to break into Twitch's market, with little success. In 2016, it partnered with Activision Blizzard (NASDAQ: ATVI) to let gamers stream games like Overwatch and Heroes of the Storm directly to Facebook via the Battle.net client.

It also hired pro gamer Stephen "Snoopeh" Ellis as its e-sports strategic partnerships manager. Last year, Facebook added desktop live streaming to Facebook Live, enabling gamers to broadcast Twitch-like streams with webcam feeds to their pages.

Earlier this year, it let viewers send tips of $3 or more to game streamers, and upgraded the quality of its game streams to 60fps at 1080p. It also became the exclusive home of live streams of Dota 2 and CS:GO competitions run by ESL One, a major German e-sports tournament organizer.

Yet Facebook has still struggled against Twitch for three simple reasons. First, Twitch already became the go-to site for most game broadcasters and viewers. Second, Twitch locked its top broadcasters into exclusive deals with its partner program, which forbade them from streaming games on rival platforms.

Meanwhile, many of Facebook's "new" features, like HD streams and tips, are already available on Twitch and YouTube Gaming Live. Lastly, Facebook's insular social network -- which is arguably designed for connecting friends and family -- makes it different from a public platform like Twitch, which is designed to attract legions of strangers.

The bottom line

Facebook is still the clear underdog in the game streaming market, but it seems dedicated to catching up to Twitch and YouTube. It's unclear if enough publishers will integrate Facebook Live streaming directly into their games, but it's a smart move which might prevent Twitch from becoming completely synonymous with game streaming.

However, Facebook often fumbles when it expands. Its list of failures include e-commerce marketplaces, Android launchers, virtual assistants, and chatbots -- all of which flopped due to miscalculations about tech requirements or market demand. Time will tell if its efforts to turn Facebook Live into a Twitch contender will join that list.

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