Founder Focus: How Did Twitch Sell To Amazon For $970 Million? The Invention Of Justin.Tv

If you've paid any attention to Sports Business the last few years, it's impossible to ignore video games and e-sports. Most people understand gaming is a large part of society, but I don't think they understand the fiscal opportunities.

People are earning millions of dollars playing video games, that's just a fact. The salary justification is similar to high level athletes, where top performers are paid relative to the level of support for the sport. Soccer is the most popular sport in the world, so its stands to reason that top end soccer players are the highest compensated athletes.

However, in gaming the top earners are not necessarily the best players of any given game. Don't get me wrong, there needs to be a minimum level of skill to attract attention, but monetizing that attention is not as straightforward as classic sports. Enter Twitch. Twitch is a streaming platform that was bought by Amazon in 2014. As of February 2020, it had 3 million monthly broadcasters and 15 million daily active users, with 1.4 million average concurrent users. Today, Twitch is the go to ecosystem for all types of content creators, but how did it get started?

HISTORY

Before it was the giant its grown to, Twitch was the brainchild of Justin Kan. Back in 2004, Justin was a junior at Yale studying physics and philosophy. He and a classmate decided they wanted to start a company with their nearly unlimited time. The idea they settled on was a calendar application which could sync with the newly released Gmail email software. Justin and his co-founder had no engineering background, so they brought on another friend who was a computer science major to help build the tech.

After 9 months, they had a working calendar demo, something Justin has called his "first shitty startup". This is where he discovered lesson #1 for any entrepreneur, you have to be a believer and active user of your product. As college students they didn't have a real need for a calendar and didn't do enough market analysis to properly iterate the product. The result was a semi-cool looking app, with limited functionality. However, what they did have was a 'tech startup' by the loosest of definitions and motivation to not join the corporate rat race. This motivation to build a company led them to apply for funding through the first Y-Combinator.

Y Combinator is a seed money startup accelerator that was launching in March 2005. Justin and his team applied and were told there are 3 types of startups: 1. Great idea / Great founder 2. Bad idea / Bad founder 3. Bad idea / Great founder. According to the feedback, they landed in category #3, a bad idea with interesting founders. (The evolution of Google Calendar and Java based apps shows Justin and his team did in fact have a great idea). They were seen as interesting enough to be admitted to the program, as long as they agreed to change their product. Being offered $50,000 to work on an idea at 22 years old made them willing to agree to any conditions and move to San Francisco.

Arriving in San Francisco, they kept working on the calendar app while trying to develop new ideas. At the time there was no iPhone or ability to live stream and Justin had the idea to create a "24/7 big brother like reality show", which would be Justin.tv. They hired an engineer to design a camera that could connect to cellular data and livestream. The engineer went to visit over the summer and trying to convince him to dropout of college and join the team, they took him out to show him a good time. They invited another friend, Steve Huffman (future founder of Reddit), taking the livestream camera with them.

At the bar Justin was told he couldn't wear the camera, which would fasten to his hat. He took it off but after a few more rounds of drinks his buddy Steve put it on and went back up to the bar. Steve got in a confrontation with the bartender over the camera, ending with him snatching his credit card and running out of the establishment. Cops saw the whole thing and eventually caught and arrested Steve. Justin, worried about the camera, volunteered to be arrested as well. They spent a night in the drunk tank and the next day when released, Justin got a panicked call from a friend. The friend had been watching live the night before and saw the entire arrest occur. That was the moment Justin knew their idea would work.

Justin began broadcasting his life 24/7, being constantly told he was boring and to work on something more entertaining. The other feedback he got was from other creators who wanted access to livestream as well. The company then focused on building a platform for creators, which eventually became Twitch. The fastest growing genre on Twitch was gaming, which led to the next pivot, a focus on gaming streams. This success eventually led to more VC funding, and ultimately an Amazon purchase for $970million in 2014.

Justin is now a partner at Y Combinator and an angel investor himself. Y combinator has been used to launch over 2,000 companies, including Stripe, Airbnb, Cruise Automation, DoorDash, Coinbase, Instacart, Dropbox, Twitch, and Reddit.

I love how Justin summarized his journey:

"If Justin TV could work and be successful, no one has any excuse. It was a terrible idea. We tried to make our own reality show and it turned into over a billion dollars of market value to companies. (The lesson is) If you have smart people trying to figure out how to make anything that someone would want and they don't give up, you will be successful at making money on the internet. The second thing is that companies need to prepared for the long haul, it was like a 9 or 10 year journey, it takes a long time. That's not unique. Most companies take a very long time to be successful. One of the things I look for the most in founders is people I don't think are going to give up, people I think are relentless."