“An atom-blaster is a good weapon, but it can point both ways.”Salvor Hardin, Isaac Asimov’s Foundation
Blitzscaling is a powerful tool, but even a successful blitzscaler cannot necessarily use it to overcome the power of winner-take-most market dynamics.
This week, Microsoft announced that it was shutting down its Twitch rival, Mixer. Microsoft had acquired Mixer (then known as Beam) shortly after its launch in 2016, and poured resources into trying to make it a counterweight to Twitch’s dominance of live streaming of videogame play.
Among other tactics, Microsoft had paid hefty sums to famous steamers like Ninja to switch from Twitch to Mixer. Ninja reportedly received $20-30 million to make the switch, and even smaller streamers received million-dollar offers. But despite these efforts, Microsoft had to admit defeat.
Microsoft is one of the OG blitzscalers, and has an incredible set of assets to go after Twitch, including endless cash, and the power of the Xbox userbase. And yet it failed.
It might be that Microsoft was fooled by its success with the Xbox, which successfully broke into the crowded console market, which had dominant players like Sony and Nintendo. But while the console market has platform network effects, these are relatively weak because of multi-homing. Most videogame titles are available on all platforms. In contrast, live streaming has strong two-sided network effects, as viewers gravitate to the platform with the most streamers, and streamers gravitate to the platform with the most viewers. And the subscription model meant that streamers had to rebuild their viewer base when switching platforms, with no guarantee that their viewers would follow them.
In the end, Microsoft seems to have seen the writing on the wall; its assault on Twitch was repulsed with heavy losses, and it wisely decided to abandon the attempt.
Ironically, to shore up its market position in the nascent videogame streaming world, Microsoft partnered with Facebook, in an alliance of blitzscalers:
Microsoft faced a decision between ditching Mixer, selling it off, or even investing more money in without a guarantee it would hit the scale it needs to compete. “It wasn’t as much about return on sell, it was about finding a partnership that was the best things for the community and streamers,” explains Spencer. “We think this is it, and it gives us a great place to launch more xCloud content and give gamers the ability to play from there.”
Microsoft has talked about reaching 2 billion gamers with its vision for xCloud, but Mixer wasn’t in a strong enough position to help achieve that goal. “When we think about xCloud and the opportunity to unlock gameplay for 2 billion players, we know it’s going be critically important that our services find large audiences and Facebook clearly gives us that opportunity,” says Spencer.
Time will tell whether the Facebook/Microsoft alliance will take another run at Amazon/Twitch. But when blitzscalers brawl, the stakes are high.