Discord Would Give Microsoft a $10 Billion ‘Place to Talk’
(Bloomberg) -- Microsoft Corp. and Discord Inc. hold a great deal of sway with video game fans. As they now hold talks for a potential $10 billion acquisition, a deal would join two companies in pursuit of audiences far beyond gamers.
Jason Citron and Stan Vishnevskiy, programmers and entrepreneurs, founded San Francisco-based Discord in 2015 as a platform for people to chat while playing video games together. The free service offers voice, video and text as well as gamer-friendly features including the ability for users to broadcast the name of the game they are playing.
The app became popular a few years ago, rising alongside smash multiplayer hits like Epic Games Inc.’s Fortnite. It also has a more sinister side to its history, having being used as a gathering ground for White nationalists to organize the deadly rally in Charlottesville, Virginia, in 2017.
Since then, the company has made efforts to clean up its site and make it more inclusive. Last year was a “pivotal” year for Discord, the new Chief Financial Officer Tomasz Marcinkowski said in a blog post earlier this month. During the pandemic, with people stuck at home and playing more video games than ever and also looking for ways to safely socialize, Discord became a hub for communities interested in the Black Lives Matter movement, homework help, book clubs and more, pitching itself as a “place to talk.”
Discord’s service has long attracted all manner of celebrity gamers and social media influencers. There was that time three years ago when Fortnite’s biggest player, Ninja, helped instruct hip-hop legend Drake to set up his Discord account. More recently there was WallStreetBets. The investor coalition notorious for boosting GameStop stock from its perch on Reddit also had a server on Discord and was banned earlier this year for not doing enough to stem hate speech.
The site now claims more than 140 million monthly users and brought in $100 million in revenue last year. Discord doubled its valuation last December to $7 billion, according to The Wall Street Journal. It has raised a total of about $480 million, according to Crunchbase, from investors including Greenoaks Capital.
On Discord, anyone can create their own community, or server, which can range in size from under ten people to hundreds of thousands. The average user might belong to one private Discord server that they just use to hang out with their friends and other public servers dedicated to discussion of their favorite movie or sports team.
For Microsoft, these varied communities may be Discord’s biggest selling point. The software giant, which last year sought to buy social-media app TikTok and held talks to acquire Pinterest Inc., has been shopping for assets that would provide access to thriving communities of users, according to people familiar with the company’s thinking. The maker of the Xbox console has snapped up numerous video game companies recently, including the publisher ZeniMax Media Inc. last fall for $7.5 billion. Microsoft may seek to integrate Discord with Xbox Game Pass, its Netflix-like subscription service for video games.
One of the keys to Discord’s popularity is its lack of advertisements. Rather than populate channels with intrusive ads like other social media services such as Twitter Inc., Discord makes money with a subscription service called Nitro. For $10 a month, members can customize tags next to their user names, upload larger files, and stream at higher video quality.
Discord has also become a useful way for video game companies to directly promote products and foster communities. The company will verify servers based on popular video games, giving them a stamp of authenticity. Some game developers participate in their Discord channels, allowing fans to interact directly with the people behind their favorite titles.
The official Discord community for the hit game Among Us, for example, has more than 413,000 users. Among Us community director Victoria Tran described it as “pretty chaotic, but a lot of fun.” She said that people use the server not just to talk about the game and find people to play with, but to have broader conversations about their lives and interests.
The server “is a fun way to be directly connected with our players, even if it’s not necessarily related to the game itself,” Tran said. She added that the video game servers can also be a place for players to report bugs and offer suggestions directly to game makers. “Discord communities are just a great way to get feedback you might not have been able to get otherwise,” she said.
Discord can also be helpful for smaller games that may not have the reach of Among Us but still want to provide a place for fans to chat, game developers say.
“We really just wanted to build a low-key community that was nice to hang out in,” said Megan Fox, founder of the independent game development studio Glass Bottom Games. Its first game, Skatebird, is about birds on skateboards. It has a Discord community of about 900 users that Fox said mostly use the server to talk about “birds, or skateboarding.” She said the studio also has a channel solely intended for users to “share your attempt at a kickflip.” Many Discord servers lean on humor and inside jokes, which is part of the appeal.
The news of a potential deal has inspired mixed reactions in the gaming community. “If Discord is going to sell, Microsoft may actually be one of the safest places it can go without experiencing major changes,” said Rod Breslau, an esports and gaming consultant who works with companies such as Sony Music Entertainment. Microsoft has taken a hands-off approach with recent acquisitions, such as LinkedIn and GitHub, he said.
But not all gamers have been thrilled about the prospect. Twitter was full of people Tuesday begging Discord not to sell. Some Discord channels were also filled with negative reactions to the idea of further video game industry consolidation.
“Gamers especially have whiplash from a variety of past Microsoft grievances,” said Breslau, “and who really wants to see one of the big corporate overlords continue to swallow up parts of the industry?”
It may not come to that. Discord is more likely to go public than sell itself, one person familiar with the discussions said.
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