Software giant Microsoft has held exclusive talks with Discord Inc. to acquire the gaming chat community in a deal valued at over $10 billion. Following on from their failure last year to acquire social media apps TikTok and Pinterest, this is further confirmation that Microsoft is pursuing high-potential community-led platforms with hundreds of millions of monthly users.
Microsoft’s interest in Discord is a clear indication that they are ready to compete with other rivals – namely Google (YouTube), Amazon (Twitch), Facebook (Instagram and WhatsApp), and Apple – as they seek to establish their own ‘community’ of committed and loyal users in today’s hyper-competitive social media landscape.
Indeed, Discord saw its monthly user base double to 140 million in 2020 during the coronavirus pandemic as people increasingly turned towards virtual modes of communication. The company generated a record $130 million in revenue, up from $45 million in 2019.
The origins of Discord and its unprecedented growth during the Covid-19 pandemic
Discord was founded by video game developers Jason Citron and Stanislav Vishnevsky and was publicly released in 2015 under the name discordapp.com. As video game enthusiasts, their main motivation behind the creation of the platform was to develop a quick and efficient voice over software for gamers, with a focus on having a user-friendly UI with minimal impact on performance.
Up until 2020, the platform mainly catered towards gamers and gaming communities with thousands of servers dedicated to specific video games.
However, as of March 2020 Discord has pushed for a broader demographic and has shifted its emphasis on being a communicative tool for gaming towards more general use by rebranding itself as a “place to talk” and even changing its motto from “Chat for Gamers” to “Chat for Communities and Friends”. Since the pandemic struck Discord has been utilised for study groups, book clubs and other virtual ceremonies.
Analysis
Alongside its gaming business, Xbox, Microsoft’s acquisition of Discord is highly synergistic and would appear to make a lot of sense in terms of integrating and combining both communities, as well as their services and subscriptions. Since 2018, Microsoft has allowed users to connect their Xbox Live and Discord accounts.
Bloomberg Intelligence Analyst, Matthew Kanterman, has articulated this view: “Microsoft possibly acquiring Discord makes a lot of sense as it continues to reshape its gaming business more toward software and services … There’s a big opportunity to bundle Discord’s premium offering, Nitro, into the Game Pass service to drive more subscriptions from the last reported 18 million“.
Another factor to consider is Microsoft’s fiercely contested battle with Sony’s newly released console, the PlayStation 5 (PS5). The PS5 is a direct competitor and rival to the Xbox Series X and Series S – a rivalry that dates back to 2001.
According to market share data from December 2020, the PS5 has continued to significantly outperform the Xbox X/S series, with the former taking 65.05% of the global market share and the latter taking 34.94%.
The rationale is that partnering with Discord could potentially increase sales and entice consumers to switch over to the Xbox console, and thus challenge Sony’s dominance in the gaming console market.
Predictions
Some have predicted the deal might be completed by the end of this month. The $10 billion valuations are in itself a sign that both parties are serious – and if Microsoft were to be successful in their acquisition of Discord, this would represent their second-most expensive purchase ever, after the purchase of LinkedIn for $26.2 billion in 2016.
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