Discord is a VoIP, instant messaging, and digital distribution platform where users can chat via audio, video, and texts. Users can also send pictures and videos to each other, and form their own communities called Discord servers.
What separates Discord from similar platforms like Messenger and Zoom is that it is gaming-focused. The platform grew so large that major gaming corporations took notice. For instance, Microsoft incorporated Discord into Xbox Live in 2018. When Among Us exploded in popularity, many players used Discord during online matches as opposed to using the in-game texting system.
If you check the left hand side of the screen, you can see the players using Discord in Among Us.
The COVID-19 pandemic, especially, served to be a boon for the gaming-focused platform. With millions of people working and staying at home, Discord clocked around 140 million monthly active users by the end of 2020. It generated $130 million in revenue for the entire year and doubled its valuation to $7 billion.
Speculation of a Buy-Out: Microsoft's Attempt to Expand its Video Game Services
News began to flow around the interwebs that Discord had multiple suitors for a blockbuster buy-out. Among those suitors was Microsoft. On March 22, Bloomberg reported that Microsoft was in talks with Discord to acquire the platform for $10 billion.
Microsoft is no stranger to making major acquisitions. It bought Skype for $8.5 billion back in 2011. The company also acquired LinkedIn and GitHub. Most recently, it bought out Zenimax for $8.5 million and effectively owns famous game franchises like The Elder Scrolls, Quake, Doom, and Fallout.
Doom Eternal, which received numerous GOTY nominations last year, is now under Microsoft's ownership.
Microsoft's play at buying out Discord made sense. The company has been expanding the scope of its video game services. On top of its acquisition of Zenimax, Microsoft has also been heavily pushing Game Pass, where users pay a low monthly rate and have access to several dozens of games for "free". Just today, it is reported that Game Pass has achieved a milestone of 23 million users. According to the Wall Street Journal, the Discord users it talked to "[said] the platform offers more attractive features such as higher-quality audio than competing chat services, including even that of Xbox and Skype, which Microsoft also owns". My guess is that Microsoft intended to use Discord as a multiplier to enhance the gaming experience and services of its first party IPs, Xbox Live, and Game Pass.
Discord Ended Talks and May Go Public
However, yesterday, the Wall Street Journal reported that Discord ended deal talks with Microsoft, ultimately deciding to remain independent. There is speculation that Discord may eventually go public. Last month, it hired Tomasz Marcinkowski as its first finance chief. A person familiar with Discord's plans told the WSJ that Marcinkowski's hiring is "one of the first steps towards a potential initial public offering".
There are still no specifics on how Discord will proceed going forward. Gaming-focused companies like Roblox, Playtika Holding, Corsair, and Unity have all gone public. That said, it is very possible that Discord may change its mind. For instance, Roblox planned to do a traditional IPO, but then decided to do a direct listing. It cited difficulties at determining the right price for its shares as the main reason.
It would have been rather interesting if Microsoft succeeded in buying out Discord. Game Pass + Discord would be a rather lethal one-two punch against Microsoft's competition. With that said, the reality is Discord has walked away from the table and remains autonomous.
I do wonder if Microsoft's past history with how it handled MSN Messenger and Skype scared Discord off. In my personal experience, MSN Messenger worked great, but in 2012, Microsoft retired the service in favor for Skype. The company did acquire Skype for $8.5 billion the previous year. Understandable. The problem? Well... there was quite a handful of them.
As stated on The Verge, when Microsoft tried to transition Skype from P2P to cloud-based servers, Skype ran into a lot of issues. Reliability was subpar as calls, messages, and notifications repeated on multiple devices. When Microsoft redesigned Skype into something that resembled Snapchat, consumers were not happy about the new look. From a personal standpoint, I pretty much forgot all about Skype in the early 2010s because I found Messenger to be snappier and never looked back.
So when Discord likely researched into Microsoft's past, I imagine this was how the talks ended:
Discord when it learned about MSN Messenger and Skype's fates under Microsoft (maybe).
All jokes aside, Discord remaining independent may be the best for the industry. It can focus on developing its own DNA and identity without extraneous intervention. In addition, had Microsoft bought out the platform, it would consolidate a lot of power in the video game industry which might pose a monopoly problem down the line.
In regards to Discord's plan to go public, will it be worth buying Discord's stock? While I think the platform works extremely well, there are a variety of factors that will play into the stock price. Probably the best way to approach this is to do plenty of research on how Discord will further develop its platform and determine whether there is still a lot of growth potential. With that said, I am not a financial advisor and always DYOR.