Microsoft’s bid for Discord makes sense
Why is Microsoft trying to buy another online communication app, asks David Court.
Seven years ago, Microsoft spent US$8.5 billion on the once-popular online communications app Skype. Fast-forward to today and as Skype does a slow death in a year when it should have been more popular than ever (Covid), Microsoft is trying to spend another US$10 billion on another online communication app, Discord.
Is it a good move? I think so. Discord is a lot bigger than you might think. It has about 140 million active users a month. And it monetises these loyal users without a single advert, relying instead on an optional premium subscription service costing US$9.99 (NZ$14.36) a month or US$99.99 a year.
It’s also important to note that Discord is evolving. It’s not just a place where gamers go to have lowlatency conversations with their ingame friends. Discord is now a place where communities go to just hang out and socialise. Discord even changed its motto from ‘‘Chat for Gamers’’ to ‘‘Chat for Communities and Friends’’ in March last year to reinforce its new purpose.
And this, I think, is the big carrot for Microsoft. I’m confident the would-be purchase isn’t going to buy Microsoft anything it doesn’t already have (more on this below) other than the ‘‘attention’’ of users.
Will it work? I honestly don’t know. Microsoft has a patchy record with its previous acquisitions. All 244 of them. The Seattle-based tech company has spent a whopping US$79,082,064,000 – 79 billion, 82 million and 64 thousand dollars – on acquisitions since 1987.
It famously stuffed up its $8.5b purchase of Skype – a price that was 32 times larger than Skype’s operating profits at the time. Its acquisition of Mojang (Minecraft developers), on the other hand, is considered a success.
What I find remarkable, other than the eye-wateringly big numbers being mentioned, is how Microsoft didn’t recognise the demand for a service like Discord (before Discord did) and create its own version of the ‘‘Chat for Gamers’’ app sooner.
Take a step back and analyse the relationship between gamers, Microsoft and Discord and it’s even more bizarre. Discord relies on Microsoft-owned platforms to exist. Remember, Discord isn’t available on PlayStation consoles – meaning a very large chunk of its users come from two platforms that Microsoft owns, Xbox and Windows (PC gamers).
The rumoured US$10b purchase isn’t magically bringing 140 million new humans into the Microsoft ecosystem.
The vast, vast majority of users are already heavy users of Microsoft technology.
So what’s the point? ‘‘Attention.’’ That’s what’s important. Just look at what’s going on with Netflix, Disney, Amazon, HBO, even Apple TV+ to get an idea of why it’s valuable. We, the users, have demonstrated our willingness to pay between US$9.99 and US$24.99 a month for premium services that will hold our attention.
If/when the deal does go through, Microsoft will clearly need to find a way to make a return on its investment. And Discord’s ability to hijack a gamer’s attention away from the video game they’re playing is what Microsoft is reportedly willing to bet on.
Continuing the Discord Nitro premium subscription service is a no-brainer. But there’s a new and potentially bigger revenue stream on the rise that Discord would allow Microsoft to tap into: the creator economy.
Substack and Twitter Spaces are two examples of technology platforms realising they’re only as strong as the content they host. This is why they’re trying to engineer ways to keep the biggest engagement drivers using their platform.
And as mad as it sounds, watching other people playing video games is ridiculously popular. Pro gamers have the potential to offer something similar to Substack and Twitter Spaces by persuading followers to subscribe to premium plans in return for exclusive content in the form of streamed content, Q&As, tutorials, whatever.
Microsoft is correct in recognising Discord is the right environment to capitalise on this new attention-led industry while Skype obviously isn’t.
Does that mean Microsoft won’t make a hash of it like it did Skype? No. But the potential for success is there, at least.
Discord is evolving. It’s not just a place where gamers go to have lowlatency conversations with their in-game friends. Discord is now a place where communities go to just hang out and socialise.