Why Microsoft would buy it for $10 billion

An employee works at Discord in San Francisco.

CNBC | Andrew Evers

Discord, the chatting app that’s popular with video gamers, is reportedly for sale for about $10 billion. According to Bloomberg, Microsoft is one of the interested acquirers. Shares of Microsoft were up more than 1% Tuesday morning following the reports.

So, why would Microsoft (or anyone else) spend billions for Discord?

Microsoft has billions to spend on a social media company. Last year, Microsoft was in the running to buy TikTok’s U.S. business for as much as $30 billion after the Trump administration attempted to force a sale over security concerns with the Chinese-owned company. Microsoft eventually backed out of the deal, and Oracle and Walmart entered into a joint bid to take control of TikTok’s U.S. business. (That deal is currently in limbo now that the Biden administration is running the show.) It’s now clear that Microsoft is still hungry for a social media company after the TikTok deal fell through.

Here’s what you need to know:

Discord has a massive user base. According to various reports, Discord has about 140 million active users per month. That’s approaching the size of Twitter‘s 192 million monthly users. The company makes money by selling subscriptions to a premium service that lets you customize your profile and upload high-resolution images and videos for $9.99 per month or $99.99 per year.

Discord has raised about $479 million in funding so far, according to CrunchBase. The company was last privately valued at $7 billion, according to TechCrunch.

Discord is popular with gamers, which is a natural fit for Microsoft’s Xbox business. Discord’s core user base is made up of video game players who turn to the app to chat about games they’re playing, either in real-time or in message board postings.

That would tie in nicely with Microsoft’s Xbox business, which is shifting to a future beyond just video game consoles. Microsoft is also building an online gaming service that will let you stream Xbox games to just about any device with an internet connection, which could one day make pricey gaming hardware unnecessary. (Think of it as Netflix for video games.)

Beyond gaming, many Discord users create chat rooms for other topics like day trading, investing or just socializing with friends. It’s a popular destination for people who want to hold private group chats around a topic. The Wall Street Bets community turned to Discord during the GameStop craze earlier this year, for example.

Like many other social networks, the company has had problems with abuse and problematic users. The app became a favorite destination for far-right followers a few years ago, and it was used in 2017 to help organize the “Unite The Right” rally in Charlottesville, Va., which resulted in the death of one person. Discord eventually banned those groups from the app.

Discord offered live voice chat before apps like Clubhouse became popular. Live voice chats are the hottest trend in social media right now, thanks to apps like Clubhouse and Twitter’s new feature called Spaces. Discord was early to the trend, and its live audio chat feature is popular for gamers who want to talk about what they’re playing in real-time. Buying Discord would give Microsoft a social media service that’s already much bigger than Clubhouse and approaching the size of Twitter in terms of users.

Microsoft is one of the only companies that can afford Discord and avoid antitrust scrutiny. With a $10 billion price tag, there aren’t too many gaming or social media companies that can afford to buy Discord. Sony can’t do it. Neither can Nintendo, EA or Epic Games. And the other companies that can afford Discord likely don’t want to go near it due to the government’s momentum behind antitrust actions against Big Tech. Facebook, for example, currently faces two antitrust lawsuits that largely focus on its acquisitions of Instagram and WhatsApp.

The last thing Facebook would try to do today is attempt to buy another multibillion-dollar social media company in today’s regulatory environment.



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