Software colossus and Xbox maker Microsoft Corp. may be in talks with gamer communications app Discord to purchase it in a deal observers say could be worth $10 billion. Both companies already hold a large amount of sway with video gamers. A joining of the two implies a pursuit by Microsoft (MSFT) of audiences far beyond Discord’s current user base. Let’s take a few moments to look at why a Microsoft-Discord union
In the gaming and tech worlds, if you’re not growing, you’re dying. Founded in April of 1975, Microsoft is practically a venerable older adult in the tech markets. The software company understands the need to grow better than most companies. Discord, a gaming-focused Voice over Internet Protocol (VoIP) app, is much younger. The communications app first started up in San Francisco in 2012 and launched online in 2015. It, too, is focused on growth. Given the nature of the tech market it inhabits, Discord’s significant investors are probably also interested in selling to a deep-pocketed tech company at some point. If they weren’t, they likely wouldn’t have pumped hundreds of millions of dollars in to Discord in the first place.
We’ve already mentioned the gaming and tech markets and their grow-or-die mentality as one impetus propelling a potential Microsoft-Discord deal. Another factor that makes Discord an attractive partner for some deep-pocketed tech-focused company is that it’s grown nicely and shows little sign of slowing down. For one, the video game industry’s general growth — where Microsoft and its Xbox have legions of users — has greatly helped Discord and its VoIP-based tech. At present, Discord claims 140 million monthly users, which helped generate a reported 2020 revenue of up to $130 million depending on how you count that money.
However, the communications app is also flexible and scalable. Discord’s other uses include a wide range of online video gaming activities, such as remote dance classes, study groups, and book clubs. Given the potential for audience growth in more areas than just video gaming, it’s easy to see why Microsoft might be willing to spend $10 billion on Discord when its market valuation is currently about $7 billion.
Potential Obstacles
No matter the company’s size and how flush with cash it is — and Microsoft had $131 billion in hand as of December 31, 2020 — a reported $10 billion asking price for Discord is still a lot of money. Besides Microsoft, analysts believe other giant companies such as Facebook, Apple, and Google may have been interested in acquiring Discord. A $10 billion purchase price wouldn’t have been too steep when it comes to any of those three tech overlords, after all.
Unfortunately for those three corporations, all have dealt with federal government antitrust concerns and likely might have faced scrutiny had they sought to acquire Discord. Microsoft isn’t entirely out of the antitrust woods either because it’s been purchasing other tech and media companies to expand its market reach. The question of how many more such companies Microsoft, the godfather of all software makers, can acquire before it, too, is hit with federal antitrust scrutiny is crucial to whether it can bring Discord into the fold.
Microsoft-Discord Benefits
Several benefits exist when it comes to a Microsoft-Discord marriage. For starters, the gamer communications app is in wide distribution. Its vast platform of users makes it a natural fit for a company like Microsoft and its Xbox. Because millions and millions of users are already taking advantage of Discord’s features, Microsoft could likely cross-promote and market its other products to those users.
However, no one knows how many people currently on Discord’s platform might migrate away if Microsoft were to scoop it up. Gamers and their ilk are notorious for prizing independence, and right now, Discord is independent. Some app users might leave if Discord were to find itself swallowed up by the software giant. However, the communications app already features Xbox Live integration. Discord users can simultaneously join up to 100 servers, commenting along with hundreds and thousands of other gamers in real time. This capability alone is a feature likely to keep many of them in the fold. Plus, the app is easy to use. It facilitates real-time online communication in such a seamless manner it may just be too difficult for many users to give up.
A Place to Talk
As we’ve already noted, more people than just hardcore gamers are using Discord as a place to chat while they compete with and against each other in massive online gaming environments. Microsoft is likely looking to bring Discord under its corporate umbrella precisely because the communication app makes it so easy for people to get together online. Many celebrity gamers and social media influencers hang out on the platform, for example, and millions of people follow their activities.
Using Discord, anyone can create a server or community, which currently ranges from under ten people up to hundreds of thousands. You can join the communications app in only a few minutes (basic membership is free) and then create a private server to hang out just with invited friends. On the other hand, Discord users can also join public servers to discuss an endless variety of topics and interests besides gaming.
Will a Deal Happen?
The thought of having such a communications platform as Discord under its control is no doubt the main selling point for Microsoft. It would gain new audiences for its products, including Xbox consoles and games, naturally enough. Still, it would also gain access to and facilitate the communications of many millions of people who may only interact with Microsoft through its Windows PC operating system.
Can Microsoft and Discord make a deal happen, though? Right now, all the talk about the two companies and a possible sale to Microsoft is more ‘informed speculation’ than anything either company has openly admitted. Most of the reporting about a potential Discord sale only mentions ‘unspecified buyers’ though at least one news website specifically noted Microsoft as the prime candidate to buy the app.
For its part, while Discord is no doubt willing to be bought, it’s rejected a sale in the past, back in 2018 when it ultimately decided to remain independent. Its investors — including Spark Capital and China’s Tencent Holdings — all have deep pockets. They have played the corporate acquisition game many times before, so they’re sure to hold out for a top dollar, bottom-line price.
An Almost Irresistible Idea
The idea of a Microsoft-Discord pairing is almost irresistible. First, Discord’s acquisition by Microsoft would give the world’s dominant software maker an instant relationship with millions of new people. Second, the software and video game console company also has vast monetary resources and a deep well of tech-savviness from which to draw. All of Microsoft’s money combined with its undoubted tech capabilities could help make Discord’s gamer communications app the preferred way for many more millions of non-gamers to find their way online. That sounds like a win-win situation for Discord and Microsoft, and one sure to be driving any negotiations they’re having
