Microsoft x Discord: A huge bet on gaming

While Zoom has become the be-all and end-all of staying connected over the past year, for gamers the first point of call has been Discord.

This free voice, video, and text communication service may not have stolen headlines like Zoom, but the platform has seen user growth surge over the last year. Now, it has around 150 million users relying on the service to chat, meet, share and play games.

This growth appears to have caught the eye of Microsoft, with recent reports suggesting that it is interested in acquiring Discord for the colossal price of nearly $10 billion.

Assessing the interest

The driving force behind Microsoft's interest in Discord may be that it would increase the company's exposure to the global gaming market. Although Discord is not a developer or a platform where people directly play games, the service has become a central social hub for millions of gamers.

If the acquisition occurs, Microsoft will likely seek to embed Discord and its millions of active users into an ecosystem of Microsoft products.

The most comparable move would be Amazon's acquisition of Twitch for just under $1 billion in 2014. It was mutually beneficial: Amazon was able to incentivise Twitch's users to sign up for Prime while encouraging Prime subscribers to watch and follow users on Twitch. Twitch now hosts 91% of all video game streaming, dwarfing competition from YouTube and Facebook, and attracts more than 2 million viewers at any given time of any given day.

Microsoft will likely look to create a similar symbiotic relationship between Microsoft Game Pass - a monthly subscription that gives users access to a vast library of games - and Discord's premium service Nitro, which provides an enhanced experience through upgraded video and upload functions and access to a global bank of emojis and avatars.

The tech giant is also building an online gaming service, Project xCloud, that will let users stream Xbox games to any device with a screen and an internet connection. This could one day make expensive hardware, such as consoles, unnecessary. Microsoft could potentially integrate this service within Discord, since the platform already offers popular streaming options for users, paving the way for the past-console era of gaming.

But if it is to succeed, Microsoft will need to learn from the mistakes of the past.

Understanding the challenges

Microsoft acquired Mixer, an upstart competitor to Twitch, in 2017 and spent as much as $30 million on deals with high-profile streamers such as Ninja to lure users to the platform. But the service failed to attract viewers and streamers in equal measure. Compounded by a lacklustre user experience, it quickly ran out of steam and was shut down permanently last year.

A potential acquisition of Discord would circumvent these challenges. Discord already has millions of active users, and it boasts a popular, intuitive UX. But access to this massive community comes with its own baggage.

The freedom of access and ease of use has attracted all kinds of users to Discord, ranging from those who use it to play the popular game Among Us to more nefarious alt-right groups. Microsoft would need to find the right balance between Discord remaining an engaging and open place for users and being a brand-safe part of the tech giant.

Users are, after all, its key advantage. The platform isn't fuelled by content. Microsoft wouldn't have to spend millions luring streamers or invest billions in creating content like Netflix. The users and the community are what's valuable about Discord. All Microsoft would need to do is keep them happy.

Keeping the community satisfied

Discord users will likely be concerned that this acquisition could transform the platform from a gaming hangout into a corporate boardroom.

Discord was almost purchased before, in 2018, with possible acquisition prices ranging from $2 billion to $6 billion. But the undisclosed companies in the acquisition talks wanted Discord to change its fundamental values and embrace new revenue streams, particularly through advertising, and so Discord rejected the offers.

Discord has a carefully cultivated experience. If Microsoft were to come in and make radical changes, such as in-platform advertising or separate subscription tiers, it would push Discord's community to other platforms.

But of all of the tech giants it could be acquired by, Microsoft is the least likely to interfere with Discord's successful recipe for user experience. The company famously acquired Minecraft, and instead of forcing a particular direction on the game, it allowed developer Mojang to grow the game and its player base as they saw fit - albeit with a Microsoft logo watermarked at the bottom.

Overall, Microsoft's interest is good news for gamers. It just has to protect what makes the platform so valuable in the first place. While it offers fantastic opportunities for a wider ecosystem play, the global giant cannot interfere with Discord's core product. If it can do this, Microsoft can secure itself a place in the future of the gaming industry.

First published in Fast Company.