Microsoft is reportedly having discussions with Discord to purchase the communications app. The Wall Street Journal reports that Microsoft is in “exclusive talks” to acquire Discord, and a deal could close next month. It’s Microsoft’s latest acquisition target, after the company failed to acquire TikTok and Pinterest recently. While all three are very different services, they share a common element: the community.
Microsoft is willing to spend a lot on these services because, outside of Xbox, it doesn’t have a large consumer-oriented community like rivals Google, Amazon, Facebook, and Apple. Microsoft has seen Google acquire YouTube and make it the world’s largest video platform, Amazon buy Twitch and dominate streaming, Facebook acquire both Instagram and WhatsApp to control the way millions of people communicate and socialize online, and Apple dominates mobile devices with its App Store.
Discord gives Microsoft access to a growing list of more than 140 million monthly active users that includes thousands of top YouTubers, creators, and gamers. Microsoft wants its own community.
A community of creators
“Creation, creation, creation – the next 10 years will be as much about creation as it is about consumption and the community around it, so it’s not about creating alone,” Microsoft CEO Satya Nadella said in a Interview with Bloomberg last month. “If the last 10 years have been focused on consumption, we are buying more, browsing more, we are seeing more, there is creation behind each one of them.”
Nadella was quick to focus on creators and communities in his first year as CEO of Microsoft. One of his first big acquisitions was Mojang, the studio behind Minecraft with its millions of devoted fans. Nadella has also spent a lot to acquire other communities, with LinkedIn costing $ 26.2 billion and GitHub costing $ 7.5 billion. GitHub was a key target to buy the love of developers and a large community, and LinkedIn connected Microsoft more deeply with businesses and provided access to an important professional social graph.
Microsoft has clearly been looking for the same kind of creator-led community on the consumer side, but TikTok and Pinterest didn’t work. The software maker has failed elsewhere as well. Microsoft acquired Beam a couple of years after Nadella was named CEO, and eventually rebranded it as its Mixer streaming service. Microsoft tried to compete with Twitch but ultimately failed because it did not have a broad consumer reach. Instead, it shut down Mixer last year and helped streamers move to Facebook Gaming.
Discord offers Microsoft a large and engaged community. Used primarily by gamers, it has become a Gen Z hub for socializing with friends, especially during the pandemic. It is made up mostly of private communities, and Discord has 6.7 million active servers every day. It’s a huge community, 75 percent of whom are Discord users outside of North America.
It has also become an essential tool for many over the past year. Personally, I’ve used Discord on a daily basis to keep in touch with friends, or participated in remote movie nights, streamed games, and just used the app as a place to hang out. Millions use Fortnite to hang out and play games together, and Discord is the primary way these communities of friends talk and chat as they play.
Discord is a great combination of Slack and Zoom video messaging, combined with a unique ability to access audio calls freely. You don’t have to organize an hour to call friends or send links to them, they just hop in and out of voice channels that are always ready and open.
Azure and Xbox
The community and creator aspects for Microsoft’s potential Discord acquisition are clear, but the company is also driven by its desire to have great public services running on Azure. It’s an area where Microsoft has lagged behind rival Amazon Web Services (AWS), and it’s particularly relevant considering that Discord works with Google Cloud. Microsoft and Google are clashing again, so the migration from Discord to Microsoft’s Azure would be seen as a huge win for their cloud ambitions.
Microsoft has also transitioned Minecraft from AWS to Azure recently, and the company quickly moved Outlook for iOS (part of its Acompli acquisition) away from AWS years ago. Having a great platform like Discord, TikTok, or Pinterest running on Azure allows Microsoft’s huge sales force to sell more business by making the switch.
Discord also has growth potential for Microsoft beyond the cloud. Discord raised $ 100 million last year to try to go beyond gaming and attract arts communities, sports networks, school clubs, and much more. This all sounds very similar to what Microsoft is trying to do with Microsoft Teams for personal use, after the company struggled to have its own Zoom moment with Skype.
However, Discord opens Microsoft up to moderation headaches. Discord created a task force to combat hate speech in the service last year, along with enhancing its own racial equality efforts. Like many social networks, it has had to combat toxic users, bots and groups that use the service for hacking, organized hatred and other nefarious activities. Discord benefits from the fact that it doesn’t try to amplify content to keep users engaged like Twitter, Facebook, or YouTube. Microsoft has a lot of solid experience in managing moderation with its Xbox Live network, and the company has been on a mission to combat toxicity in games in recent years.
If Microsoft is successful in its acquisition attempt, the crossovers between Discord and Xbox are obvious. Xbox boss Phil Spencer has previously discussed the importance of Discord as a place “where people come together to talk about games, watch games, watch others play.” That should have been Mixer, but the user base was not there. An acquisition of Discord could strengthen the integration between Xbox, PC and Discord, at a time when consoles are basically becoming powerful PCs.
Spencer has been open to “crossover talk” between Xbox Party Chat and Discord for years, and it’s reasonable to assume that it would be a priority for Microsoft to bring Discord to Xbox if a deal is made. This kind of integration would only make Xbox more attractive than PlayStation, just as Microsoft’s $ 7.5 billion acquisition of Bethesda is designed to power Xbox Game Pass with exclusive games.
Beyond that, I think Microsoft has learned to let its successful acquisitions flourish independently. Skype is a strong example of what goes wrong when Microsoft tries to integrate a complicated service into its vast network of software and services, but GitHub, LinkedIn, and Mojang have remained largely independent. Microsoft wants Discord because of its active user base; the last thing you should do is enrage a community of millions.