Why Microsoft would purchase it for $10 billion

An employee works at Discord in San Francisco.

CNBC | Andrew Evers

Discord, the chat app popular with video gamers, is said to be on sale for about $ 10 billion. According to Bloomberg, Microsoft is one of the interested acquirers. Microsoft’s shares rose more than 1% on Tuesday morning, according to reports.

Why would Microsoft (or anyone else) spend billions on Discord?

Microsoft has to spend billions on a social media company. Last year, Microsoft was about to buy TikTok’s U.S. business for up to $ 30 billion after the Trump administration tried to force a sale over security concerns with the Chinese company. Microsoft eventually pulled out of the business and Oracle and Walmart made a joint offer to take control of TikTok’s US business. (That deal is currently pending as 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 failed.

Here’s what you need to know:

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

To date, Discord has raised approximately $ 479 million in funding, according to CrunchBase. According to TechCrunch, the company was last worth $ 7 billion in private.

Discord is popular with gamers, which of course fits Microsoft’s Xbox business. Discord’s main user base is made up of video game players who turn to the app to chat about games they are playing, either in real time or in posts on message boards.

That fits well with Microsoft’s Xbox business, which is shifting into a future beyond video game consoles. Microsoft is also building an online gaming service that will allow you to stream Xbox games to almost any Internet-connected device, which could one day eliminate the need for expensive gaming hardware. (Think of it as Netflix for video games.)

Beyond gambling, many Discord users create chat rooms for other topics like day trading, investing, or just meeting friends. It’s a popular destination for people who want to have private group chats on a topic. For example, the Wall Street Bets community reached out to Discord during the GameStop madness earlier this year.

Like many other social networks, the company has had issues with abuse and problematic users. The app became a popular right-wing destination a few years ago and was used in 2017 to organize the Unite The Right rally in Charlottesville, Virginia, in which one person died. Discord eventually banned these groups from the app.

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

Microsoft is one of the few companies that can afford Discord and avoid antitrust scrutiny. With a price tag of $ 10 billion, there aren’t too many gaming or social media companies out there that can afford to buy Discord. Sony can’t. Even Nintendo, EA or Epic Games cannot. And the other companies that can afford Discord probably don’t want to get close because of the government dynamics behind antitrust measures against big tech. Facebook, for example, is currently facing two antitrust lawsuits that mainly focus on the acquisition of Instagram and WhatsApp.

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

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