Discord/Microsoft: gamer chat app deal is all talk

Microsoft’s attempted social media land grabs are proving as regular as they are unsuccessful. After TikTok and Pinterest came Discord, a chat app used by gamers while blasting each other to pieces in video games. None has yet produced a deal.

Discord, a private San Francisco communication software company, launched in 2015. It has more than 100m monthly active users communicating via text, audio and video. Though popular, Discord has struggled to extract much revenue from users. Its subscription service Nitro, which costs between $4.99 and $9.99 a month and offers custom emojis and increased file-size limits, is responsible for most sales. Those were estimated at $130m last year, suggesting that out of millions of Discord users, less than 2 per cent choose to pay for extra services. 

Yet for Microsoft, the acquisition would have made more sense than its doomed attempt to buy social media app TikTok. Discord is already integrated with Microsoft’s Xbox Live, and its premium service — even if small — could have been added to Xbox’s own subscription service. Discord’s suggested $10bn to $12bn price tag equals to perhaps a tenth of Microsoft’s cash, cash equivalents and short-term investments.

Discord might also be a better fit with Microsoft’s LinkedIn, the nerdiest social media platform. Discord wants to expand to schools and business, though it trails far behind software leaders such as Teams and Slack. Microsoft could have helped it to secure more corporate clients, which might have improved sales.

For Discord, however, the lure of independence is obvious. An investor appetite for large listings remains and the experience of LinkedIn provides a cautionary tale. Microsoft paid a near 50 per cent premium to best rivals such as Facebook when acquiring the networking platform five years ago. Since then, user numbers have increased about 70 per cent to 740m. Compare that to Instagram, where user numbers have gone from 30m to more than 1bn under Facebook’s eight-year ownership. Microsoft’s hands-off approach does not mean that it is an effective social media custodian. 

If you are a subscriber and would like to receive alerts when Lex articles are published, just click the button “Add to myFT”, which appears at the top of this page above the headline.