Over 5 billion people are using the internet, and 76% of them participated in some kind of online community as of 2022. As more content, communication, and relationships move online, some people struggle to find a seamless way to interact with one another. Modern tools allow for communication over voice and text. However, these options can be limiting, especially during interactive social experiences like gaming. Some tools use too much processing power, resulting in worse game performance, while others simply impede gameplay by not being optimized for gaming, like Slack and Microsoft Teams. Most importantly, the majority of modern digital communication tools do not integrate well with other applications.

The rise of remote work led to a growing need for places for people to communicate and congregate online at work. In 2019, before the COVID-19 pandemic, Slack had an estimated 12 million users. As of 2023, it is estimated that Slack has ~54.1 million monthly active users, the majority of which collaborating for work. Meanwhile, Microsoft Teams had 300 million users as of 2023, up from a mere 20 million in 2019. This trend in work mirrors an increase in online activity overall; for example, in gaming. The total number of gamers worldwide in 2019 was estimated at 2.6 billion, a figure which has increased to 3.2 billion as of 2023.

Discord is an online communication platform used by both companies and gamers. Discord is built around the need to improve digital communication and enable users to create digital communities around their passions. Discord aims to help everyone from gamers to athletes to social media influencers find community by offering a “Community-as-a-Service” product.

Jason Citron (CEO) and Stanislav Vishnevskiy (CTO) founded Discord in 2015.

Citron began tinkering with personal computers even as a kid in the early 1980s. His first encounter with gaming was Super Mario Bros, which he described as "the most amazing thing I'd ever seen in my entire life." He then taught himself QBASIC at the age of 13 and created his first text-based RPG game with the help of a friend. As his father had been an entrepreneur, he realized at an early age that he could create a business by helping older people with their computer issues, and by 16 he had set up a side business writing code for websites.
Citron started a video game studio when he was 23 and launched a game on the iPhone App Store’s first day of business in 2008. While the game wasn’t commercially successful, Citron eventually pivoted the company into a social network for gamers called OpenFeint, a platform described by Citron as “essentially like Xbox Live for iPhones". In 2011, the Japanese gaming company Gree acquired OpenFeint for $104 million.

Citron used money from selling OpenFeint to start another game studio, Hammer & Chisel, in 2012. The studio built a game called Fates Forever, an online multiplayer game similar to League of Legends. It also added voice and text chat into the game, so players could talk to each other while they played. Fates Forever was another commercial flop, but the team pivoted to focus on building out their chat service designed for gamers. This chat service would later become Discord in 2018.

After some initial success in gaming subreddits, Discord quickly became widely used by Esports and LAN tournament gamers. The company grew quickly in the gaming community and benefited from relationships with Twitch streamers and subreddit communities for Diablo and World of WarCraft.

Discord is a free messaging service and voice chat app available on both desktop (Mac, Windows, and Linux) and mobile (Apple and Android). The product has been popularized by gamers as the go-to mode of communication for gaming. During the COVID-19 pandemic, more online communities began adopting Discord as the primary place to communicate. Gamers, investors, developers, content creators, and companies began using Discord to facilitate communication.

Source: Adafruit

Discord Application

Discord is a voice chat and instant messaging social platform available on PC, smartphones, and the web. Users can communicate with voice calls, video calls, text messaging, and files in private chats or as part of communities called “servers".

Each server has individual "Channels", which are a combination of text-based chat rooms and voice channels where people can use voice and video for communication. Voice channels can always be on, and users can drop in and drop out casually, meant to simulate hopping onto a couch with friends.

Discord allows users to:

• Stream lag-free games live to anyone on the server easily

• Watch multiple streams at once with individual volume sliders

• Bring bots into a channel that can, among many things, broadcast music to everyone

Discord began as a tool for gamers. Over time, it grew into a tool for communities of all kinds, including a diverse range of interest-based communities around topics like anime, technology, education, investing, and cryptocurrency.

Discord differs from other apps in its casual feel, among other things. Voice chatting in Discord isn’t like setting up a call as it doesn’t involve dialing or sharing a link, password, or anything formal. Every channel has a dedicated space for voice chat, and anyone who drops in is immediately connected and talking. Citron, the founder, and CEO of Discord, said he made Discord to:

Server Boosting

Server Boosting refers to users adding specific perks to a Discord server. All server boosts fall into three levels. Each level has all the perks of the previous level plus extra features. Level 1 server boost perks include over 50 emoji slots, 128 Kbps audio quality, a custom splash background, and an animated server icon. Level 2 server boost perks include 150 emoji slots, 256 Kbps audio quality, a server banner, and a 50MB upload limit for non-Nitro members (server only). Level 3 server boost perks include 250 emoji slots, 284 Kbps audio quality, a 100MB upload limit for non-Nitro members (server only), and a vanity URL.

Nitro & Nitro Classic

Discord has a paid subscription called Nitro. Users pay a fee in exchange for features like having multiple avatars, using custom emojis, using custom stickers, two server boosts, uploading bigger files (up to 100MB), and improving their video resolution. Nitro subscribers pay either $9.99 per month or $99.99 per year.

Discord also offers Nitro Classic which gives users all the basic chat perks of Nitro but without server boosts. Nitro Classic allows users to upload a GIF avatar, choose a custom discord tag, use custom emotes, increase their video quality to 1080p @ 30fps or 720p @ 60fps, and have a file upload cap of 50MB instead of 8MB.

Customer

Discord is estimated to have 390 million users in 2023, with 150 million monthly active users. Users are spread across 19 million weekly active servers spanning gaming, investing, politics, anime, and more. Discord originally only served the gamer community, with features like real-time voice chat for group gaming. By June 2020, this had changed, and Discord described itself as the “Slack for users’ social lives.”

Source: The Generalist

Market Size

In 2010, there were ~2 billion people on the internet and only 17% of them were engaged in online communities, amounting to 340 million online community members. Today, that number has grown to 5 billion people online, and over 76% of them are involved in an online community, amounting to over 3 billion total online community members. While the level of involvement in online communities has exploded, the penetration of tools like Discord still has a long way to go. Of those 3 billion community members, 1.8 billion of them use Facebook groups.

Within the world of game streaming and communication, the addressable market was estimated at ~$9.5 billion in 2021. On Discord, 70% of the MAUs are there for gaming. As Discord expands beyond the world of gaming, it is likely to increase its addressable market by attracting users like the 1 billion people who traded cryptocurrencies in 2022, or the many online communities with over 1 million users whose interests spread across reading, music, parenting, family history, food, and pop culture.

Globally the market for social networks is estimated to grow to over $900 billion by 2026. While Discord may not feel like a traditional social network, its focus on niche communities is a trend being felt across most major social networks. In the first generation of the internet, users wanted broad access to information. But that’s changing. Facebook’s user count declined for the first time in 2022. Now that most people are online, users are gravitating towards more niche communities where they can indulge their personal interests. Mark Zuckerberg acknowledged that shift in a recent Facebook developer conference:

Twitch: While primarily a live streaming platform owned by Amazon, Twitch has incorporated communication features, including chat and voice channels for streamers and their communities. Though less versatile than Discord regarding communication options, Twitch's large user base and deep integration within the gaming community make it a potential competitor. It was founded in 2007 and was bought by Amazon in 2014 for $970 million.

Steam Chat: Steam Chat, developed by video game developer and digital distribution company Valve, is another competitor in the communication landscape, particularly within the gaming community. Steam Chat offers integrated text, voice, and group chats within the Steam gaming platform. While Steam Chat provides a way for gamers to communicate with their friends and gaming communities, its focus is primarily within the Steam ecosystem. Valve launched Steam Chat in 2018 as a competitive offering to Discord.

Slack: Slack is a widely adopted collaboration and communication tool used primarily in professional settings. While it shares some similarities with Discord, such as chat channels and voice communication, Slack focuses on workplace productivity and team collaboration. Discord's primary focus is on community building and social interactions. It launched in 2013, went public in 2019, and was bought by Salesforce in 2020 for over $27 billion.

Telegram: Telegram is a globally accessible cross-platform, encrypted, instant messaging (IM) service. It offers group chats, voice calls, and file sharing. Both platforms compete for users seeking communication solutions outside of traditional social media. It was founded in 2013 and has raised $2.7 billion in total funding. Telegram had 500 million active users in 2021.

Discord operates using a freemium model. The company plans on keeping chat and messaging services free and is expected to expand its paid offerings. Discord generates revenue from three distinct sources: Nitro, game distribution, and server boosting.

Nitro & Nitro Classic

In 2017, Discord introduced its “Nitro” package. Nitro is a premium subscription package offered by Discord. Discord Nitro is $9.99 per month or $99.99 per year. The cheaper version, named Nitro Classic, costs $4.99 per month or $49.99 per year. Premium features include personalized profiles, custom emojis, larger file uploads, high-resolution video/audio, and discounted server boosting. Nitro comprises most of Discord’s revenue. In 2020, Forbes estimated that 1 million users were subscribed to Nitro.

Game Distribution

In 2018, Discord launched a game store to compete against Steam. The store was exclusive to Nitro subscribers, giving them access to titles like Dead Cells and Into The Breach. However, the store never gained traction and was phased out just a year after its launch.

Discord quickly pivoted into a new model, partnering with game developers with titles using its servers exclusively. Unlike traditional game distribution platforms, Discord offers game developers a unique opportunity to build a community while building their games. It allows them to sell directly to their communities during a game’s development.

Discord also offers a suite of commerce tools to help game developers sell their games through verified servers, and then take a 10% cut. That model is similar to how Shopify’s tools help online businesses. The game studios can track their community on servers with daily metrics, analytics, attribution tracking, and tools to run private alphas or betas directly through Discord.

Server Boosting

Server Boosting allows a community to increase the functionality and performance of their Discord Server. Servers can be boosted to three different levels and include extra perks. A server boost costs $4.99 per month. As stated above, Nitro subscribers will receive a 30 percent discount for the server boost.

Live voice chats became a pronounced trend in social media during 2020, and Discord was at the epicenter of this. Usage increased during the COVID-19 pandemic and the ensuing period, resulting in the company reaching over 150 million monthly active users in 2021, up from 56 million in 2019. As of January 2023, Discord was reported to have 560 million registered users in total. Its revenue grew from $115 million in 2019 to $428 million in 2022. As of June 2023, the company has not yet reported profits.

Discord raised a $500 million Series H at a $15 billion valuation led by Dragoneer Investment Group in September 2021. The company has raised $995.4 million in total funding as of June 2023 from firms like Index Ventures, Benchmark, and Tencent. Its $15 billion valuation in its Series H funding represents a 40x revenue multiple of its 2021 revenue, $373 million.

Source: The Generalist

Community Focus

In 2020, Discord pivoted from primarily focusing on gamers to focusing more on general communities, including anime, tech, education, investing, and cryptocurrency. By not just focusing on the gaming community, Discord targets a much larger market consisting of all potential online communities.

Marketplace for Bots

Discord has an opportunity to generate income through bots. More than 3 million “bots” have been built on Discord’s API. Chat servers use Discord bots to moderate, engage, and play games with their communities. Bots provide value to the users by saving them time and improving the user experience of their communities. Discord has the potential to generate income by charging for bot services and creating a more centralized bot marketplace for its users.

Microtransactions

Discord is already enabling microtransactions within servers for game publishing. There is a significant opportunity to increase that capability. For example, some communities run a VIP server, where users can pay a monthly fee for exclusive stock trading tips and advice. However, if everything runs through third-party integrations like PayPal, Twitch, and Patreon, Discord doesn’t get a cut of those transactions. Building integrations directly into Discord is a key opportunity for the platform to fully monetize the potential of microtransactions on the platform. Without those additional levers for user monetization Discord will continue to capture a fraction of the value that other social platforms do.

Source: The Generalist

Inability to Monetize Users

While Discord has a meaningful opportunity to increase its value capture by enabling microtransactions, the failure to do so also represents a significant risk. Discord has a relatively low monetization rate, and may continue to struggle in monetizing its users.

Content Moderation

Discord is used by many different people across its various communities. In any (and all) online community of that size, there will inevitably be some bad actors. Discord is often plagued with content moderation issues. In 2017, Discord created a Trust and Safety team which has since grown to ~15% of the company's headcount. In July 2021 it also acquired Sentropy, AI-powered software meant to identify online harassment and hate speech. Discord also announced the launch of AutoMod in June 2022, an automated content moderation tool for servers, to help combat inappropriate server activities. But content moderation only becomes a more complex problem with scale, as also experienced. If Discord cannot effectively deal with moderation issues, it may drive users away from the platform.

Source: The Generalist

Discord’s chat product has gained a significant following from the gaming community. The company has grown their user base significantly, and has a revenue model powered by a mix of subscriptions and commissions. Monetization is still in the early days, and Discord is one of the most under-monetized consumer-facing services per-user. To capture more value per user, Discord is exploring new monetization opportunities, testing new subscription models, and increasing exposure to microtransactions and payment infrastructure.