Discord Business Model
Nov
The Discord Business Model provides a platform for users to communicate via text, voice, and video, catering to various communities and interests. Founded in 2015, Discord started as a chat platform for gamers and has now expanded to serve a diverse range of communities, including education, entertainment, and professional networking.
Users on Discord can join servers in virtual spaces dedicated to specific topics or interests. Users can engage in text chats, voice calls, and video conferences with other members of these servers. Discord also offers features such as screen sharing and file sharing, enhancing the collaborative experience for its users.
To generate revenue, Discord utilizes a freemium business model. The platform is free, but users can opt for a paid subscription called Discord Nitro, which offers additional perks such as higher-quality audio and video, custom emojis, and server boosts to enhance their server’s visibility. In addition, Discord also earns revenue through advertisements, server boosts, and merchandise sales.
The strengths of the Discord business model lie in its user-friendly interface, versatile communication features, and ability to foster communities with shared interests. However, the platform faces challenges like content moderation and ensuring user safety in larger communities.Traditional messaging platforms like Skype and Slack and emerging competitors like Clubhouse and Telegram compete. Let’s examine the platform’s history, how the Discord business model makes money, and its strengths, weaknesses, opportunities, and competitors.
Contents
A brief history of Discord
Discord was the brainchild of Jason Citron and Stanislav Vishnevskiy, two seasoned online gaming veterans. Citron founded OpenFeint in 2009, a software development kit available on iOS and Android mobile devices that allows players to integrate social networking features into the functionality of various games. Vishnevskiy, on the other hand, founded Guildwork, a social networking service with web hosting capabilities.
Citron developed the idea for Discord while developing his next project after OpenFeint, which he sold in 2011 for $104 million. Using these proceeds, he founded a game development studio named Hammer & Chisel. During the development of various projects under the company, Citron noticed specific areas for improvement in the current VoIP services offered to players.
This led them to develop a pilot service, a chat service focused on creating player-centric features like usability while still maintaining overall functionality. This service was publicly launched in May 2015 and was called Discord because it sounded “cool” and had “something to do with talking.” However, the name was quite fitting, since the platform was designed to solve the “discrimination problem in the gaming community.”
Despite its founders’ backgrounds and the problems they sought to solve, the company was initially not touted as a service designed specifically for the gaming community. According to Citron, the association between the platform and the online gaming community developed when a subgroup of gamers on Reddit started using the platform as a chat forum.
This was further reinforced by the fact that they also developed a significant relationship with users of Twitch’s video game live-streaming service. This led to the platform’s increased popularity among the community and its reputation as a “gamer” social network, with the service being used extensively during online gaming tournaments.
As the company grew, it opened its door to funding from outside investors, including an early $20 million investment by Warner Media. Subsequent funding for the company came through a series of funding rounds in April 2018, attracting significant investment from well-known venture capitalists such as Tencent, Spark Capital, IVP, Index Ventures, and Benchmark.
This initial funding round raised $50 million and cemented Discord’s position as a burgeoning tech company within the community.
Other significant funding rounds raised $150 million, $100 million, $3.3 million, $500 million, and $10.9 million. These involved popular companies inside and outside the online gaming community, such as Sony Interactive Entertainment, Greenoaks Capital, Technology Opportunity Partners, the Dragoneer Investment Group, etc. The total funding raised by the company was nearly $1 billion.
Aside from the solid financial investment the company enjoyed, it also developed strategic partnerships to bolster its role within the industry. Some of these include:
- A partnership with Microsoft that allowed players to link their Discord and Xbox Live accounts, allowing them to communicate with their Xbox Live friends through Discord;
- The company partnered with YouTube to create a “Watch Together” feature, which enables different Discord users to view YouTube videos together;
- A partnership with Spotify allows friends to share their Spotify playlists and listen to music together.
They also acquired several companies, such as Sentrop Technologies (a machine learning-powered tool that helps moderate online communities to avoid hate speech and harassment), Ubiquity6 (a San Francisco-based company heavily involved in augmented virtual reality technology, especially within the world of online gaming), and Blitz App (an AI-powered personal gaming system designed and built by professional gamers).
The platforms saw steady growth over the years, but saw a sharp rise in valuation and the number of users due to several advantageous factors. First, their strategic partnerships and acquisitions had put them in a favorable position within the market.
Also, the platform saw an influx of new users in 2020 due to the onset of the COVID-19 pandemic and a mass exodus of users from several other social media platforms, like Facebook, over concerns about privacy and user data mismanagement.After this rapid rise in users, the platform concentrated on moving away from its image as a gamer social media platform and embracing more communities such as hobbyists, business communities, content creators, etc. This was estimated to have grown the number of daily active users on the Discord platform to over 20 million unique visitors in 2020.
Who Owns Discord
Co-founder and CEO Jason Citron currently owns the Discord company.
Discord Mission Statement
According to the platform, “Discord is about giving people the power to create space to find belonging in their lives. We want to make it easier for you to talk regularly with the people you care about. We want you to build genuine relationships with your friends and communities close to home or around the world. Original, reliable, playful, and relatable. These are the values that connect our users and our employees at Discord”.
How Discord works
As mentioned earlier, Discord is a social media platform designed to support communities that can communicate through VoIP services, chat rooms, video calls, and other exclusive content. These systems are available on Android, iOS, and PC devices, as well as major gaming consoles and platforms such as Xbox and PlayStation.
Though Discord offers some paid features, the primary platform is free. To understand the platform, we must examine some of its key features and its infrastructure, hierarchy, and terminologies.
- Server: The definition of the word server on the Discord platform differs from its usual meaning in computing. Servers on Discord do not refer to any physical or online resource, but rather a community within the platform where users can communicate via text or voice options known as channels.
Servers may range from small invitation-only chat rooms consisting of a few friends and a single text channel to large public spaces with thousands of members supporting many voice, text, and video channels. Access to a private server is usually shared by sending an invitation link unique to that particular server. Still, anyone can simply join a public server by clicking the link.
- Channel: Due to a Discord server’s potential size and versatility, the platform is organized into various dedicated communication media known as channels. A channel could be a text channel, a video call, or a VoIP channel.
On the Discord platform, a channel is a dedicated medium within a server through which players can communicate one-on-one or with all server members on specific topics.
For example, a Discord server about cryptocurrency may have separate text channels dedicated to popular crypto projects like Bitcoin, Ethereum, Solana, and so on, as well as a VoIP channel where members discuss the latest news in cryptocurrency and blockchain technology. So, a collection of channels makes up a Discord server.
Typically, a single user can join 100 servers, and the server can hold up to 500,000 members. In its original form, the platform served as a means for online gaming enthusiasts to communicate while gaming and when they wished to discuss the latest events within the world of online gaming. Diverse text channels can be organized into categories and have robust messaging systems, which make them ideal for live communication.
Also, the VoIP services offered by the Discord platform are miles ahead of those provided by any other system. While the platform also offers video chat services, instead of competing with well-entrenched players within the industry like Twitch, it has partnered with the platform to encourage Twitch players to communicate through Discord servers even while live-streaming.
How Discord makes money
Now that we’ve explored the platform’s history and functionality, let’s examine its finances and how Discord generates revenue.
The platform operates on a freemium business model, where Discord is free to use, but users can opt for a Discord Nitro subscription for additional features. The company also generates revenue through ads, server boosts, and merchandise sales.
Premium Model Subscription Fees
While the core features of the Discord platform are offered to users for free, a premium model allows members to take advantage of additional functionality and greater server efficiency for a subscription fee. The subscriptions are based on each price-tier system, with users paying $2.99 monthly for Discord Nitro Basic and $9.99 monthly for Discord Nitro.
Some advantages of the premium model include faster upload times, a larger upload limit, HD video chat options, and greater avatar and emoji customization. These benefits are encompassed in packages known on the platform as “server boosts.”
Advertising
Discord offers targeted advertising options, allowing brands to reach its highly engaged niche audience of gamers, streamers, and community members. Through non-intrusive ads, branded content, and influencer campaigns, Discord attracts high-paying brand partnerships, contributing significantly to its overall revenue.
Discord Merchandise Store
The company also operates an e-commerce platform that sells various merchandise, including clothing, gaming goods, collectibles, keyboards, and other accessories.
Funds and Investments
A significant amount of the company’s income came from various rounds of funding, the last of which raised $995.4 million and was later held in March 2022.
Is Discord Profitable?
The company boasts 560 million registered members and over 200 million active users. It was valued at $15 billion in 2021 and posted annual revenue of $445 million in 2022. It recently reached an estimated revenue of $575 million in 2023, continuing its strong growth trend.
Discord Business Model Canvas
By analyzing its business model canvas, let’s examine the key components of the Discord business model.
Discord Customer Segments
Discord customer segments consist of:
- Online gamers
- Hobbyists
- Content creators
- Gen Z (since 42% of Discord users are between the ages of 25 to 34 years)
- Tech-savvy individuals
Discord Value Propositions
Discord value propositions consist of:
- Providing a platform where individuals with similar hobbies and interests can interact using the best available online communication technologies and services.
Discord Channels
Discord channels consist of:
- Discord app
- Website
- Customer service
- Social media platforms
- Marketing campaigns
- Google Play Store
- iOS App Store
Discord Customer Relationships
Discord customer relationships consist of:
- Self-service
- Social media marketing
- Content marketing
- Dedicated personal assistance
- Customer feedback solicitation
Discord Revenue Streams
Discord’s revenue streams consist of:
- Premium Model Subscription Fees
- Advertising
- Discord Merchandise Store
- Funds and Investments
Discord Key Resources
Discord’s key resources consist of:
- Innovative platform with extensive functionality
- Large market share
- A strong community of dedicated members
Discord Key Activities
Discord’s key activities consist of:
- Software development
- Research and Development
- Marketing and advertising
- Content moderation
- Human resource management
- Customer services
- Server maintenance
Discord Key Partners
Discord’s key partners consist of:
- Sony Interactive Entertainment
- Samsung Electronics
- Chipotle Mexican Grill
- Qualtrics
- Zendex
- Xbox
- Microsoft
- Spotify
Discord Cost Structure
Discord’s cost structure consists of:
- Server and website maintenance costs
- Operating expenses (such as facility maintenance, employee wages, legal fees, IT, etc.)
- Research and Development
- Marketing and advertising costs
Discord Competitors
Let’s look at some of the top competitors on the Discord platform.
- Slack: Slack is an instant messaging service operated by Slack Technologies. The platform allows members to communicate through text messaging, voice calls, and video calls and exchange media and files. These conversations can occur in communities (referred to on the platform as workspaces) or within exclusive chats. The system was designed primarily to facilitate communications between professional organizations but has also found widespread popularity in many other communities. Currently, the platform has over 35 million active users and is used by over 65% of Fortune 100 companies;
- Skype: Skype is a household name in telecommunications. The platform is owned by Skype Technologies, a division of Microsoft, and is a leader in teleconferencing, voice calls, and videotelephony. It caters to a variety of customers, including desktop, mobile device, and video game console users. The platform was kicked off in 2003 by a diverse team of entrepreneurs and was purchased by eBay in 2005 for $2.6 billion, before being subsequently taken over by Microsoft in 2011 after paying eBay $8.5 billion. The platform initially struggled to gain traction, but saw a massive increase in usage during the 2020 COVID-19 pandemic. The platform is used by an estimated 40 million people a year, making it incredibly popular;
- TeamSpeak: TeamSpeak Systems is a voice-over-Internet protocol server that allows users to communicate through a chat channel, similar to teleconferencing. It was founded in 2001 by TeamSpeak Systems GmbH and is currently running on the 3.6.2 version, released on September 21, 2023. The software is compatible with macOS, iOS, Linux, Microsoft Windows, Android, and FreeBSD. The service is targeted primarily at the online gaming community and serves as a channel through which team players can communicate during play. The platform has a small but loyal following that is mainly interested in the privacy, security, and better voice quality that TeamSpeak offers;
- Microsoft Teams: Microsoft Teams is a popular alternative to the Discord platform and offers a proprietary communication service as part of the giant Microsoft 365 suite of tools. Your office provides users with text messaging, videoconferencing, file sharing, and media storage services. Though the platform is technically a sister to Skype Microsoft Classrooms (both technically owned by the Microsoft Corporation), it focuses more on offering its services to businesses and other professional bodies. It is designed to allow users to be arranged into Teams, within which the various members can communicate via Team Channels.
Discord SWOT Analysis
Let’s now examine a detailed SWOT analysis of Discord’s business model.
Discord Strengths
- Significant Investor Support: Strong financial support from investors during various rounds of funding;
- Large Market Share: Popularity and a more outstanding market share made up of loyal users;
- Innovative Platform: Innovative technology with a beautiful, easy-to-use interface, abundant social features, and strong developers;
- Key Partnerships: Strategic formal and informal partnerships within the business world;
- Convenience: Utility and interconnectivity with several other platforms. For example, Twitch, Xbox, Steam, and Spotify integration;
- Freemium Model: The free basic package offers respectable features and functionality, which is adequate for most users.
Discord Weaknesses
- Unfavorable Privacy Policies: Some users have complaints about the privacy policy of the Discord platform, with worries over how the data is being stored and utilized without explicit consent. To allay these fears, the platform has claimed that it does not monetize user data. However, it has admitted to investigating private user chats and even providing these chats to law enforcement;
- Poor VoIP Services in the Free Package: Some users have questioned the quality of the voice-over-Internet Protocol services offered by the Discord platform. Even though the service offers high-quality calls, these are usually only available in the paid versions;
- Persistent Association with Online Gaming: despite the best efforts to expand beyond the online gaming community, the platform is still heavily associated with that industry.
Discord Opportunities
- Entry into Other Markets: Discord has invested significant resources in escaping its position as a communication platform for online gamers. However, they have not fully managed to tap into the broader market share, which includes a significantly larger number of potential communities and customers;
- Improved Security and Data Privacy: Security and privacy updates would go a long way in enhancing the attractiveness of the platform;
- Improving the Basic Package Features: Upgrading some features on the basic plan would make the software much more attractive to users.
Discord Threats
- Competitors: The Discord platform faces significant competition from other key industry players. Failure to continuously innovate as well as maintain and increase its share of the market may eventually lead to its failure;
- Poor Privacy and Security Policies: Failure to update its privacy and security policies to meet the current preferences of users may pose a significant threat to the future of the Discord platform;
- Issues with Online Fraud and Harassment: Even though the platform prioritizes security, the danger of online scammers and spamming threats cannot be eradicated from the platform.
Conclusion
Discord is a force that can be reckoned with in online communication. Despite its beginnings as a social media platform exclusively for online gaming enthusiasts, it has significantly developed into a place where many people with different interests can communicate easily within varied communities.
The service is one to watch in the coming years, and it is well on its way to becoming one of the most influential tech companies of the last decade. With its constant drive to innovate and the numerous projects it rolls out regularly, it is almost certain that the platform will grow past its shortcomings and competitors to become an industry leader.
