Could Discord get bought?
That’s the question humming through corners of Silicon Valley in recent months as several giant tech companies have kicked the tires on the hot gaming chat company that investors valued earlier this year at $1.6 billion.
Recode is not aware of any formal offers for a complete buyout of Discord. But several acquirers have expressed interest in buying the company in recent months if the CEO, Jason Citron, can be convinced the price is right, people with knowledge of the situation said. Discord has hired Qatalyst Partners, the boutique investment bank known for selling tech companies, to help manage conversations, according to sources. Qatalyst declined to comment.
It’s very possible that Citron ends up raising more money instead. If Discord isn’t sold, it’s likely to close on a new round of funding in short order, these sources say.
Discord is a tantalizing asset for any number of the strategic players who envision at least some future in gaming — and most of the global heavyweights do. But like every acquisition, the question is how much the asset, Discord, is truly worth.
Acquirers have floated early figures, sources say, but you’d think Discord would only entertain sale conversations for somewhere in the $3 billion to $5 billion range given that it raised at the $1.6 billion valuation just in April. But although the startup has more than 150 million registered users, it is still very new to making money — Discord doesn’t sell ads, and makes minimal revenue through its merchandise store and subscription offerings. The company just last month launched its game store that could bolster its revenue picture.
Another potential holdup: At this fraught political moment for Big Tech, buying an asset like Discord could suddenly put the owner’s brand in jeopardy. Discord has been used by the kind of alt-right internet groups most platforms are trying to banish. Discord, too, is working to remove these groups, but is having some difficulty.
Still, it’s easy to understand why Discord has drawn interest. It’s at a similar inflection point we’ve seen with social platforms before. It has a sizable user base, but little to no revenue —a stage where consumer companies often get serious interest from would-be acquirers. Some of them sell — like Instagram, Twitch and WhatsApp. Some of them don’t — like Snapchat. All of them, though, entertain acquisition offers.
Citron, though, has something of a bad taste in his mouth from the last time he sold a startup: He sold his mobile gaming startup OpenFeint for more than $100 million back in 2011, and the acquisition didn’t go quite as well as he’d planned.
“The bittersweet part was that I really thought I was gonna get to go on and continue building the product within the context of a larger company,” he said on Recode Decode earlier this year. “That ultimately didn’t end up happening,”
Did that experience change how he thinks about Discord?
“Well, if we can build an independent business, I’d love to,” he said.
Discord declined to comment on any sale talks. But that won’t stop us from speculating: Who could buy Discord?
Facebook might make the most sense and the least sense of everyone on this list. The most sense because Facebook is the big tech company for communication and messaging, which is what Discord does. Plus Facebook has a strong interest in gaming and the reputation for going out and spending big on companies that can help expand its social networking mote.
The biggest knock on the Facebook idea is that it feels unlikely that the government will let the social giant buy up another communications service. One person who has spoken with Facebook in the past said the company is concerned about anti-trust regulators if it were to purchase Discord. People are already calling for Facebook to be broken up. Adding another messaging platform to the mix — Facebook already owns Messenger, Instagram and WhatsApp — might be tough to get past regulators.
“Well, certainly as you get bigger, there’s more scrutiny of acquisitions, and there should be. So, we’ll see,” said Facebook chief operating officer Sheryl Sandberg when asked at the Code Conference about future deals. “It really depends what it is. If it was in something that wasn’t core to what we were doing in a new area, like Oculus was, I think it would probably be allowed.”
Amazon is another obvious potential buyer here, mostly because it also owns Twitch, which is a giant video platform primarily used by gamers. The idea that Amazon could own a popular streaming platform, plus a popular communication platform for gamers with tens of millions of users who probably watch those streams, makes it an interesting buy. Plus, of course, Amazon has enough money to do whatever it wants, so there are obviously no concerns there.
Tencent might also be a logical buyer if it wasn’t for one person: President Donald Trump.
The U.S. tech sector is nervous (and a little befuddled) by how the Trump administration is reviewing attempted acquisitions of American tech companies, such as Broadcom’s blocked takeover attempt of Qualcomm, through the body known as CFIUS. Those concerns are especially valid if it’s a Chinese conglomerate like Tencent, given the heated rhetoric between Trump and China.
But Tencent operates a huge gaming division and has bought previous platforms like Riot Games and Supercell. Riot Games could be a particularly apt parallel here: Tencent was first an investor in Riot, and Tencent has also invested in several of Discord’s financing rounds dating back to 2014.
Microsoft could be the dark horse here: CEO Satya Nadella has shown a flair for the dramatic big-money buy: think of the $7.5 billion acquisition of GitHub this summer, or the $27 billion buyout of LinkedIn in 2016.
Nadella also cares a ton about gaming — he has named video games as one of the most important areas at the company and made the head of Microsoft’s gaming division one of his direct reports. One downside could be that Microsoft already has its own gaming business and its own console, Xbox.
Activision owns a lot of popular games, like World of Warcraft and Call of Duty, and thus the rights and IP to those games. What it doesn’t own are the platforms that a lot of people use to watch and play those games. Activision makes some money through licensing deals with platforms, like Twitch, and has made some attempts to build a gaming and social platform in the past. (It also streams some gaming content, like esports, on Blizzard.com.)
But buying Discord would give Activision a built-in audience of gaming enthusiasts as well as their communication service of choice. If the company wanted to make another serious run at building out a real technology platform around their games, Discord could be a good first step.