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Discord is a company that has undergone many periods of change, from game developer to chat tool to communications and social media platform. Now, as the company potentially finds itself on the cusp of another evolution, we shine a light on the business, unpack its recent highs and lows, and attempt to forecast its path forward.

Originally conceived in 2012 as Hammer & Chisel, the company developed and launched a mobile-based MOBA called Fates Forever in 2014. It flopped, but the team had observed during the game’s development how difficult it was to communicate using voice over IP (VoIP) while playing competitive games. It pivoted to solve the problem, and the newly renamed Discord debuted in spring 2015. It would go on to build the number one platform for gamers to communicate while playing.

Discord has now transcended its gaming origins to become a versatile tool utilized by communities, businesses, and individuals worldwide.This new phase has seen the company grow rapidly, positioning it as one of just a few private companies in the games industry capable of testing public market interest.

Discord is one of few major communications and social media platforms to remain independent. After rebuffing an acquisition offer of “at least $10B” from Microsoft in early 2021, Discord was widely believed to be gearing up for a public offering. The company hired its first CFO (Tomasz Marcinkowski, formerly of Pinterest) around the same time and had already begun to expand its offerings to communities beyond gaming, undergoing a major rebrand "to make sure everyone can take part in the fun.”

Just a few months later, Discord would announce a fresh round of funding to the tune of $500M, raised at a $15B valuation. The Series I(!) capital injection, led by Dragoneer Investment Group, more than doubled Discord’s previous valuation ($7.3B) from less than a year prior.

Since then, Discord has been dragged into the public spotlight via association with a number of unfortunate controversies. It has become a platform of choice for intelligence leaks, hate groups, and child predators. The Washington Post has called it “a home for extremists” and CEO Jason Citron was among a handful of social media executives called before Congress to discuss child safety. Our friend Joost van Dreunen recently provided a closer look at the substance of said hearing (or lack thereof) in a recent newsletter.

The company’s stance on privacy finds it straddling two worlds. On the one hand, Discord’s chats cannot be end-to-end encrypted (unlike competitors such as Signal or Telegram). This enables the company to (in theory) turn over data to law enforcement agencies as needed, and allows it to selectively monitor servers under certain circumstances.

In practice, however, Discord has been fairly hands off. The company has historically sought to prioritize user privacy, preferring to leave moderation and chat monitoring to individual server operators. While the company has made attempts to provide services such as a Moderator Academy in the past, these have since been shuttered. 

These concerns are worth highlighting given the company’s increasingly prominent role both within and beyond the world of gaming. Of course, the topics of free speech, online toxicity, and community moderation are always going to be ongoing concerns for any modern communications platform. However, these issues will inevitably come under further scrutiny as the company progresses towards an eventual public offering. It will need to reassure investors and users alike that safety is indeed a priority, particularly given the relative youth of Discord’s audience – over 60% of its users are between the ages of 13 and 24.

Perhaps of greater importance to investors, though, is Discord’s business model. Unlike other social media platforms, Discord has avoided selling advertising, opting instead to monetize via subscriptions like Discord Nitro, server boosts, and most recently, cosmetics. These revenue streams together brought in “over $600M on an annualized basis,” according to a recent Bloomberg article. Most sources I encountered while researching this piece agreed that the majority of this revenue derives from sales of Discord’s Nitro subscription, though I’ve not seen data on the exact breakdown as compared to the company’s other offerings.

According to The Verge, the company is not in “dire financial straits, though it has yet to become profitable.” This is not necessarily a red flag, per se, as the company may be eschewing profitability in order to plow revenues back into marketing, product development, and the like. Nor has a lack of profitability prevented similar companies from going public in recent years: relevant examples here include Slack, Snap, and Pinterest. That said, the company did lay off 17% of its staff (170 people) in January of this year, with Citron citing a need to “sharpen our focus and improve the way we work together to bring more agility to our organization.”

The choice of business model is worth monitoring, however, simply because it is so unusual for companies in this category to not rely on ad sales. To the company’s credit, pursuing monetization via subscriptions and cosmetics is much closer to its gaming roots than advertising. Indeed, Discord has even come full circle by launching its own social games on the platform, including Poker, Checkers, Gartic Phone, and other simple ‘Activities’.

Looking to the future, one can see how Discord might see itself as more like a full-fledged social gaming platform. Though the initial cohort of games is largely unremarkable, Discord has been able to attract at least one external developer thus far (Portugal-based FRVR and its 3D FPS, Krunker) and, at time of writing, Discord is hiring for a Studio Games PM with “proven results in F2P game monetization.” Beyond ‘Activities’, studios such as Infinite Canvas have also offered games as direct server integrations.

With more than 200M monthly active users, Discord certainly presents itself as an attractive, if novel, distribution channel for game developers: either as a home for Discord ‘Activities’-type games, a foundation for experiences tailored to individual Discord servers, or some other unexplored hybrid social gaming opportunity. If the company can build up a stable of quality games and experiences, it may even start to rethink its stance on advertising. On the other hand, this wouldn’t be the company’s first foray into games either, having shut down its prior attempt in 2019.

Yet Discord has made clear its intent to expand beyond gaming audiences. That holds true for its broader platform ambitions, too. The company is positioning itself as an enticing place to launch new consumer products, pointing to recent successes like Midjourney as examples of non-gaming products able to bootstrap an audience on the back of Discord’s sizable user base. Midjourney remains Discord’s largest server to date with more than 19M members. By taking a platform fee on premium server subscriptions, Discord is able to scale revenue alongside its largest customers. 

Interestingly, the next most popular servers after Midjourney are also AI tools: LimeWire (yes, the former P2P file sharing network of your childhood) and Leonardi.ai.

In order for Discord to truly break into new territory, it will need to attract more businesses to its platform. Perhaps these will continue to come from the rapidly growing field of AI tools. The company could always revisit its brief foray with web3 now that the market seems to be picking up momentum once again. And maybe the music industry will start to take notice and follow the lead of popular servers like LoFi Girl, BLACKPINK, and Playboi Carti? These are all just informed guesses, but with the broader games industry experiencing a slowdown in growth, Discord’s goal to “create space for everyone to find belonging” is more prescient than ever.

If the company truly intends to go public, as its CEO seems to be indicating, Discord will need to look beyond gaming audiences to find meaningful growth opportunities. However, the openness of the company’s current customer base to exploring potential new social gaming use cases may prove to be of equal importance in unlocking additional value for the company. Ultimately, the executive team’s ability to deftly navigate both paths will be the arbiter for success as Discord enters its next phase.

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