Analysis: Is Microsoft sowing Discord to its books to level up gaming ambitions?

In September 2020, Microsoft shocked the gaming industry with a US$7.5 billion acquisition of video game holding company ZeniMax Media, which is the parent company of video game publisher Bethesda Softworks, which owns eight game development studios. Microsoft planned to bring the creators of popular gaming franchises, including The Elder Scrolls and Fallout, into its Xbox family. Now, less than a year after the acquisition, Microsoft seems to be planning its next move. Citing its sources, Bloomberg recently reported that Microsoft is currently in talks with chat platform Discord, which is well-known in the gaming community, of a possible acquisition. According to the report, the acquisition is valued at over US$10 billion and Discord made the initial contact with Microsoft to gauge its interest.  

The acquisition of Discord could be Microsoft's ticket into penetrating the gaming community. Although the software giant already has multiple chat platforms such as Skype and Teams under its belt, Discord brings to the table its strong connection with gamers around the world.

In a conversation with MARKETING-INTERACTIVE, Jelle Kooistra, Newzoo’s head of data foundation, said Discord is a central hub for gaming enthusiasts to connect on. Its communities focus on friends, as a simple way to chat and set up voice chat while playing any sort of game or on shared interests, such as a particular video game or TV show.

Kooistra added that while Skype and Teams are part of Microsoft productivity’s suite and focus on communication in and between businesses, Discord brings to the table "an untethered focus" on the gaming community. The platforms are used differently as well. While Skype and Teams are used for interviews and company meetings, Discord is primarily used to hang out virtually with friends. Teams is used during working hours and Skype is used sporadically. Meanwhile, Discord is on whenever people are gaming with their friends and for some, even constantly on in the background, Kooistra explained. 

In addition to the gaming community, the acquisition could also pull Microsoft closer to a younger audience, which Kooistra say is "always an interesting audience to keep close for tech firms". Just last August, Microsoft also expressed interest in buying over some of TikTok operations, which would result in Microsoft owning and operating TikTok in the US, Canada, Australia, and New Zealand. This move, Kooistra said, might have been part of Microsoft efforts to reach to younger audiences as well, given that TikTok has much less of a direct link to Microsoft’s core business. 

(Read also: Analysis: Are the synergies in place for a successful Microsoft-TikTok deal?)

Sharing similar sentiment, Piers Harding-Rolls, head of games research, research director, Ampere Analysis said a Discord acquisition would bring "a valuable audience (PC gamers) to the company", especially since Microsoft "has struggled to establish a significant foothold in the PC gaming market". Furthermore, Microsoft's move could be a defensive one as well, Harding-Rolls said. By acquiring Discord, Microsoft is not only removing Discord as a competitive threat, it is also stopping other competitors from buying over the chat platform. 

Harding-Rolls added that buying over Discord would align strongly with Microsoft’s increasingly platform-agnostic Game Pass offering, which allows gamers to access Microsoft games cross-platform. "I consider Discord a useful building block that would potentially help Microsoft reach and service a broader audience of gamers beyond its traditional console roots," he said. 

Breaking out of the (console) box

On the same thread about Game Pass, Newzoo's Kooistra said has also pivoted to focusing on software and services especially in the gaming space. "Microsoft doesn’t really care if you buy an Xbox device anymore. All they want is for you to subscribe to their gaming subscription - Game Pass - which is playable everywhere. It does not matter which titles you play, which devices you play them on, or who you play them with as long as you subscribe to Microsoft’s service," he said.

This shift is also evident in Microsoft's financial report for the year 2020, where it said it will be transforming how games are distributed, played, and viewed. It will also bring cloud gaming to Game Pass, so subscribers can stream games to a phone or tablet and play along with nearly 100 million Xbox Live players. At the time of the report, Microsoft's Game Pass service has more than 15 million subscribers, the company added. 

Discord also has an existing subscription service, Nitro, that offers better chat enhancements within its gaming ecosystem, such as bigger upload size and high-definition video support. Rolling this service into Microsoft's Game Pass would make both Discord's Nitro and Game Pass much more worthwhile to a broad range of gamers and is "the perfect starting position" to play a new game with their friends, Kooistra said.

Meanwhile, Microsoft has also been ramping up its gaming ecosystem with various partnerships in recent months, such as providing a month’s free access to Disney+ for subscribers and folding its Game Pass offering into Electronic Arts (EA) subscription, EA Play. 

"Microsoft is becoming more similar to Netflix, where it needs to make sure its service has a ton of value to subscribers. As it further increases its overall pool of subscribers, Microsoft can invest more into deals with publishers, acquire new developers, and find creative new perks to include and attract even more subscribers," Kooistra said. He added that acquiring Discord would mean Microsoft can make its value proposition even stronger and easily show off this value to a broad gaming audience.

With Microsoft's move into cross-platform gaming, the acquisition of Discord would make "complete strategic sense", according to David Webster, advisor to the board of gaming and esports consultancy, yup.gg, and CEO and co-founder of virtual events company The Carrot Collective. As Xbox’s strategy further evolves away from just console sales towards cloud gaming and gaming-as-a-service, access to large gaming communities to drive subscriptions will be key to its success, Webster said. Buying over Discord would allow it to gain that access, and based on this, Webster added the US$10 billion price tagged to the acquisition may not seem that expensive.

Although the potential acquisition may elevate Microsoft's gaming ecosystem, Webster noted that the potential acquisition does come with risks.

Discord is a fiercely independent and vocal community. Microsoft allowing it to continue in that spirit will be key to its future success and growth. Trying to embed it too deeply in the Microsoft ecosystem will result in Discord users quickly finding another home.

Nonetheless, Webster said one thing that is evident from this potential Discord acquisition is Microsoft's continued support and belief in gaming and gaming audiences as a strategic pillar to the company in the future.

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