If you only have a couple of minutes to spare, here’s what investors, operators, and founders can learn about Discord.
- It’s hard to make a hit game. CEO Jason Citron tried to create a successful gaming studio twice. Both times he ended up expertly pivoting to gaming infrastructure plays. Discord is a product of one of those switch-ups.
- Bots give Discord defensibility. More than 3 million “bots” have been built on top of Discord’s API. Chat servers use these to moderate, engage, and play games with their community. This creates lock-in for users, and makes it hard for insurgents to unseat Discord.
- Average revenue per user (ARPU) is low. Discord makes just $1.30 per user. That trails far behind Facebook ($32.03), Snap ($10.10), and Pinterest ($4.07). While this suggests Discord has monetized weakly, it also reveals obvious room for improvement.
- Web3 is a big opportunity. We’ve spoken before about Discord’s prevalence in the crypto community. To ensure it maintains that position, the company should lean into web3, adding new functionality to transact, manage financial holdings, and govern.
Imagine a human website.
Imagine a place where dank memes flow like honey.
Imagine a place where potatoes thrive.
Imagine a place where humans and bots live in harmony.
Imagine, in other words, a place like Discord.
As part of its latest ad campaign, Discord asked users to describe the chat platform to someone who had never used it before. It’s a testament to the company’s customer love and broad usage that the results read like dispatches from an unknown and invisible realm; Lucy and Edmund trying to explain Narnia, Harry relaying the magic of the wizarding world, Neo stumbling through a depiction of the The Matrix.
Imagine a closet that opens onto a kingdom of talking animals.
Imagine running through a wall to find your new school.
Imagine a pill that melts reality.
The fact that these work just as well for Discord as the official entries tells us something subtly profound. Discord is not just a communication platform, it’s a hidden world.
While Mark Zuckerberg believes he is best placed to homestead the metaverse, he may be surprised to find a thriving, indigenous species has already taken hold: Discord. More than any other business, the company is truly “metaverse native,” unwittingly built for the future. First designed for gamers — the metaverse’s pioneers — time has allowed it to flourish on adjacent plots. Educational groups, investing communities, and avid fandoms rely on Discord’s service to commune and converse.
Of course, it has also become the platform of choice for the many new entities, from protocols to NFT projects to DAOs, building in the lustrous, inchoate world of web3.
Yet the fact that Discord is best described in such rich, intricate metaphor is also an indication that its identity has not settled. Unlike almost any other social business, Discord feels fluid, biotic, an organism that has yet to fully evolve. Though the company has succeeded in securing a $15 billion valuation and earns hundreds of millions in revenue, there’s the sense that its current manifestation is perhaps only halfway to its end state. For Discord to reach its obscene potential, CEO Jason Citron — no stranger to pivots — may have to embrace new technologies, consider different revenue streams, and lean into the novel paradigms of web3.
Discord has the chance to be the metaverse’s natural social infrastructure. That is a prize potentially so large that attempts to quantify it risk being off base by several orders of magnitude.
To build such a consequential business, Discord will need more than imagination. In today’s piece, we’ll be sliding into Discord’s DMs to unpack different facets of the company. That includes:
- The circular origin story. Discord’s lore involves more headfakes and false starts than almost any other business.
- A dizzying product. Discord can be hard to understand, especially for aged millennials like Packy and me. We do our best to dissect the chaos of Discord’s chat.
- A forking user base. Though it began as a tool for gamers, Discord is now widely used. We’ll talk about its primary constituencies.
- Slow monetization. While it has grown rapidly, Discord’s been conservative when it comes to extracting money from users.
- The web3 opportunity. Discord has become the platform-of-choice for web3 entities, but it doesn’t seem to have totally won over hearts and minds. The company needs to capitalize on its lead and protect its positioning. We have some ideas.
- The Great Online Game. How Discord has become the home for those learning, living, and winning on the internet.
Time to join the server and get started.
Jason Citron might be one of the great startup pivoters of all time. Not only is Discord a tale of accidental product market fit, it’s the second instance of that occurring in Citron’s entrepreneurial journey.
The story begins with Aurora Feint.
On July 10, 2008, Apple unveiled the App Store. In its first wave of 500 apps was an indie puzzler: Aurora Feint, the Beginning.
It was the creation of a 23 year old Jason Citron and an obscure incubator: YouWeb.
Founded by former Webvan CTO, Peter Relan, YouWeb began around the same time as Y Combinator but took a radically different tack, working with a small selection of entrepreneurs, and maintaining a slimmer cohort size. In a recent TechCrunch piece, Relan explained, “[W]e don’t have hundreds of companies. Over 15 years, we’ve incubated about 30 companies.”
YouWeb’s model in those days was an indication of the market. In exchange for 50% of the business, the incubator helped with ideation, marketing, and hiring. When Citron arrived as a fresh-faced college graduate, he knew he wanted to build something in gaming, but had no direction beyond that point. YouWeb paired him with entrepreneur-in-residence, Danielle Cassley, and gave him the support to launch Aurora.
It was a critical success. With a World of Warcraft aesthetic and mechanics borrowed from Tetris and Puzzle League, Aurora was considered one of the App Store’s most thoughtful debutants.
One reviewer called it “the most fun and addictive of the early iPhone games,” comparing it favorably to better-known hits like Super Monkey Ball. (Remember that one?)
But acclaim does not always translate into revenue. Though Aurora released a series of follow-ups over the succeeding months, it never broke out as a commercial venture. Citron cut pricing from $8 to $1 but it made little difference.
Despite that, a number of Aurora’s features seemed extremely promising, not least the social elements Citron had baked into his game. Chat rooms, profiles, asynchronous multiplayer games, and leaderboards gave Aurora a sense of community that other larger games lacked.
Citron made his first pivot.
During a conversation about Aurora’s future, the young executive made an off-hand comment:
Nobody [sic] built the Xbox Live on this thing yet. I wonder if we can take some of our chat and video board stuff and spin it into an Xbox Live for iPhone?...Let's just announce it and see if people would want it.
What Citron foresaw was a future in which nearly all game developers would want their products to have a strong social element. Rather than starting from scratch, they could pay for the tooling he’d already built.
As it turned out, people did want it. After managing to snag TechCrunch coverage, the new company — now called OpenFeint — was almost immediately inundated with potential customers.
“Oh crap,” Citron thought, “this is going to be big.”
Everything after that point seemed to happen at warp speed: customers and funding flowed in, OpenFeint added a standalone mobile app to manage social interactions across games; a deal was struck with AT&T to pre-install the app in new phones.
It didn’t take long for the company to attract M&A interest. In 2011, Japanese social network and game maker GREE made too good an offer to refuse. OpenFeint sold for $104 million, securing a significant payday for Citron, his investors, and of course, YouWeb.
After spending a few months at his acquirer, Citron sent YouWeb founder Relan an email: “‘I’m back.”
This story may sound familiar.
A young founder is accepted into an incubator. He has no set business plan, just the goal to build something in gaming. He creates a beautiful multiplayer game that is adored by critics but fails to win over a sufficient audience. In search of product market fit, the founder unearths an infrastructural feature and turns it into a standalone hit.
The tale of OpenFeint is the tale of Discord. Virtually beat by beat, it hits the same notes, almost as if a very earnest, rather drunk storyteller is not quite sure you heard them the first time and will go bigger on their second attempt.
This time on better terms, Citron partnered up with Relan and set about creating Phoenix Guild, quickly renamed to Hammer & Chisel. Given his pedigree post-OpenFeint, Citron was able to raise a $1.1 million seed, followed by an $8.2 million Series A. Benchmark led the second round with then-partner Mitch Lasky apparently impressed by Citron’s presentation at TechCrunch Disrupt’s 2013 demo day.
Hammer & Chisel released its first vehicle Fates Forever in 2014. A battle arena game designed for tablets, Fates failed to garner the success Citron and his investors had hoped for. As they’d done previously, Citron and his team built additional communication into the game. Citron noted:
We had a hunch that there was an opportunity around a service where people could hang out before, during, and after playing games, but we didn’t know how that would shake out.
It was time for Citron to pivot again.
When considering the company’s next move, CTO Stan Vishnevskiy spoke up.
I don’t want to make more mobile games. We’ve been talking about building a chat service, and I have an idea for how we can do it.
For the next couple of months, the Hammer & Chisel team scoped out a chat service designed for gamers. The idea was to create something like an “always-on conference call” or “your own private cafe for games.”
When they released the product — named Discord — in 2015, it failed to make a dent. A few dozen people might mosey into the company’s servers on a given day, but it didn’t seem to be gathering real momentum. That might have been in part due to the fact that alternatives existed — Teamspeak and Skype were both used by gaming communities — but seemingly had more to do with getting the word out and winning early customer trust.
The tipping point arrived via Reddit. The team was connected with a member of the Final Fantasy subreddit and asked them if they’d mention Discord. According to Citron, they posted something along the lines of, “Has anyone ever heard of this new voiceover IP app called Discord?”
A few Redditors trickled in, checked out the product, and spoke with the development team via the platform. One reported back, “I just talked to the devs, they’re in there. It’s really cool. Check it out.”
That one comment was a miniature inflection point. More users flowed in, and Discord had figured out a grassroots distribution model.
Citron says, “That’s the day we say we launched.”
In the years that followed, Discord succeeded in growing rapidly, accumulating hundreds of millions of users and close to $1 billion in funding. Perhaps more impressively it has managed both to capture gaming culture, and to help evangelize it.
Discord was built for gamers, by gamers. While the company has opened its arms to all sorts of new user groups since the beginning of the pandemic, the product retains its gaming speed and verve. As a result, Discord can be a little scary to outsiders.
We like to consider ourselves comfortable with technology; nowhere makes us feel older than a Discord server. To newcomers, it can feel like the Tower of Babel. But slowly, server by server, we’ve learned the language, and we’re here to translate for you.
So what is Discord?
Quartz attempted to capture the multi-faceted magic via analogy mashup: “Picture a combination of Slack, AOL Instant Messenger, Zoom, and a sketchy chat room, and you have something approximating Discord.”
PCGamer explained all of the things that Discord lets its users do:
Today Discord lets me do so much, and it's all free:
- Talk with as many friends as I want with high audio quality, virtually zero lag, for an unlimited amount of time
- Stream games live to anyone in the server with two clicks, also lag free (somehow)
- Watch multiple streams at once with individual volume sliders (again, lag free)
- Create virtually unlimited text chat rooms with archives that go back years
- Share small-ish files with friends
- Bring bots into the mix that can, among many things, broadcast music to everyone
- Oh yea, this all works on phones too, including video streaming and screen capture
Discord, though, has a loftier view of itself, one not capturable in analogies or feature lists.
It asks users, current and would-be alike, to imagine a place…
Discord’s first brand marketing campaign invites people to treat its product as a blank canvas on which to project any digital space they can dream up. All types of people are doing just that.
Since the beginning of the pandemic, users of all stripes have flocked to Discord, attracted by its chat features, high-quality audio and video chat, privacy, ability to facilitate direct connections, and, unlike Slack, free servers.
The company chose to open its arms to non-gamers at just the right time. As every community moved online, they were faced with a choice:
- Pay $6.67 per user per month to use the more familiar Slack.
- Set up a Discord server and invite unlimited members in for free.
The choice was easy. So easy that people Discord never expected to find in a chat tool for gamers knocked down its doors and put down roots.
In 2019, Taylor Lorenz wrote an article in The Atlantic about the influencer invasion of Discord. Instead of letting Facebook and Twitter’s algorithm-based feeds mediate their relationships with their fans, influencers began spinning up Discords in droves. According to Forbes, the article, and Discord’s growing non-gamer user base, surprised Citron and Vishnevskiy.
No strangers to letting user behaviors pull them in new directions, they dug in.
When Discord sent out a 23 question survey to its community, they discovered that over 30% of Discord’s users weren’t using the product primarily for gaming. They were hosting book clubs, friends’ group chats, fan communities, and even companies. Discord had become the internet’s “third place.” As Citron told Patrick O’Shaughnessy:
I read the book, The Great Good Place, by Ray Oldenburg, which was written in the '80s where he actually talks about this, and starts to put labels and words to describe the concepts of how these third places work. And as I was reading the book, I was just like, "Holy crap, this is what we built, except it's digital. This is incredible."
To their credit, Citron and Vishnevskiy, at this point masters of the pivot, heard their users and moved swiftly to make all of them feel at home. They evolved the company’s mission…
… and redesigned its brand and homepage.
They launched the “Imagine a Place” campaign, the company’s first ever brand marketing campaign, in May this year, and with it, a 6-minute video starring Danny DeVito and Awkwafina:
The video is fast-paced and chaotic and a little confusing... and it captures Discord’s essence perfectly.
On its face, Discord looks a lot like Slack. It’s organized into Servers -- each community’s space -- and within each server, there are Channels, including Voice Channels, in which users can also choose to turn on video for up to 25 people. Voice channels can be always on, and users can drop in and drop out casually, like hopping onto a couch with friends.
On the sidebar, users can see, and easily click into, all of the servers to which they belong. It can be a little bit overwhelming to keep up as you can see from the number of unread messages icons Packy has in the screenshot above.
Getting started with Discord is low-friction. It’s easy to spin up a server and even easier to invite people into it. Each server has a unique link -- discord.gg/name -- and those links are sprinkled across the internet, in Twitter profiles, subreddits, and Telegram chats. “Join the Discord” is the new “Smash that subscribe button.”
It’s easy for users to join, too: just set up one Discord account, and use it to join any number of servers. Whereas Slack was clearly designed to be the home for one company and its employees -- each time you get invited to a new Slack workspace, you need to re-enter your email and go through the signup flow -- Discord was built for promiscuity. Discord users are expected to jump from server to server, and to slide into any other Discord user’s DMs.
That’s another key difference with Slack, based on the same architectural divergence. In Slack, employees can DM each other within their company’s workspace; in Discord, users can DM anyone as long as they know their handle (and as long as that user accepts DMs).
This is a sneakily radical difference. Discord allows for intra-group socialization, but also adds a social layer on top of this structure. As the user, you can talk with your tribe in context, but also have ongoing conversations with your besties, divorced from the setting in which you might have first met.
Now, it’s worth noting that though Discord adds this social element, it forgoes many others. This is not a traditional social network. There are no follower counts; there is no master feed dictated by an all-seeing algorithm. Users can show off different avatars and whether or not they’ve paid to “boost” the server, but beyond that, there are few baked-in ways to earn clout.
Perhaps the most notable part of the Discord platform outside of its chat functionality and social architecture is its burgeoning ecosystem of bots. In a 2020 blog post, Discord announced that more than 3 million bots had been created, with some used across millions of servers. For comparison, Slack boasts 2,400 apps in its directory. (Of course, this is not a strictly fair comparison, given that many bots may be deprecated, but it is still directionally interesting.)
As you might expect, the types of bots used on Discord vary widely. Some focus on supplying memes, others make it easy to play music from Soundcloud and YouTube, others still focus on moderation.
MEE6 is particularly popular in the final category. It’s used by more than 14 million servers to create custom welcome messages, proactively boot bad actors, assign community roles, and grant “XP” (“experience points”) for participation.
More creative options are available — IdleRPG is one of them. Once integrated with a server, community members can participate in a Dungeons & Dragons-style role playing game, orchestrated through chat commands. Given Discord’s popularity with gamers, it’s little surprise Idle is frequently used.
Discord’s bot ecosystem extends into crypto. In a recent piece on DAOs, The Generalist outlined a few integrations that have caught on with the web3 world. In particular, products like Collab.Land — which allows holders of unique tokens or NFTs to access private channels — have become essential. Other players in this subspace include Tip (accept crypto tips!) and Piggy (an RPG with crypto rewards).
While Discord’s bot ecosystem is important from a user perspective, expanding functionality and adding a sense of play, it’s most significant when thinking about the company’s defensibility. By allowing developers to build on top of its API, Discord allows for new levels of lock-in.
For example, if you’re starting a DAO today, it’s extremely likely you’d choose Discord to leverage bots like Collab.Land, MEE6, Tip, and others. These tools give your community superpowers you cannot fully access elsewhere. Though perhaps less pronounced, the same is true in communities’ with differing focuses.
Discord needs to lean in here. In 2020, the company announced it would be taking bots seriously, giving established projects verification and expanding possible usage. This is a good start, though it’s unclear if those plans have truly come to fruition. To take the next step, Discord needs to help with discovery, monetization, and usage.
How does the company do that? By creating a true Discord Bot Store.
Right now, to find bots for your server, the best place to start is by aimlessly googling, or visiting Top.gg, a Discord directory owned by gaming highlight business, Medal. The fact that a different startup has stepped in to help with discovery illustrates the gap Discord has left. A Bot Store would allow Discord to catch up; it would immediately become the starting point for bot discovery.
In turn, this would be a clear benefit to bot developers, giving them a trusted place to showcase their creations, and get new business. As with other app store owners, Discord can play kingmaker by elevating the most promising products.
In time, Discord could extend bot discovery through intelligent suggestions. Anyone, for example, that notes they’re starting a crypto server should be prompted to use Collab.Land, or a similar tool. Anyone that is spinning up a new anime fandom may want to check out Mudae, a multiplayer manga bot.
As developers earn through Discord, more will flock to the platform, recognizing the potential for wealth creation. A virtuous, compounding flywheel is created: (i) Discord highlights prominent bots, (ii) customers see these bots and start to use them, (iii) bot creators make more money, (iv) their success attracts new developers to the platform, (v) this makes Discord’s platform stronger, (vi) a stronger platform attracts more users, (vii) more users create demand for more bots and more bot usage.
Bots may be an opening salvo in a greater platform play that brings Discord closer to its original vision of monetizing via a gaming store. Entire products are now being built not just inside of Discord, but on top of it.
For example, Stir’s Newsroom (coming soon 👀) takes Discord’s chaotic existence for granted and builds a clean, organized collaboration interface on top of Discord’s conversational firehose.
Instead of trying to replace Discord, it improves it, and gives less degenerate users a way to take advantage of the product’s strengths while abstracting away its overwhelming weaknesses.
This may be the sign of a great platform in the making: when entrepreneurs take measure of its strengths and weaknesses, and decide to build complementary tools to patch over weaknesses instead of competitive ones to exploit them.
And it’s the beginning of a trend. A new wave of entrepreneurs is building tools to help DAOs function more smoothly by improving user onboarding, project coordination, and contribution tracking. Most take Discord’s centrality for granted. While many of these tools are targeted towards DAOs, they should work for any community that organizes itself in Discord and wants to accomplish something beyond conversation.
Discord can support these tools by making integration as seamless as possible, and by expanding our Bot Store to accommodate all Discord-based applications.
If Discord can pull this off, it will be devilishly hard to unseat. While Discord’s team focuses on making its core product as strong and reliable as possible in the face of face-melting growth, the ecosystem of developers around it can work to make Discord malleable to any type of user’s needs.
Stay one step ahead of the most important trends shaping the future. Our work is designed to help you think better and capitalize on change.
Discord is estimated to have 300 million users, with 150 million of them active on a monthly basis. They’re spread out across 19 million active servers per week spanning gaming, investing, politics, anime, and much, much more.
As you’d expect given the company’s origin story, Discord’s base is still mostly gamers. Anyone that navigates to the “Explore” tab, the place to discover new servers, will quickly see Discord’s emphasis on gaming and its clear popularity.
Of the first ten featured servers, nine are focused on games:
The one exception? “Anime Soul Discord,” a 500,000-strong community for fans of anime. Even this is only a half-deviation — the community is also concerned with the game Genshin Impact.
This isn’t too surprising, given the strong cultural overlap between gamers and anime fandoms. It also illustrates how Discord has grown its reach. With gaming as its core, Discord has been able to organically extend into adjacent subcultures including anime and tech. Starting with a large niche and growing outwards has been a key part of the company’s success.
Beyond these topics, Discord also seems to have built up server density around education, investing, and crypto and web3. We can understand the company’s success with these groups through a similar lens — these are groups that are fundamentally internet-native.
For one thing, a fifth of US gamers are under 18 years old making school an essential part of their lives. It’s natural they might choose to study using the same tools they do to socialize. That’s not to say that all of Discord’s educational communities serve high-schoolers and below — a number of the most popular servers cater to people of all ages. You can join one to learn English, another to learn Korean, a third to practice your favorite games. (The lines between gaming and education can get pretty blurry.)
Other educational communities are focused on offering accountability or assistance. Study Together, for example, is a Discord community with more than 280,000 members that claims to improve one’s productivity. Homework Helper does exactly what you think it would: helps with homework via the community.
These kinds of groups are what makes Discord magical — a collection of people coming together to talk, learn, and help each other improve.
The company seems to be encouraging this use-case. When you go to start a new server, two of the top three suggestions are related to education, with users prompted to start either a “School Club” or “Study Group.”
One of Discord’s newer product additions is “Student Hubs.” These are Discord servers available only to individuals affiliated with a high school or university. You can only access these groups if you have the right email account to prove your connection. The fact that this feature is displayed prominently in the “Explore” tab is another indication of this focus.
Discord’s interest here is particularly intriguing given the turbulence Facebook and Instagram face with regard to younger users. As Gen Z and below are either excluded from these platforms or depart of their own free will, Discord may benefit.
Unsurprisingly, Discord’s most popular investing groups demonstrate the tenor and cultural references of gaming communities, replete with n00bs and Pepes. This is not the Value Investors Club. It makes so much sense that Reddit’s WallStreetBets (WSB) has chosen Discord to host its community’s synchronous conversations — no other platform could handle the level of real-time chaos. With 570,000 members, it is one of Discord’s largest servers.
WSB’s prominence hints at Discord’s positioning in the social landscape. Specifically, it sits downstream from asynchronous, broadcast platforms like Twitter and Reddit. There are a number of other subreddits, for example, that have spun up Discord servers to augment discussions. Specifically, the “Explore” feature suggests there are 399 servers classified as “Subreddits,” including communities like r/Memes, r/teenagers, r/Pokemon, and r/dogelore.
The last of these gestures at Discord’s grip on web3. It has undoubtedly become the coordination platform of choice for all manner of projects including NFTs, DAOs, crypto investing groups, and crypto startups. It’s genuinely startling how quickly this has become a norm in the sector. Starting an NFT project today and inviting supporters to a Slack group would be the kind of shibboleth you couldn’t recover from; the crypto equivalent of using a hotmail account, or telling everyone you use Bing as your search engine.
Beyond these categories, Discord has inevitably spawned a thriving NSFW crowd. When researching top Discord channels, one name surfaced at or near the top on two different server aggregators: “Sinful 18+.”
As the name suggests, this is a Discord for explicit content. It boasts 24/7 video chat, selfies, and may be used to find a date. (Gonna be honest, when I first read “24/7 Active VC” my mind went to Tiger Global.)
Sinful is just one of many communities dedicated to romance and erotica, with Dating Lounge, Playroom, and Paradise other well-trafficked sources.
This goes to show just how broad Discord’s usage has grown. DiscordMe, a tool that categorizes servers and notes usage, offers a breakdown that shows the company’s breadth, while also emphasizing that gaming is still at Discord’s heart. For all the attention it receives — including in this piece — crypto lags behind significantly.
Server count is not necessarily the most useful metric; member count by category might be better, for example. Similarly, DiscordMe is not a definitive authority. But nevertheless, using the information available we can get a sense for the platform’s wide usage. From art to fitness, memes to mature content, Discord has grown from gaming to devour all facets of culture.
Discord is a hard company to get a read on. In researching this piece, we both made attempts to talk to leadership, employees, and investors — without much luck. At least when it comes to creators, this is a company that keeps its cards close to its vest.
That’s not meant as a criticism. Focus is a valuable resource and Discord may reasonably feel they have told their story enough times. It does mean, however, that our analysis of leadership is limited to third-party accounts and resources. Here are the key players according to The Org:
As indicated earlier, Jason Citron is a fitting avatar for the average Discord user. He is a true gamer with a sincere love for the industry. That’s, of course, been demonstrated by the companies both OpenFeint and Discord grew out of, and emphasized in his messaging.
That authentic connection to the mission has been a key part of Discord’s success. In researching this piece, we spoke with Commsor CEO Mac Reddin, an early Discord user. One of the reasons highlighted for the company’s ascension, particularly versus competitors, was the company’s deft understanding of gamer culture. Reddin remarked, “There weren't a lot of products speaking to gamers. And if they were, they were kind of janky.” He added that “no one ever thinks of Discord as a multi-billion dollar corporation. It doesn't feel that way."
Discord speaks the language of gamers and Citron is a vital part of that.
Stanislav Vishnevskiy brings similar credentials to the table. He and Citron overlapped at GREE (OpenFeint’s Japanese acquirer). When it was time for the OpenFeint founder to build something new, he brought Vishnevskiy with him as CTO.
In tandem with his work at GREE and Discord (then Hammer & Chisel), Vishnevskiy also founded Guildwork, a social network for massively multiplayer online role-playing games (MMORPG). It supported titles like Final Fantasy, World of Warcraft and Aion.
With the exception of Steve Lin — part of the original OpenFeint team — the rest of leadership doesn’t add further gaming experience to the table. They remain impressive and seem well-positioned to guide Discord forward.
Tomasz Marcinkowski, hired as CFO in March of this year, joined from Pinterest and will presumably be tasked with managing future M&A and a potential IPO in the years ahead.
Chief People Officer Heather Sullivan is also worth highlighting given she filled the same position at Udacity. While Discord is obviously a general-purpose tool, it has seen strong uptick amongst students of all ages.
One notable missing piece on the team? Crypto. No one in senior management seems to have spent time working in the sector. That is, perhaps, to be expected. For one thing, crypto giants are still very much being born and growing rapidly. Finding a Googler willing to jump ship is considerably easier at the moment than nabbing a senior Coinbase executive.
Discord also seems to have been partially caught off-guard by the extent to which it has been adopted by the web3 movement. Prior to 2021, crypto experience is unlikely to have been advantageous to potential recruits — it feels increasingly important. If Discord is to grow its presence in the web3 ecosystem, it may want to add executives that reflect that commitment.
The most unique attribute of Discord’s leadership team, though, may be its seeming distaste for monetization.
In August, when rumors began to circulate about a new round of funding that would value Discord at $15 billion, Packy tweeted that he’d buy every share he could at that price.
He stands by it. Propelled by COVID, gaming, and web3, Discord is one of the fastest-growing products on the planet and the gathering place for many of the world’s most important communities.
Discord’s decision to open its arms to all types, and to begin marketing efforts in earnest for the first time, is paying off in terms of the breadth of communities now calling Discord home. Last year, there were 6.7 million weekly active servers, essentially spaces with at least some conversation in a given week. This year, there are 19 million weekly active servers -- 3x YoY growth -- and the year isn’t even over yet.
With new NFT projects, DAOs, and DeFi protocols launching seemingly by the minute, we wouldn’t be surprised to see Discord break the 20 million server mark by year’s end.
More servers means more users. In 2017, Discord had 10 million monthly active users (MAUs). This year, just four years later, it boasts 150 million. For those keeping score at home, that’s 15x growth in four years, or a 96.8% CAGR.
For comparison, Facebook, errrr, Meta has 3 billion MAUs across its properties, Snap has 459 million, and Reddit has 430 million. Twitter stopped reporting MAUs in 2019, and instead reports monetizable daily active users (mDAUs), of which it has 211 million. It had 396 million MAUs at last count. That means that, just six years old, Discord is within striking distance of the social media giants (other than the behemoth, Meta), and is growing much faster than all of them.
Discord’s revenue growth has outpaced even its user growth. From $5 million in 2016, Discord grew revenue to $130 million in 2020, good for an astonishing 126% CAGR over four years.
Even after such stunning growth, there is a ton of juice left to squeeze. When it comes to monetization, Citron seems more Dorsey than Zuckerberg.
In 2020, Discord earned just $1.30 in Average Revenue Per User (ARPU). That would rank it last among the public social media companies by a wide margin.
That’s not surprising, given that the company’s only real monetization engine is essentially a voluntary upgrade, often done as much out of support for the product or a given community than to access the upgraded features and emoji packs that come with a Nitro subscription. Put the same user base in Zuck’s hands, and he’d be doing billions of dollars of revenue in his sleep.
For now, Citron’s focus on product and community over ads and revenue has created a strongly sticky and loyal group of users. They’re high-value ones, too. The average ARPU for video games worldwide is in the $20-60 range, depending on the platform (mobile is highest). Crypto traders often pay more in gas fees in one trade than Discord would pull out of the average user in a century. If and when Discord makes monetization a focus, the money should flow.
Discord has time to figure it out. For now, investors seem to focus more on Discord’s tremendous potential than its monetization shortcomings. There aren’t many opportunities to invest in truly important social platforms; Discord is one.
Early stage investors like to say that in a company’s infancy, you’re backing the founders more than the idea. The idea can, and often will, change, but the right founder can navigate the winding path to success. Discord is a mark in that theory’s favor.
In July 2012, Phoenix Guild announced a $1.1 million seed round from YouWeb alongside top VC funds Accel and General Catalyst to build the “Blizzard of the post-PC era” as an antidote to the “lame F2P sims” that Citron said everyone was building.
The following year, the renamed Hammer & Chisel raised an $8.7 million Series A, led by Mitch Lasky at Benchmark, to create the Fates Forever, “the first MOBA [multiplayer online battle arena] crafted exclusively for tablets.”
Hammer & Chisel raised a Series B, too, $4.5 million from Benchmark and Tencent in February 2015. The investment valued the company at $45 million. In the VentureBeat article announcing the raise, Citron called the company’s flagship game, “the first step in a journey to crafting a meaningful games company.”
Citron must have known that Fates Forever wasn’t the company’s future when he raised the Series B. Just three months later, on May 13, 2015, Discord celebrated what would become its unofficial birthday.
Fates Forever, a critical success, died financially worthless, but those early investments in Phoenix Guild and Hammer & Chisel are deeply in the money.
According to Pitchbook, Benchmark and others bought Series A shares for $1.95 each. By Discord’s Series H last December, which valued the company at $7 billion, the price per share had risen to $280.25, good for a 143x return. With the company’s recent raise at $15 billion, the Series A investors are sitting on a ~300x on-paper return…which is incredible, given that the game they invested in no longer exists.
In January 2016, Discord raised money for the first time as Discord, a $20 million Series C led by Greylock and Spark Capital that valued the company at $100 million. From there, it was off to the races.
Within three years, Discord raised a $50 million Series D from Index and IVP, a $50 million Series E from existing investors that made the company a unicorn at a $1.65B valuation, and a $150 million Series F led by Neil Mehta at Greenoaks that broke the $2 billion valuation mark.
Citron & Co took an uncharacteristically long eighteen month fundraising pause in 2019 and early 2020 before raising a $100 million Series G from Index in June 2020 at a rumored $3.5 billion valuation and another $100 million Series H from Greenoaks in December 2020 at $7.
This past March, Microsoft tried to scoop up Discord for a rumored $10-12 billion, but talks fell apart in April. It would have been a snug fit with Microsoft’s sneaky strong gaming portfolio, which includes XBox, Minecraft, and recent acquisition ZeniMax. Plus, Discord certainly would have been a technical upgrade to Microsoft’s Teams product, and a strategic weapon in the corporate race for the Metaverse. But Microsoft’s $12 billion offer wasn’t enough to get the deal done. Just a few months later, the decision to rebuff Redmond paid off.
In September, Dragoneer led a $500 million round valuing Discord at $15 billion. Crossover investors including Baillie Gifford, Coatue, Fidelity, and Franklin Templeton also participated in the round, indicating that an IPO might not be too far away.
As it stands, a $15 billion valuation for Discord, or a 115x multiple on 2020 revenue, looks expensive, but the company has more levers to pull than we have unread Discord notifications. In a world of abundance, Discord is able to capture that most rare asset: attention. “He who controls the attention, controls the universe.”
If Discord keeps growing MAUs at over 50% and gets to even Pinterest’s ARPU levels, it will look cheap very soon. And that’s not to mention its call option on web3.
Some of the most compelling investment opportunities are those that have a clear investment thesis around the core business with a free call option sprinkled on top. Meta is an ads behemoth with a Metaverse kicker. Tencent makes China’s most dominant app plus one of the world’s best venture portfolios (including Discord) plus a Metaverse kicker.
Discord is a social platform with a fast-growing user base and recurring revenue subscription product plus one of the most strategically important positions in the web3 value chain. The question is: will it respond to web3’s siren call? And if it does, how?
The company has been characteristically coy about its web3 strategy, but they left one clue. In August, some Discord users were greeted with this banner:
Surveys play an important role in Discord’s recent history. In 2019, results from a survey pushed the company to zig, widen its aperture, and welcome all user types. So this recent survey, which @HsakaTrades posted on Twitter, might hint at Discord’s next zag:
The survey was vague -- the only product-specific query asked about a “Discord-native crypto wallet” -- but it showed that Discord was aware of the web3 community’s growing usage of its product and at least exploring how it might play in the space.
With no more than that to go on, we’ll have to let our imaginations run wild. Here are a few of the ways we think Discord could play web3.
In its August web3 survey, the only product about which Discord directly asked its users was a “Discord-native crypto wallet.” This is the obvious play, and we’ll cover it quickly, but we would be remiss if we didn’t cover it at all.
The idea is simple: imagine that every Discord account came with a crypto wallet. Maybe this wallet would support the Ethereum ecosystem, like Metamask or Rainbow, or Solana, like Phantom. Ideally, given Discord’s role as Switzerland, it would create a wallet that worked across chains, and given Discord’s large non-crypto user base, the wallet might not look like a crypto wallet at all on its face. Both ideas sound simple but present real technical and UI challenges. It may be worth the lift.
Perhaps no company has both the distribution and trust (sorry, Meta) of its user base to onboard so many people to web3 so swiftly. Integrating a wallet into Discord’s core product would have certain advantages for users and community leaders:
- Let users send each other money and tokens as easily as sending a message.
- Token-gating certain servers and channels within Discord itself without needing to click away to a third-party solution like collab.land.
- Easy way for communities to airdrop tokens to their members.
Owning a wallet would also have advantages for Discord itself:
- Allow Discord to monetize transactions, swaps, lending, and staking.
- Give Discord a wedge into the wider internet and serve as its passport.
- Build experiences around users’ wallet inventory.
Wallets will serve as identity and account in web3; owning a wallet is a key strategic position that would bring Discord everywhere its users travel online.
It’s easier said than done, and Discord doesn’t currently have the crypto chops on its team to pull it off, but it could acquire a wallet and the team behind it or hire a team with the promise of unprecedented distribution. If Discord is serious about web3, a wallet would be a bold entrée that facilitates even bolder moves.
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Earlier this week, Mario tweeted a dumb little meme:
It’s no coincidence that in the “DAO starter pack,” Discord comes first. It has become an essential part of how DAOs communicate and coordinate; embedded in the culture.
Earlier we discussed how Discord sits downstream from platforms like Twitter and Reddit. What’s interesting is that when it comes to web3, Discord sits upstream of most of the vital activity.
For example, if you wanted to start a DAO today, where would you begin?
First, you might reach out to a few friends via Twitter and Telegram. Once you’d tested out your idea and piqued interest, you’d quickly migrate to Discord to keep the conversation flowing, flesh out details, build an early audience, and set a plan in motion.
In all likelihood, it’s only after this point that you’d set up a multisig wallet, raise funding through on-chain sales, and begin formal governance on platforms like Snapshot. We’ve seen this play out across web3 whether it be in social DAOs, or NFT communities. Often the best way to build hype for a project is to start with a Discord and let it grow.
This presents a unique opportunity for Discord to serve as a kind of para-OS for DAOs, taking on some of the functionality that sits downstream. This might be handled best through integrations, but could be pushed forward by Discord’s internal product teams.
In particular, you can imagine a world in which Discord facilitates forum-style discussion and voting. In doing so, it could bridge the gap between off-chain democracy and on-chain consequences. Equally, Discord could better integrate with the treasury management tooling DAOs use, allowing community managers to orchestrate payouts without leaving the community itself.
Though it has a firm grip on the world of DAOs and sits in a place of power in the value chain, Discord is not a universally popular tool. Here’s what Jon Gold said in response to one of our tweets:
To a certain extent, Discord and DAOs have been a loveless marriage, driven by paucity of options rather than natural kinship. To deepen that bond, and ensure it is not displaced, Discord may wish to extend its functionality.
Discord’s business model began as a kind of after-thought. According to Citron, the company’s initial plan was to monetize via a gaming store, similar to Steam. (That ended up not working out very well.)
Before it released this store, Discord didn’t generate revenue — something that worried users. Many assumed the company was selling customer data or prepping for an ad-based model; to quell concerns without having to alert competitors of their aspirations, Discord released “Nitro,” a paid subscription. In exchange for a fee, users can access special perks like having multiple avatars, using custom emojis, and improving their video resolution.
It was a holdover that proved surprisingly effective. It’s a testament to the customer love Discord has engendered that what looks like a relatively thin offering has managed to produce so effectively. Mac Reddin, a long-time Nitro subscriber, noted that the premium tier doesn’t give you much, but being a member allows you to support the company. This is fascinating; there are not many multi-billion dollar businesses that rely on the benevolent patronage of their customer base to monetize.
To diversify its revenue, Discord could consider integrating buying and investing behavior. Of course, this kind of functionality could prove useful across sectors. You can imagine a world in which users sell each other music, pictures, hourly work, or something else, all within the context of a Discord discussion. (Or pushed to a “Discord Marketplace.”)
Given Discord’s unique position and the amount of money moving through the space, crypto would be a particularly intriguing instantiation of this. What would it look like if Bored Ape holders could buy and sell within the same channels they host conversations? What if members of the Bankless DAO could buy new tokens in-line with a discussion about them?
(And, of course, any purchases could be held in your native Discord wallet.)
Discord is the place where effervescence and speculation begins; the soil in which buying intent germinates. Right now, once a person has made a decision to purchase or invest, they leave the platform, heading over to an exchange or NFT platform.
Though likely technically complex — and admittedly a deviation from the core product — adding features to support this behavior could be extremely powerful and lucrative. The end result might look something like a contextual OpenSea or FTX — an exchange that begins with discussion and is capable of capturing the intent it generates.
This last idea is out there, and it’s exceedingly unlikely to happen given that investors have bought more than $1 billion worth of Discord equity to date, but imagine a token…
As discussed, Discord and web3 have a love-hate relationship. There are many reasons, some of which include:
- Discord servers are too chaotic
- Scammers flood Discord DMs with bogus offers
- Discord is a centralized company.
A centralized chat app seems an odd place from which to launch a decentralized revolution. As a result, many have called for a web3 Discord:
Phelps himself predicts that there won’t be a web3 Discord, but an unbundling of Discord into its component parts, with specific web3 tools forming a Transformers version of the product.
That’s one option, but there’s another: what if Discord itself decentralized? What if instead of going public, Discord issued a token? $DISCORD has a nice ring to it.
To be sure, this would represent an all-in pivot the likes of which the corporate world has never seen, at a time when everything is already coming up Discord. And it would also represent a legal nightmare, if it’s possible at all. But if any multi-billion dollar company is in a position to pull it off, it’s Discord.
First, the obvious: Citron and Vishnevskiy are no strangers to the pivot. They’re pivot connoisseurs. This would be the latest in a career forged in the fires of the pivots.
There are less superficial reasons, too.
Discord already behaves an awful lot like a decentralized protocol. It’s the most authentic, at-scale user-generated community on the internet. It thrives on the creativity, passion, and evangelism of the people who choose to run their communities inside its digital walls. It is minimally extractive -- a user can experience all of Discord’s richness without paying a dime, or being served a single ad. Hell, the company introduced Nitro as a way to prove to its community that it wouldn’t introduce ads; dropping a governance token gives that promise smart contract strength.
Decentralization would be simultaneously defensive and offensive.
Defensively, a token might help solve the issues that plague Discord. It could, for example, reward community members in $DISCORD for helping moderate channels and remove the bad actors who have plagued the service. Requiring users to pay a tiny fraction of a $DISCORD to message users with whom they’re not friends in order to reduce spam.
Offensively, giving users a stake in Discord’s upside would encourage more communities to set up shop on Discord, and would serve as a retention tool against the notoriously fickle whims of the masses. It would enable and incentivize a thriving in-app economy. It would allow users to reward each other with a simple !thanks, and might even provide the infrastructure for communities to issue their tokens on Discord’s rails, right where they already are.
Plus, combined with a wallet, a $DISCORD airdrop to its 150 million MAUs would instantaneously make Discord the largest web3 platform in the world, and onboard tens of millions of people into web3. Coinbase, for comparison, counts 68 million customers. A $DISCORD drop would be one of the most significant moves in the history of the internet.
Hey, Discord told us to imagine a place, so we let our imaginations run wild. The company is 99.999% not going to decentralize and tokenize.
But we strongly believe that the company should follow its users’ pull into web3. The company’s biggest successes to date came when it decided to build the communications infrastructure for gamers; now, it has the opportunity to build a more complete set of tools for this game that we’re all playing all across the internet.
It’s fitting that as living on the internet becomes more and more like playing a Great Online Game, the place that its citizens choose to gather is a chat app originally built by gamers, for gamers.
If Twitter is the internet’s town hall, Discord is its hidden network of comfortable lounges, dingy basements, and smoke-filled back rooms. It’s where companies and DAOs are built, bonds are formed, schemes are hatched, alpha is leaked, and fortunes are won and lost. If it feels familiar, that’s because it is. We spend more of our lives in cozy classrooms, crowded restaurants, and friends’ living rooms than we do in large stadiums. Humans didn’t evolve to live on stage.
As the internet itself evolves, from web2 to web3, and from internet to metaverse, it’s likely that whatever comes next takes inspiration from Discord’s architecture. Meta won’t control the metaverse; no one will. Instead, it will be a series of connected spaces built and managed by communities of people who care about the same things.
That new world will be a confusing place, for a time. The beauty of centralization is that everyone knows where to go. A decentralized internet will need maps and meeting places, and no one has built a product that’s more prepared for that world than Discord has.
Today, very online people go through a funnel: Twitter to Discord to their final destination. Whether Discord ends up being a very important, very valuable company or one of the most impactful and valuable of all-time may depend on the decisions it makes around which adjacent pieces of that funnel it wants to own. Should it merge with Twitter, and own the flow of attention in the Great Online Game? Should it integrate downstream, stitching web3 products into its own and creating more immersive worlds in which its users can roam? Already, it’s begun making acquisitions in augmented reality. Imagine a place…where servers become worlds.
Discord has become such an integral part of the internet that it’s easy to forget that it’s a six-year-old product that’s still finding itself. We don’t think Discord knows what Discord wants to become.
That may be its biggest strength, the one that makes it best suited of all of its competitors to thrive in a time of decentralization. It’s nimble, but steady, chaotic, but organized. It’s willing to follow its users wherever they lead, and build infrastructure in their tracks.
The company will figure out monetization. It will bring in billions of dollars in revenue annually within the next half-decade. But that might be the least interesting thing about it.
Discord is the place for participants in the Great Online Game, and the game is just beginning.
It is also both a hidden world and a truly native piece of metaverse infrastructure. Citron and company will only be limited by their ability to bring imagination to life.
The Generalist’s work is provided for informational purposes only and should not be construed as legal, business, investment, or tax advice. You should always do your own research and consult advisors on these subjects. Our work may feature entities in which Generalist Capital, LLC or the author has invested.