Understanding Discord - Part 4 - Interview Tonight with Nookazon Founder Daniel Luu at 530pm ET. Even though we have been following Discord for some time, the company has dropped some pretty meaningful clues over the last few weeks on monetization - so meaningful that we thought it was worth a summary ahead of tonight. For reference, we wrote about Nookazon in early COVID days - From Bells to Bitcoin - what Animal Crossing can tell us about currency - when it exploded onto the scene as a marketplace for the game Animal Crossing. As of February 7, 2022, the Nookazon Discord, at 497k members, is roughly in line with the game’s Discord, at 544k members.
As many know, we are very excited about Discord’s accelerating growth and its increasingly clear title as “home base” in the metaverse. While Discord started as a communication platform for gamers, it has evolved into a community platform for the whole world, and is now trending toward a place to start and grow community-oriented businesses. We call Discord a place where the home page meets the inside of the classroom/coffee shop with a helpful assistant and a (future) win/win cash register.
Based on our analysis, Discord qualifies as a platform, and is also showing early signs of network effects. The producers are the Discord servers that are created by many types of entrepreneurs and for many uses outside of the company’s early foray into gaming. Instead of controlling the Discord servers, Discord merely serves to orchestrate the producers (“owners”) of the various servers. The fact that the company refers to server managers as “owners” is a subtle, but important, point on the ethos of the company.
In the early days of analyzing Discord, we erroneously compared it to Slack and Microsoft Teams - it is so much more than those. Also quantitatively, the first two, both Enterprise oriented, are monetizing at ~$50 ARPU, based on DAUs, versus Discord, which monetizes at roughly $3 - $4 ARPU based on DAUs. Note: we have seen ($1 - $2 ARPU based on MAUs). In fact, they are only selling one product right now - Nitro subscriptions - at $99 / year or $9.99/month.
In getting to know the company, we are confident that Discord will continue to let their user base grow and frankly, Founder Jason Citron had us with no advertising now, or ever. We see many ways in which Discord will accelerate and as it enters new frontiers of making money on the internet, while simultaneously serving its communities with data privacy in mind. Discord fits firmly into our theme of the win/win world, not the zero-sum-game of Web 2.0, and certainly not the zero-sum-dressing-up-as-something- it-is-not Facebook world.
Size and Growth Comparison - See below chart which compares various companies’ MAUs as of their most recent available quarterly reports
Simply looking at MAU (Monthly Active User) growth, Discord is at a base of ~150m MAUs in 2021, or roughly half the size of others. But Discord is outpacing the others by multiples at 64% CAGR over five years from 2017-2021. Facebook clearly has the furthest to fall, especially given their first report last week of DAUs declining first time ever in its 18 years of existence - which cut the stock by ~25%.
Another metric to compare Discord growth is on servers (“owners”) who currently use Discord for free. We think of these as future potential business owners. Here is a great image from Packy McCormack’s excellent report on Discord -
Now for some recent Discord Easter eggs we found in the press -
A Bot Empire is Emerging. Nov 17, 2021 - “Discord is quietly building an app empire of bots” More than 30 percent of Discord servers now use bots, and 430,000 of them are used every week across Discord by its 150 million monthly active users. Now that bots are an important part of Discord, the company is embracing them even further with the ability to search and browse for bots on Discord. A new app discovery feature will start showing up in Discord in spring 2022. Verified apps and bots (which total around 12,000 right now) will be discoverable through this feature. Packy’s report on Discord was very instructive, especially on this point -
Premium Memberships. Dec 8, 2021 - Discord officially announced the release of a paywall for a server’s Premium Memberships. This allow a server to fully or partially pay-gate their services on the platform with subscription levels, with access to Discord's suite of analytics. Tech Crunch reported, "The company plans to take a 10% cut of paid membership subscriptions,” though we would note that this number is not likely set given the company is in experimentation mode.
Branding / Social Status Signaling in the Metaverse. Jan 25, 2022 - Vogue recently wrote an article describing “How Discord became the Soho House of Web 3.0”. It talks about the upcoming launch of luxury sneaker startup Cult & Rain’s Italian-made shoes, valued at more than $1200 apiece, and how the brand turned to Discord when their original plan of using influencers to drive traffic failed. Founder Goerge Yang was quoted saying “Discord is its own ecosystem, like Instagram, Twitter, Reddit and LinkedIn all wrapped into one, with 24/7 engagement from people all around the world. The community is our backbone.” The article lists various other luxury brands that have started their own discord servers to attract NFT enthusiasts and share NFT projects with existing fans.” Getting added to this white list is the new velvet rope. “When you get behind the rope of one of these Discord servers, it's a gateway to more opportunities,” says Amanda Cassatt, CEO of marketing firm Serotonin.
Playstation Collab. Jan 31, 2022 - It was reported in May of last year that Sony invested in Discord. This recent announcement allows us to imagine a true collaboration across the Playstation Network by Q1 2022 - imagine the ability to connect a PlayStation Network account to Discord easily switch between accounts.
New Additions to the Board. Feb 1, 2022 - Discord has onboarded Leslie Kilgore, Netflix’s ex-chief marketing officer, and Amrita Ahuja, Block’s chief financial officer, on its board of directors. The pair have “incredible experience building and advising world-class companies,” says Discord CEO and founder Jason Citron. Last quarter the company announced that Liz Harmen joined Discord as the new COO, overseeing go-to-market teams across marketing, business development, and operations. Liz is from Xbox at Microsoft, where she was the Corporate Vice President for Gaming Experiences & Platforms, running product and engineering for all of Xbox’s consumer products and services. Before Microsoft, she led Global Marketing and Sales for Oculus at Facebook, where she launched the industry-defining Oculus Rift virtual reality headset.
A Quick Note on Crypto Discord
While we are of course extremely excited about all things NFTs meets the Metaverse and gaming, we wrote a tough love warning this weekend.
As part of Discord’s growth, crypto communities have also exploded onto the scene. There is a misperception that Discord is exploding because of crypto. Not true - crypto is one type of community, albeit a strong and loud one, that is settling into the Discord platform as home.
Discord’s management appears to understand that its core base is gaming and so not surprisingly, the company has been very conservative about getting involved in anything NFT or crypto related. After a hint of Discord-linked NFTs and crypto wallets emerged on Twitter, the user backlash was so strong that it evoked this from Discord -
We appreciate all the perspectives we’ve been hearing in response to the internal concept you may have seen in a tweet earlier this week and want to clarify we have no plans to ship it at this time. We’re excited about the potential for web3 technology and the positive ways these communities are coming together on Discord, especially those organized around environmentally friendly, creator-focused projects. However, we also recognize there are some problems we need to work through. For now we’re focused on protecting users from spams, scams and fraud. - Discord CEO Jason Citron