Microsoft enters preliminary talks with Discord, looking for acquisition worth $10Billion USD

As reported earlier today on Bloomberg and also Gamesbeat, social media minnow discord is looking toward seeking further funding, whether through an IPO (publicly traded stocks) or an acquisition. Microsoft appears to be in the drivers seat in the latter, leading some to speculate as to why a mainly free messaging service would drive such a high price.

Late last year the messaging platform raised $100m in seed funding, valuing the company at $7Billion USD. This was on the back of Discord leadership reporting strong population growth to over 143m users, which is impressive considering the service only came around in 2015. As COVID related stresses hit most people in the world leading to more volitlity in the markets and a market which currently over values tech and gaming related companies, now would be a prudent time to seek an acquisition.

This would not be the first time Microsoft has tried to strengthen its foothold in the communications and social media field with the company expressing intent to purchase the US side of social media giant TikTok and also began talks with Pinterest Inc. In both instances the deals with Microsoft did not eventuate

Discord is in an interesting phase of its growth, while the service boasts 140 million active users there is still issues with how little monetisation and profit there is in the business which is why the company will need a public float or a corporate umbrella to weather the storm until maturity. The service does have a subscription service named Discord Nitro but the uptake among users remains low.

For Microsoft, the Discord discussion provides a chance for synergies across its PC, Gaming and Cloud businesses, with the heavy bandwidth use of hundreds of millions of interactions growing the Azure footprint, the discord storefront providing Microsoft with an alternative to the cumbersome Windows Store which has a myriad of problems for many PC gamers, not to mention the audience for GamePass potentially being magnitudes higher if advertised correctly to Discord users. Within consoles, tighter discord integration could see a more unified and robust party chat system across console, PC and cloud gaming on mobile which would in turn drive better experiences for the end user.

Microsoft is also in a position to spend money right now. With COVID recovery efforts sparking fresh concerns of inflation, cash on hand becomes less valuable than strategic investments. This could also be the motivation behind the big price tag that Discord is currently seeking in the market.

However there is no shortage of buyers, with Amazon and Facebook also rumored to be looking around the tech sphere looking for savvy investments.

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