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Why Discord Is One of Tech’s Hottest Startups

September 23, 2019, 2:00 PM UTC

Blasting zombies and punching warriors isn’t enough for many video game fans. They also want to chat with friends and opponents about their on-screen feats while playing.

One of Silicon Valley’s hottest startups, Discord, is focused on letting video game players do just that. In September, 56 million people used its service, a souped up version of old-style instant messengers, to connect through text or voice about their latest victory in Fortnite or to trade notes about a tough boss in Overwatch.

“Discord has really become the voice chat social network,” says Michael Pachter, a research analyst with Wedbush Securities. “Because multiplayer games require a chat function, it has filled a very large niche, and has developed into a destination on its own.”

With all the buzz, venture capitalists have become Discord’s new best friends. In its latest investment round in December 2018, the company achieved a private valuation of nearly $2 billion.

“If you look at charts of this versus Instagram versus Snapchat, the growth curves actually look pretty similar,” explains Gil Penchina, a venture capitalist at Ridge Ventures who led his firm’s investment in Discord in 2012, during its previous incarnation as a mobile game developer.

The buzz around Discord comes amid a huge expansion of the video game industry. Tech giants Google, Apple, and Microsoft are all pouring in big money as they create online game streaming services that challenge traditional gaming services.

Over the last 18 months alone, the number of people who used Discord quadrupled, largely based on word of mouth. Some of that growth is tied to the popularity of Fornite, the hottest video game of the last five years.

According to Epic, the game’s creator, Fortnite had 250 million players as of March. But the fact that those players use a hodgepodge of devices—Windows and Mac computers, PlayStation 4, Xbox One, Nintendo Switch, as well as iOS and Android devices— creates a problem: They can’t chat with one another.

Xbox Live, which has over 64 million users, only permits chat with others who have Xbox consoles. Likewise, the PlayStation Network only lets its 94 million-plus users chat with other PlayStation players.

The list of alternatives is short. TeamSpeak, an older service launched in 2001, is considered outdated by many gamers, in part due to the app’s early-2000s look and also because TeamSpeak charges users who want to create chat groups with over 32 people. Meanwhile, other chat apps like Skype and Slack haven’t caught on for gaming.  

Enter Discord, which debuted in 2015. It was created as a side project within a gaming company whose iPad-based game at the time had failed to get much traction.

“We saw some of our players finding ways to chat with our game, and I just had an intuition that Discord was going to solve a real problem for a lot of people,” says Jason Citron, Discord’s CEO.

After several months of developing the chat service with co-founder and engineer Stanislav Vishnevskiy, Citron decided to refocus entirely on it. Eventually, the team gave the service the name Discord, which also became its parent company’s name, in part because it sounded edgy but also because the name seemed appropriate for the product they had created.

“When you play an online game with your friends, you’re usually talking through a conflict together, which involves some level of discord,” explains Citron.

Discord’s basic service is free. But there’s also a premium version called Nitro that comes with added features—custom emojis, higher-quality video for sharing gaming screens, higher file-upload limits—that costs $10 monthly.

Discord declined to disclose details about its financial performance. But like most startups that are growing quickly, it’s almost certainly losing money.

Earlier this month, Discord made a rare cutback. It announced it would stop making games available through Nitro by Oct. 15, a tacit acknowledgement that most Nitro subscribers didn’t play them. However, Discord is betting that adding more useful features to Nitro in the future will eventually make it a significant source of revenue.

Still, Discord could be ripe for acquisition by companies like Google or Apple, as they explore game streaming, according to Pachter. It wouldn’t be much of a surprise.

In 2014, Amazon paid $970 million for Twitch, a popular service that gamers use to stream themselves playing video games. Recently, Discord debuted a similar service.

Of course, Discord also faces a number of challenges. Chief among them is that it allows users anonymity, which creates an “anything goes” environment.

Anybody can technically create “servers,” or chat groups, on Discord, meaning that younger users could be exposed to adult content or bullying. For his part, Citron defended Discord by saying it kicks out users who are younger than 13 if they’re found, but verifying ages on the service is nearly impossible.

“For teenagers, you know, obviously, it’s still important that parents are aware of apps that their kids are using, and sort of who they’re talking to on the internet,” says Citron.

In addition to gamers, Discord also attracts people from the fringe. In 2017, nearly 500 white nationalists used Discord to organize a now infamous rally in Charlottesville, Va., which resulted in at least three deaths and 34 injuries.

Discord responded by banning a number of alt-right accounts. And the company says it continues to do so.

During the first quarter, Discord shut down nearly 133,000 accounts, mostly because of spam or “exploitative” content like illicit photos shared without a person’s consent or two minors users swapping intimate photos.   

“The truth is that yes, I am [frustrated],” says Citron about the abuse. “We built Discord to be a way for people to be together with their friends and, as a parent, it’s important to me for that to be safe for everyone. Ensuring Discord is an inclusive and welcoming place for our users is our highest priority.”