It has been a big year for realizing the limits of technology for interacting with people. Gamers have known this for a long time. Lag, disconnections, and coordination issues were problems in gaming since the start. There is a platform that has gone a long way in solving those problems: Discord.
Discord allows people to talk and chat online. Servers are created by anybody to talk about anything, usually, it is a friend group or a shared interest. They contain chat channels (kind of like Slack) and voice channels that are always on and allow people to join and leave whenever they want.
The competition between internet communication platforms is fierce. Discord wasn’t early to voice channels or group chats. They weren’t unique for targeting their offering to gamers. Other platforms have the same features as them. Yet they are a multi-billion dollar business. How? To borrow an idea from Sarah Tavel, they built a 10x better product AND capture more value from it.
Voice chat sucked for a long time. Skype, which was long the most popular option, was a mess. It forced you to call people. Servers went down often. The application crashed. Chats were all over the place. There is a good reason people do not use Skype and it is because it sucks.
There were other competitors like IRC, TeamSpeak, Mumble, Ventrilo. All had basically the same features, voice calls, and chat. Each suffered from a combination of problems like:
- Complicated setup process. Any new member must also go through a setup process.
- Paid hosting. No one wanted to pay when there were free options. Especially true as servers grow.
- Unclear benefits. Convincing one person was not enough, you needed to convince your whole group of the benefits of switching.
- Weird ideological reasons. Your platform was your tribal affiliation, switching means abandoning your tribe. Everyone looked down on people who didn’t use the same platform as them (even if it was jokingly).
Discord launched in May 2015, long after the competitors listed above. They are now more successful than those same competitors. They did so by making the experience 10x better:
- Discord requires nearly no setup. Starting a server on Discord takes two clicks. Creating channels is two clicks. It works instantly and all the time.
- Discord is free.
- It is easy to switch to Discord. Inviting people is two clicks and a paste. Joining a server (once you have an account) is two clicks. It is so simple you don’t even think about it.
- Non-core features like emoji support, reactions, bots, integrations, video calls, and screen-sharing all work as well as you could ask.
- Big community servers for games, fanbases, organizations, hobbies, and more.
Improvements in each of these areas add up to a 10x better experience than other platforms. I complain about Discord way less than I complain about Skype. There are benefits for everyone on Discord, which makes it a 10x experience both for groups and individuals.
On top of being 10x better, the core features are free. This causes an obvious business problem, how do you make money? There isn’t an obvious place to put ads. Competitors often charge by the member, but that incentivizes against growth. Discord figured out a way to incentivize growth while capturing value from large and small groups.
Sell Status to Capture Value
It took Discord a long time to figure out monetization (and they still are figuring it out). Venture capital allowed them to experiment with ideas such as selling games and membership. Neither worked perfectly, but they pointed in the right direction. Forbes estimated they are “on track to top $120 million in sales this year (2020)… up from around $70 million last year.”
To understand Discord’s monetization, look at their history. The founders previously started game companies and were inspired by free-to-play games like League of Legends. Games like League of Legends sell status. It is free-to-play but you can buy “skins” to make your character look different. If you have a cool or expensive skin, it means you care more about the game. It raises your status. Discord does the same.
Discord allows users to raise their status through a subscription called Nitro. It provides quality improvements (file size and video quality), special profile upgrades (more emojis, animated profile photos, custom tags), and most importantly, the ability to “boost” a server.
Boosts raise a user’s status in both small and large servers. They allow you to either improve your friend’s online hangout and your communities’ experience by unlocking custom emotes, cosmetic features, and quality improvements. For users, it puts an icon next to their name saying they contribute and gives them a special booster role on the server. In short, it is a way for someone to pay to stand out.
Server Boost Perks
You can buy boosts separately from Nitro at $5 per month or $50 per year. Perks come in uneven tiers: Level 1 is 2 boosts, Level 2 is 15 boosts, Level 3 is 30 boosts. It is unlikely “friend group sized” servers get past two boosts, but large servers often pass thirty. Some examples:
Here are 14 popular servers accounting for nearly $250,000 in revenue per year. There are tons more, all with varying amounts of boosts. People are willing to pay to stand out, even when there is no obvious benefit. This is universal.
Every community needs a place to communicate online. Discord has the best offering, and it is free. Other platforms either force you to pay by the member or have a flat rate paid by the community host. Discord doesn’t require either. Servers can grow as large as they want for free, moderators and admins don’t have to pay, and Discord still makes money.
As communities continue to grow on Discord, the money Discord makes from those communities goes up as well. Flat rates and tiers limit this. Communities want to grow, Discord provides them with an easy and effective way to do that. Users want status, Discord gives them a shortcut. This aligns incentives better than advertising or paid memberships do.
Discord won by building 10x better spaces for communities. By selling status, they have also managed to capture more value from those communities than other platforms.
Discord won the competition for the gaming chat platform of choice, and now it wants to be the platform for all internet communities. This means they will be competing with the “big dogs” like Slack, Reddit, Twitter, Facebook, Microsoft, and Epic. Their free-to-play, pay-for-status monetization model is a competitive advantage.
Discord is a successful company. The question becomes how successful can they become? The key is the number of internet communities who choose Discord as their home. By creating a better product than competitors and being free for growth, Discord puts itself in an excellent position to continue to succeed moving forward.
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