HomeBusiness ModelsDiscord Business Model Case Study

Discord Business Model Case Study

Discord is a classic example of building a product to cater to a specific audience segment, only to find out other audiences you weren’t initially targeting, finding value in your product, and using it. And so much so that, five years later, after its launch in early 2015, the discord team let go of its original identity, deciding to embrace the direction they were pulled into by users.

Jason Citron & Stan Vishnevskiy, gamers themselves, originally built Discord for gamers. A typical user would be someone who played video games a lot, and while they were at it, used Discord to talk to friends in-game. After a while, the same gamers started using Discord to talk about things other than games. Eventually, different kinds of communities like anime, music, art, crypto & many others sprung up, turning Discord from a place for gamers to talk into a place for anybody and everybody to talk.

Discord’s Founding & Growth Story

Jason Citron, now Discord CEO, had playing games since he was a kid and developed his first game at age thirteen. After his graduation, 

Jason worked as a game developer for a few years before venturing out independently. 

OpenFeint, Jason’s first company, was acquired by Japanese game maker GREE for $104 million in 2011, only two years after it started. The company provided an SDK to Android/iOS game developers looking to integrate social experiences in games. 

OpenFeint was born out of a pivot made after failing to build a financially successful game, but Jason was keen on accomplishing the original goal. So, Jason set up a gaming development studio called Hammer & Chisel using the money from OpenFeint’s sale, planning to build a multiplayer game around tablets, which were new at the time.

In 2014, Hammer & Chisel released its first game, Fates Forever. The game, though critically acclaimed, never really took off. In a 2020 interview, Jason opined that Fates Forever could probably have had a better outcome if it was mobile-focused instead of tablet-focused.

But just like it happened in OpenFeint’s case, the game’s failure led to a successful pivot. One of the game’s developers, Stanislav Vishnevskiy, now Discord CTO, suggested working on a text and voice chat application for gamers.  

At the time, Teamspeak and Ventrilo were the popular services among PC gamers who wanted to play and chat, but they had many shortcomings.

First, players would have to rent a server and also pay a monthly fee for accessing it. After that, they’d have to share the server IP address with their friends, who would have to download the application, making the process friction-inducing. And all this, in 2015, when web apps were becoming the norm. To add to the woes, the design of these apps was excruciatingly outdated. 

Discord addressed all of the problems of its predecessors. It was free to use. It had a remarkable product design. It had a desktop client, but it also had a web app. Users could invite friends with a link and begin conversing through the browser without downloading anything. 

Like many niche products, Discord got its first set of users from Reddit. One of the founder’s friends shared a Discord server link in the Final Fantasy XIV subreddit, hoping to get people to talk about the game’s new expansion pack. Citron and Stan would welcome anyone who joined the server, talk to them, and take feedback. 

Surprised by this experience, Redditors would go back to the subreddit, saying something like, “I just talked to the developers there, they’re pretty cool,” causing more people to check out Discord. That day, a couple of hundred people signed up for Discord, kicking the snowball off the top of the mountain, the way Jason puts it.

After that initial Reddit launch, Discord grew organically, with gamers inviting gamers, who then invited more gamers. But to get more users to adopt Discord, the company partnered with famous Twitch video game streamers, popular games like Fortnite, video game sports company esports, Xbox gaming console, and Spotify. 

Discord outgrew gamers, its initial target audience, and all types of people started using Discord with time. By June 2020, the company had over 300 million registered users, up from 250 million a year ago. While growth slows down with scale, Discord has been more or less doubling the number of registered users since 2016. Of its 300 million registered users, around 100 million were using the service every month, making Discord roughly a third the size of Twitter or Snapchat. 

Discord’s Business Model

Discord’s business model has evolved over the years, as the company figured out what it intends to become and who it plans to serve. 

Towards the end of 2018, when Discord was more of a place where gamers hung out, the company launched a video game store hosting around 1000 games. The store didn’t get as warm a response as expected, and competitors woke up from slumber. Epic Games, the company behind Fortnite, announced a similar game store initiative

In the long run, Discord’s game store’s success would depend on how much money the company could spend on buying exclusive gaming rights. Being a startup, getting into a content war with established players would have been unwise, especially considering the lukewarm response to the game store from users, leading Discord to shut down its game store. 

During that time, in early 2019, Discord Nitro, a $5 subscription service, was covering around 1/3rd of the company’s burn rate. A way for passionate users to support Discord and access some chat perks, Nitro was not the company’s primary focus by any means at all. 

At the crossroad of what business model to pursue next, the company debated the idea of selling digital advertising once again, a move it had deliberately avoided in the past. Selling ads is the go-to business model for consumer platforms that aggregate user attention, but Discord decided to give it a pass & focus on improving Nitro instead.

Explaining the rationale behind the decision, Citron said

“I didn’t want to sell ads because I felt like selling ads would require us to spend a tremendous amount of energy investing in building ad technology that doesn’t make the end user experience better. It actually subtracts from the end user experience. So, we would be spending a ton of energy taking value away from our users so that we could make money. And I wanted to build a business where the incentives of our team and our user base were directly aligned. And that is why, at that moment, I said let’s not do the easy thing and slap ads on this. Let’s double down on Discord Nitro, which is all about making it more fun to talk and hang out, and see if we can build a real business around that.”

Discord spent a significant chunk of 2019, enhancing the experience of Nitro to get more subscribers. At the time of writing, Discord users can buy the Discord Nitro plan by paying $99.99 per year or $9.99 per month and get access to the following enhancements:

Global Emojis:  Discord is divided into servers, created to discuss a specific topic, and each one of these has its members, rules, and channels. Most of these servers use custom emojis made by the community or server owners. But these emojis can only be used on the servers they were made. Nitro allows subscribers to take emojis they have in their library and use them on other servers. To add to that, subscribers can also create animated emojis. 

Sever Boost: Server boosts can unlock up to 3 levels of perks for members, with two boosts needed to get a server to level 1, fifteen to get it to level 2, and thirty for level 3. Depending on the level a server is boosted, members get access to benefits like more community emoji slots(up to 250), a custom server URL, etc.  

If a server owner buys Nitro, the subscription automatically propels the server to level 1. Members can also choose to boost servers individually at $4.99/month to show support for the community. 

Personalized Profile: All discord usernames have a random, four-digit number in the end. An example username would be ‘gnarf#7777’. Users that subscribe to Nitro can change the number to anything they want as long as their desired combination is available. 

Increased upload limit: While the usual file upload limit for free Discord users is 8 MB, Nitro subscribers can upload files up to 100 MB in size. 

HD Video Streaming: Discord comes with a go-live feature that allows users to stream video games to a small group of friends. As a free user, you can stream games up to 720p at 30 FPS. Nitro subscribers, though, get to stream at up to 4k screen resolution and up to 60 FPS screen share.  

Apart from Nitro, Discord also offers a classic Nitro plan, priced at $49.99 per year or $4.99 per month, with fewer perks.

Discord’s Revenue & Valuation

Being a private company, Discord is not obliged to disclose its financials, and it exercises that right. The company is most likely not profitable yet, but Nitro has shown enough promise that it could raise $100 million at a $3.5 billion valuation from Index ventures in June 2020. 

After the cash infusion, Danny Rimmer, a partner at Index Venture, drew parallels between Discord & Slack, “I believe Discord is the future of platforms because it demonstrates how a responsibly curated site can provide a safe space for people with shared interests. Rather than throwing raw content at you, like Facebook, it provides a shared experience for you and your friends. We’ll come to appreciate that Discord does for social conversation what Slack has done for professional conversation.” 

If you liked this piece, you might also like our article covering Google’s Business Model.

Discord Business Model: How Discord Makes Money
Article Name
Discord Business Model: How Discord Makes Money
Discord is most likely not profitable yet, but Nitro has shown enough promise that it could raise $100 million at a $3.5 billion valuation from Index ventures in June 2020.
Publisher Name

Hey 👋

I'm a digital marketer working 5 days a week as a salaried employee & writing business blogs on weekends.

My goal is to turn this blog into a full-time gig. But for that to happen, I need it to generate as much revenue as my salary to protect the downside.

To be transparent, I currently make money with ads, but it isn't enough to transition to working full-time.

Why do I want to work full-time on the blog if I can carry on writing on the weekends?
Two reasons:

  • My blog gets more than 20000 monthly visitors, most of them through search. The only bottleneck to growth is the amount of time I'm able to dedicate to the project, so working full-time will help me scale and turn it into my primary income source.
  • Working on projects of my own opens the door to unlimited personal and financial growth.

If you've found value from reading my content, feel free to support my dream in even the smallest way you can.

Muaaz Qadri
Muaaz Qadri
A Proud Computer Engineer turned Digital Marketer