Why Is Microsoft Interested In Acquiring Discord?

Microsoft Corp. is in talks to acquire Discord Inc. for more than $10 billion, as reported by Bloomberg, and there could be several ways the tech giant stands to benefit if such a deal goes through.

What Happened:Bloomberg gaming journalist Jason Schreier noted that a deal would join two companies that are pursuing audiences far beyond gamers.

San Francisco-based Discord is a communications platform — with VoIP, instant messaging, and digital distribution capabilities — that connects game studios and publishers with their communities. Gamers primarily use Discord, and its rise coincided with the exploding popularity of online multiplayer games like Epic Games' "Fortnite."

Advantages For Microsoft:Discord benefited from the social distancing and remote work culture during the pandemic-induced lockdown. The app's downloads grew to about 800,000 a day while its user base peaked at over 140 million monthly active users last year.

Amid the pandemic, Discord became a hub for communities interested in the Black Lives Matter movement, book clubs, home work help and more, helping to pitch itself as a “place to talk,” Schreier noted. An acquisition of Discord will benefit Microsoft, which has been seeking assets to build communities, he said.

As anyone can create their own community or server on Discord, these varied communities may be Discord’s biggest selling point for Microsoft, Schreier added. Microsoft may seek to integrate Discord with Xbox Game Pass, its Netflix-like subscription service for video games.

Compared to other social media platforms, the lack of advertisements is a major reason for Discord’s popularity, according to Schreier. Instead, the company generates subscription revenue from its Nitro service offerings of $9.99 a month and $99.99 per year.

Why It Matters:Xbox has been a hit for Microsoft, and the company now has a gaming division worth billions of dollars annually. In the most recent second quarter, the Xbox businessrecorded40% growth year-over-year. The acquisition of Discord will further give a boost to Microsoft’s gaming business.

Price Action: Microsoft shares closed about 0.7% higher on Tuesday at $237.58.