A social network without ads? Discord Defies Convention

In an interview, Discord co-founder and CEO Jason Citron, 36, said the company refused to adopt the advertising model preferred by its peers because the ads would be too intrusive. People use Discord to hold conversations in real time, he said, instead of passively reading, making or commenting on posts. He also said that he thinks consumers in general don’t like ads and don’t want their data to be shared with brands.

“We really believe that we can build products that make Discord more fun and that people will pay for them. This keeps our incentives in line, ”he said.

For a startup like Discord, trying to generate revenue through ads would be difficult, said AB Bernstein analyst Mark Shmulik. “You are then competing with the big competitors on Google, Facebook and other social platforms for advertising dollars and that is not an easy task,” he said. “It’s a heavy lift.”

Discord, based in San Francisco, started in 2015 as a platform that made it easier for video game enthusiasts to chat while playing online games together. Citron, an avid gamer and game developer, classified his technology as a more robust alternative to the options existing at the time. Since then, Discord’s appeal has expanded to include groups of high school students doing homework together, friends watching a movie on a shared screen, and individual investors in the WallStreetBets community of Reddit Inc., which gained notoriety earlier this year. due to its frenzy in the GameStop trading frenzy.

Discord said he doubled his monthly user base to about 140 million, as daily life went online due to the coronavirus pandemic. Last year, the company generated $ 130 million in revenue, up from nearly $ 45 million in 2019, according to a person familiar with the company’s finances.

Still, Discord said it was not profitable. Most of its growth has been through word of mouth, although in recent months the company has claimed to have invested in its promotion to university students.

Discord users form groups called servers that consist of friends or communities dedicated to topics like houseplants or cryptocurrency. They can chat by text, audio or video, and most Discord servers are invite-only. Users can choose to pay $ 9.99 monthly or $ 99.99 annually for Nitro, a subscription that offers benefits such as special emojis and enhanced video resolution.

Citron said that Discord plans to continue to rely on its large base of dedicated users to help it become profitable as vaccines are released and virus restrictions increase. Users often buy Nitro subscriptions for the servers they belong to as a way of showing support, he said, adding, “It’s almost like giving a group hug or taking them out to lunch.”

Subscription-based business models are attractive to technology investors, analysts say, because they can provide consistent, and therefore predictable, revenue. But the strategy depends on whether users like a platform enough to commit to recurring payments for services or products.

“You are betting on getting more revenue from a small subset of enthusiastic customers willing to pay for the product than showing ads to the entire customer base,” said Doug Clinton, managing partner at investment and research firm Loup Ventures. “It is risky to rely on keeping consumers paying for long periods of time, but beautiful if it works.”

Other communication platforms, such as Signal Messenger LLC and Facebook’s WhatsApp, also do not generate revenue through advertisements. Signal is a non-profit organization that depends on donations. Facebook planned to introduce WhatsApp ads last year, but changed course.

Discord doubled its valuation in December to $ 7 billion, after raising $ 100 million in a financing round led by venture capital firm Greenoaks Capital, which was already an investor in the company. Overall, Discord raised about $ 480 million, according to data from Crunchbase. Citron said he is not thinking of going public now.

Most Discord servers are private, while other social platforms feature mostly public dialogue. Although Discord is primarily for consumers, some companies have set up servers to share news and provide customer support, as well as for their employees to communicate with each other.

“There is no comparable product that looks the same as Discord,” said Neil Mehta, a partner at Greenoaks Capital.

University junior Heather Navarro said she belongs to a private Discord server with about three dozen friends and a handful of public servants from the community, such as one for singles and another dedicated to Richmond, Virginia, where she lives. Sometimes she goes on a server where students of all ages provide help with schoolwork.

Ms. Navarro, 20, joined Discord a few years ago as a way to chat with friends while playing video games. She recently purchased a monthly subscription to Nitro because “I have been using it much more recently,” she said. “My friends and I use it to talk about our lives. We talk every day. “

Discord is testing more paid features, including original multiplayer games and digital stickers.

Like other social platforms, moderation challenges arise, and the company sometimes finds it difficult to control evildoers, as it does not monitor users’ conversations. “Privacy has been built into our product from the beginning,” said Citron.

Discord uses a combination of machine learning, employees and voluntary moderators to eliminate behaviors that violate its rules of conduct. A trusted and secure team of about 45 employees, or 15% of Discord’s total workforce, proactively seeks out people’s efforts to form servers that would not be welcome on its platform. “We have zero tolerance for hate and extremism online,” said Citron.

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Write to Sarah E. Needleman at [email protected]