Discord just raised $100M last week (The Verge), led by Index Ventures. Jason Citron (CEO) wrote a note explaining that they are expanding outside of just video gaming to become a general communication tool (“Your Place to Talk”). I have three reflections on this:
1) Video gaming spawns products that are then used outside of gaming. This is true of companies like Slack (started as a game studio) and Unity (used in entertainment), as well as technologies across cloud infrastructure, edge computing, software engines, and much more. The technical demands and consumer trends in video gaming spawn innovation that is often applicable across the broader economy.
2) Discord had 2 options: broaden their top of funnel or refine their freemium offering. Discord has offered a premium product for free, when they should have been charging for it and/or limiting the features of their free offering. Since they don't want to do this within their target market of gaming, they have to broaden their top of funnel (i.e. expand outside of gaming with their same product offering strategy).
3) Discord has an under monetized asset. They built one of the best products in the gaming ecosystem yet gave too much away for free. This trained gamers to expect too much value without having to pay for it. In my view, they should have pursued a more strict product pricing strategy instead of valuing growth > monetization.
Caffeine announced last week that Cox Enterprises, Fox Corporation, and Sanabil Investments have co-led a $113 million Series D investment in the company at a >$600M valuation (Bloomberg). In a highly competitive streaming space, I was curious as to how they compared to the other streaming companies right now. I put together the below table on the valuation side and public data on website traffic. (note: these are estimates)
Takeaway: Caffeine looks quite overvalued. Even their mobile downloads (200k in June) are not close to Twitch's mobile downloads (5m in June). On that metric alone, Twitch should be worth 25x Caffeine (instead of ~5-15x).
Back in May, Epic Games revealed Unreal Engine 5 and the demo showed gamers what they can expect from the next-generation of consoles. You can watch the demo here, which showcases everything from ray tracing to film quality assets. Given the investment from Sony, it’s not surprising Unreal Engine 5 was showcased on a PlayStation 5, Sony’s next console. This relationship between Sony and Epic Games is now further solidified by Sony’s $250M investment in Epic Games for a 1.4% stake, valuing Epic at $17.86B.
Recently, Epic Games has been primarily taking investment from non-endemics such as KKR or T-Rowe Price, so this investment from Sony may be indicative of a more robust partnership. Unlike Microsoft, the developer of PlayStation’s biggest competitor, Sony also has Sony Pictures which could be a beneficiary of this investment (i.e. leveraging the graphics engine of Unreal for their movies).
This investment will likely give Sony an edge on upcoming updates to the Unreal Engine. If Unreal Engine becomes more strongly tied with PlayStation, this could have adverse effects on Xbox (Microsoft). For context, PlayStation 4 had a 57% market share compared to 27% for the Xbox One in 2018.