On December 21, 2018, it’s reported that Discord raised US$ 150M at a valuation of US$ 2.05B, bringing total funding to date to US$ 279.3M as of this writing.
The timing is particularly interesting because the online storefront price competition on supply side among STEAM, EPIC Games and Discord has heated up since Discord’s “Series E” funding round (Crunchbase classification) in April 2018.
Chart below shows the 2018 timeline of competition on online storefronts and more among STEAM, EPIC Games and Discord.
I have already done some analysis on online storefront supply side pricing and competition in my previous post (Entering a market where existing platforms have network effect working). So in this is post I’d like to briefly discuss implications on the financing side (my speculation only as no access to inside information).
The financing round in April 2018 was to further build the core product and to launch Discord Store. At that time, the next round of financing probably was structured as growth funding for the user acquisition on supply side or demand side of Discord Store and for subscription service. EPIC Games Store’s adoption of disruptive pricing not only forced Discord to follow similar pricing level but also probably had impact on the commercial terms of subsequent financing. Lower pricing means it takes longer for cac to recover and longer to reach profitability.
Thanks to Discord, Discord Store might not have to spend a lot on demand side gamer acquisition. Discord Store might focus more on the supply side developer acquisition.
EPIC Games had huge financing round in October 2018 that it raised US$ 1.25B making it 2018 largest venture round in the U.S.
The capital raised might go into various area such as technology, esports, online storefront build-up & scale-up and cross-platform online services for developers… In storefront segment, unlike Discord Store, EPIC Games Store has to put more efforts on demand side gamer acquisition.
Last call to grab @Subnautica, the Golden Joystick PC Game of the Year for 2018, available as a free gift inside the Epic Games store until December 27! https://t.co/E5f2SRgW60 pic.twitter.com/bP3AwX6LA9
— Epic Games (@EpicGames) 2018年12月26日
— Epic Games (@EpicGames) 2018年12月28日
TechCrunch reported that EPIC Games has generated US$ 3B profit in 2018. If it is the case and the accounting “profit” is not far away from cash flow, that means EPIC Games has US$ 4B+ cash from internal and external to grow its business. The scale is so large that it makes me feel the likelihood for EPIC Games to successfully execute an ecosystem strategy is quite high and that the next round of financing for the company will be the IPO which might be sooner than expected.
Does the two percentage points difference between EPIC Games Store and Discord’s rake matter? Business with positive feedback loop(s) tends to have increasing return overtime making market gaining process path-dependent. However, the only thing we can infer from being “slightly” price attractive on the supply side in the short run is that it might help a little bit but it’s unlikely to be the only determinant since the competition is dynamic and firms are solving different problems and focusing on different things in the ecosystem when building up storefronts. This might be obvious but in fact it indicates the market structure might be market-sharing with some concentration rather than winner-takes-all (or most). This also helps us make prediction: incumbent’s market share will fall significantly due to the competition from new entrants. In other words, while network effect is strong, it can still be beaten.
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