The Generalist - DAOs: Absorbing the Internet

Hey friends,

There’s really only one reason why The Generalist shows up in your inbox on a Monday morning: I’m collaborating with the one and only Packy McCormick of Not Boring.

Those of you who have been part of The Generalist family for a while will know that Packy is probably my most frequent collaborator and one of my favorite writers and humans. In the past, we’ve worked together on pieces about Tata, Unity, and Airbnb, alongside other projects.

This time we’re teaming up to tackle a company both of us have been quietly obsessed with for a while: Discord. Long the province of gaming fanatics, the past year has seen the chat platform become the venue of choice for all manner of groups, including much of web3. (That includes DAOs, as discussed last week).

Below, we’ll dig into Discord’s circular origin story, product innovations, and crypto credentials.

Let’s get to it.

PS — If you don’t already, I’d definitely recommend following Packy on Twitter, and subscribing to his great work at Not Boring. It’s a consistently thought-provoking and entertaining read.

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Actionable insights

If you only have a couple of minutes to spare, here’s what investors, operators, and founders can learn about Discord.

• It’s hard to make a hit game. CEO Jason Citron tried to create a successful gaming studio twice. Both times he ended up expertly pivoting to gaming infrastructure plays. Discord is a product of one of those switch-ups.
• Bots give Discord defensibility. More than 3 million “bots” have been built on top of Discord’s API. Chat servers use these to moderate, engage, and play games with their community. This creates lock-in for users, and makes it hard for insurgents to unseat Discord.
• Average revenue per user (ARPU) is low. Discord makes just $1.30 per user. That trails far behind Facebook ($32.03), Snap ($10.10), and Pinterest ($4.07). While this suggests Discord has monetized weakly, it also reveals obvious room for improvement.
• Web3 is a big opportunity. We’ve spoken before about Discord’s prevalence in the crypto community. To ensure it maintains that position, the company should lean into web3, adding new functionality to transact, manage financial holdings, and govern.

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Imagine a human website.

Imagine a place where dank memes flow like honey.

Imagine a place where potatoes thrive.

Imagine a place where humans and bots live in harmony.

Imagine, in other words, a place like Discord.

As part of it’s latest ad campaign, Discord asked users to describe the chat platform to someone who had never used it before. It’s a testament to the company’s customer love and broad usage that the results read like dispatches from an unknown and invisible realm; Lucy and Edmund trying to explain Narnia, Harry relaying the magic of the wizarding world, Neo stumbling through a depiction of the The Matrix.

Imagine a closet that opens onto a kingdom of talking animals.

Imagine running through a wall to find your new school.

Imagine a pill that melts reality.

The fact that these work just as well for Discord as the official entries tells us something subtly profound. Discord is not just a communication platform, it’s a hidden world.

While Mark Zuckerberg believes he is best placed to homestead the metaverse, he may be surprised to find a thriving, indigenous species has already taken hold: Discord. More than any other business, the company is truly “metaverse native,” unwittingly built for the future. First designed for gamers — the metaverse’s pioneers — time has allowed it to flourish on adjacent plots. Educational groups, investing communities, and avid fandoms rely on Discord’s service to commune and converse.

Of course, it has also become the platform of choice for the many new entities, from protocols to NFT projects to DAOs, building in the lustrous, inchoate world of web3.

Yet the fact that Discord is best described in such rich, intricate metaphor is also an indication that its identity has not settled. Unlike almost any other social business, Discord feels fluid, biotic, an organism that has yet to fully evolve. Though the company has succeeded in securing a $15 billion valuation and earns hundreds of millions in revenue, there’s the sense that its current manifestation is perhaps only halfway to its end state. For Discord to reach its obscene potential, CEO Jason Citron ​— no stranger to pivots — may have to embrace new technologies, consider different revenue streams, and lean into the novel paradigms of web3.

Discord has the chance to be the metaverse’s natural social infrastructure. That is a prize potentially so large that attempts to quantify it risk being off base by several orders of magnitude.

To build such a consequential business, Discord will need more than imagination. In today’s piece, we’ll be sliding into Discord’s DMs to unpack different facets of the company. That includes:

• The circular origin story. Discord’s lore involves more headfakes and false starts than almost any other business.
• A dizzying product. Discord can be hard to understand, especially for aged millennials like Packy and me. We do our best to dissect the chaos of Discord’s chat.
• A forking user base. Though it began as a tool for gamers, Discord is now widely used. We’ll talk about its primary constituencies.
• Slow monetization. While it has grown rapidly, Discord’s been conservative when it comes to extracting money from users.
• The web3 opportunity. Discord has become the platform-of-choice for web3 entities, but it doesn’t seem to have totally won over hearts and minds. The company needs to capitalize on its lead and protect its positioning. We have some ideas.
• The Great Online Game. How Discord has become the home for those learning, living, and winning on the internet.

Time to join the server and get started. ​
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IN A MEME

For the pictorially inclined, here's the whole piece — all 9,300 words of it — in a single meme.

PUZZLER

All guesses welcome and clues given to anyone that would like one. Just respond to this email for a hint.

Detective Jim W was first to crack the case of last week's riddler. He was joined by fellow sleuths Kris S, NMT, Hardik T, Amir L, Massimiliano B, Krishna N, Gianni F, Rob H, Jithamithra T, Kunal G, Bernard V, Ben L, Mohamed A, and Regis S.

The answer? He kills his sister in the hopes that the women will attend the funeral. Dastardly stuff!

Wishing you all a very lovely Monday and excellent week,

Mario