What Meta Can Learn From Discord

Ahoy Metamates! 🚢 🏴‍☠️

🆕 The TLDR This Week

• Stock hits a 15 month high after earnings call more here

• Facebook $725M user settlement goes live more here

• Over 1B avatars have been created across Meta platforms. more here

• Meta reportedly talking to Microsoft about AI coding tool more here

It Pays To Hire Bain

In the midst of rounds of layoffs, managers moving back to IC and major re-orgs - Mark’s personal net worth shot up by $10 billion to top $87 billion on Thursday. That officially makes him the 12th richest man on the planet.

According to most stock analysts, there’s more upside to come.

Of course, your mileage here may vary as methodology between analysts differs and only a small % of them have been able to consistently have correct predictions. To put it simply: if any analyst had a crystal ball, there’d be no markets.

The top analysts on Meta as of today are:

• Eric Sheridan at Goldman ( 28 out of 39 ratings were profitable)

• Doug Anmuth at JPMC ( 33 out of 44 ratings were profitable)

• Justin Post at BofA ( 43 out of 61 ratings were profitable)

• Aaron Kessler at Raymons James ( 39 out of 49 ratings were profitable)

• Lloys Walmsley at UBS ( 28 out of 43 ratings were profitable)

🔥🔥🔥 Next issue: Earnings Recap coming on Wednesday. Waiting on a few more reports to give you the complete picture.

Should Meta Copy Discord?

I can’t believe I’m saying this but - Discord is the dark horse Meta is not looking out for. Someone needs to tell Cox to chill out on copying legacy aps like Twitter and Telegram and focus on where innovation is actually happening.

A year ago, I thought Discord was all but dead - with the crypto dip, all of a sudden it wasn’t fashionable to have a DAO or NFT community. But today, the tides are quickly turning -

(1) Discord is the cradle for AI communities

(2) Business use cases for cross border commerce are rivaling WhatsApp

(3) Pre-IPO status are giving Discord flexibility to experiment in ways Meta can’t

From China With ❤️

Right now, if you want to do business with an overseas factory, it looks like this on Whatsapp: a bunch of back- and -forths with and agent or supplier. Payment is usually handled by a third party app, most commonly AliPay or Wise.

It’s extremely inefficient at scale - if you’re a factory that has 10000x customers, you’re running a bunch of individual chats with some minimal amount of template replies/ automation on the back end. This may semi-work for ordering products, but it breaks when you need to run support.

This is where Discord comes in.

I’m seeing a steady movement of some of the largest agents and suppliers in China towards a community support model that’s semi- private. Here’s how it works:

(1) You order your product in a private chat with the supplier

(2) All further communication around support and QC is handled by the discord community, with limited intervention from the factory/ agent.

Let’s look at a factory- driven Discord community.

This one has 133K members, buying product via an agent from about 400 different factories.

Announcement channels are used to communicate discounts, notices and giveaways. Different factory agents pop in to post notices on logistics - for example, some shipping channel have daily acceptance limits and if you want cheaper shipping, you need to monitor the shipping notices deadlines.

Chat channels are where users from different regions can talk freely about what’s selling well in their region, what’s happening with customs and taxes, etc. These channels are 100% user driven and not monitored by the agent

QC channels are used for quality control - it’s 100% user driven. Users post photos of items they received and the factory name and other users critique the quality. Smaller factories build reputation this way + offer affiliate share links to users on positive reviews.

QC treads are image based, not chat based, and power users spend hours helping others. It’s very similar to the moderator dynamic on Reddit.

Help channels are a mix between users helping each other and factories/ agents chiming in directly. The majority of support tickets in these channels are closed by crowdsourcing responses from regular users

Help tickets are just chat threads - in the example below a user is trying to figure out shipping between different providers. From a customs perspective there are non trivial differences between them . He got 45 user replies in 5 minutes.

Compared to the fairly static interface for WhatsApp, Discord’s community-driven commerce play has a real chance to disrupt cross-border commerce for small and mis size e-commerce businesses.

From Gaming to Crypto to AI

The gamer, AI and crypto communities on Discord share a lot of similarities - they’re driven by builders who are digital natives, grew up in chatrooms and have low budgets.

This new wave of community-driven development, where people no longer meet IRL to make something, is the future. The only problem Discord has is discovery - it still relies on TikTok, Twitch and reddit to bring people together.

Still, it’s able to mobilize communities fast. When the fake AI generated Drake song came out, I watched AI World - a channel dedicated to making AI music with voice models from real artists reach 40k creators in a weekend.

Why is Discord so attractive to creators? Cost and speed.

Spinning up a community with upload capability is as cheap as $2.99. This is one of the major reasons Midjourney became a client - the CEO has been vocal that cost was the major decision factor for his team. Midjourney now has >1M members and recent reports claim it’s profitable.

Past that, Discord has a lot of built in mechanisms for retention, like custom flair, games, and a community dynamic that feels like a mix of reddit, stackoverflow and IRC ( for those old enough to remember what that was like).

• Role based channels

• VIP roles for paying subscribers

• Live events, classes and discussions that feel ephemeral/ have FOMO

• Contests, giveaways and easy affiliate streamlining

• 90/10 revenue split for subscriptions

Businesses can also use Zapier to integrate with Google Analytics, AutoMod AI or Clyde for moderation and creators can host Youtube watch video parties with a simple integration.

To IPO Or No?

Reports hinting an an IPO have been largely unsubstantiated so far but the metrics look pretty hot. From a strategy perspective, it makes sense to ride the AI wave and also go at the same time as Reddit, which is slated for later this year.

• $15B valuation at last round

• $445M revenue in 2022 (source)

• >300M registered users, ~ 50% MAU ( source)

• Users spend at least 280 minutes on the platform every month (source)

Hiring has slowed substantially but I recently saw some interesting roles in accounting , including a senior role in technical accounting leadership that specifically asks for public company filing experience:

That, coupled with a new Chief Accounting Officer and a new CISO make me feel an IPO may not be as far off as people think. If Discord does go public, it will likely be analyzed and compared to Meta as part of the same company cohort.

That might be the nudge Meta needs to finally start reporting WhatsApp metrics separately at Earnings.

🔥🔥🔥 Next issue: META Earnings Recap coming on Wednesday. Waiting on a few more reports to give you the complete picture.

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