The Soaring Popularity of Roblox
If you haven’t heard about Roblox, you must be sleeping under a rock. The $3 billion video game company (as of August 2021) has been all the rage recently, earning hundreds of millions of dollars in revenue.
What makes Roblox stand out from the tons of other video games out on the market is that it allows every gamer to become a creator as well: Users are not only able to, but also encouraged, to create their own games or virtual worlds within the Roblox universe. And the best part is, you don’t need to know how to code to be a game creator!
Now you might be wondering: Who created this shining unicorn? Look no further than Roblox CEO David Baszucki, who founded it in 2004.
What Inspired The Creation Of Roblox?
Roblox was developed by engineers David Baszucki and Erik Cassel to arouse children’s interest in physics, they sought to bring the world together with play. The inception of the platform involved the creation of objects in an engaging manner to learn about science.
After the launch of the platform in 2005, students explored the potential of Roblox by making their own worlds and objects. Soon after, an update that created the architecture for game creation was added, allowing any user to create their own game.
Roblox runs on the programming language Lua and uses the freemium model to earn revenue. Although it is free to download and play the game, players need to pay for extras such as costumes or the virtual game currency, Robux.
Indeed, Roblox has grown tremendously in the past two years reaching over 43 million active users daily. Not only that, they have seen a massive boost in revenue of 140% to $387 million in Q1 2021.
However, this growth did not come without a cost, and the significant increase in R&D plus infrastructure development meant that it experienced a net loss. Still, Roblox seems to be growing steadily with users spending about 72 hours a month in the game and about $5.60 per month.
Roblox’s Stellar Performance During The COVID-19 Pandemic
It is a well-known fact that Roblox benefited immensely from the COVID-19 pandemic and the consequent lockdowns. Roblox, with its multiplayer friendly interface, has been an ideal substitute for socialisation that children crave.
Going for virtual birthday parties, creating games as well as embarking on adventures in Roblox helps to alleviate some of the stresses of lockdown. Children that were forced to remain at home due to lockdowns, thus they turned to Roblox to relieve their boredom and in doing so boosted Roblox’s revenue and popularity immensely. And as an extended screen time was inevitable, parents generally felt better letting their kids onto Roblox rather than mindless hours on YouTube.
During the major lock down periods (March to June 2020), there was as much as a 40% increase in the usage of Roblox. Daily active users in 2020 were double that of the same period in 2019. For example in Q2 2020, there were a staggering 33.4 million, versus 17.1 million in Q2 2019.
Game Creation In Roblox Also Spiked
Not only did the multiple rounds of lockdowns help Roblox expand its user base, it also caused a surge in game creation. With many game creators stuck at home, the number of games created and further developed burgeoned, making Roblox even more attractive.
Coupled with the ease of coding games on the Roblox platform, it was a winning formula which saw the amount paid out to developers in 2020 increase by 250%. It surpassed the $250 million mark, from just $100 million in the year before.
Roblox’s Revenue Benefited Immensely
Not only did the COVID-19 pandemic help with Roblox’s revenue, it also gave Roblox a great boost in publicity. Many begin to see Roblox as not a gaming platform but a place to create experiences or at least substitutes for the social interactions they missed.
Parents changed their perspectives on Roblox, it was no longer just a video game but a place for their children to socialise in safety with their friends and classmates. Not only that, Roblox became a substitute for experiences in the real world (a much fitting description since the games in Roblox are themselves called ‘experiences’) with people creating virtual worlds with uncanny resemblances to the real world to host forums, parties and other large-scale events that had been banned due to the pandemic.
It all paid off for Roblox because the company had a huge surge in revenue and its stock prices went up significantly from pre to post pandemic. With a market capital of over 40 billion dollars, it is no understatement to say that Roblox is very much a beneficiary of the pandemic and is going to use the momentum they have gained to push themselves further.
Investors Are Bullish Amid Increase In Operating Losses
Many investors have bullish outlooks pegged onto the Roblox which is propelling the stock price high, even as it records losses. Yes, Roblox is actually clocking in losses.
The losses from their operations increased by more than 344% during the first 9 months of the COVID-19 pandemic as compared to the same period in 2019.
What Lies Ahead For Roblox Post Pandemic?
However, with the increase in vaccination rates around the world and the loosening of restrictions, more and more people will turn to the outside world for entertainment. The question then is: What lies ahead for Roblox?
The good news is that the pandemic has hugely increased the popularity of online gaming and made it into a mainstream hobby. This means that the industry will continue to grow.
Furthermore, it is expected that industry transformation will be accelerated due to pressures arising from Covid such as the use of cloud-based gaming services. All these set Roblox up for further growth even after the pandemic.
How Does Roblox Earn Money?
Roblox’s revenue streams come from 4 main sources: the sales of its in-game currency Robux, advertising deals, licensing agreements, and royalties. And the company has done an incredible job in generating revenue, in 2020 revenue was $925 million. This was a significant increase compared with $349.9 million a year earlier and $488.2 million in 2018.
Not only that, the company had its initial public offering(IPO) in March 2021. This was a delay from the first proposed IPO in December 2020. Interestingly, instead of a traditional IPO, Roblox has decided to go public without the assistance of underwriters; a direct listing. The company will continue to consult its financial advisors at Goldman Sachs, Bank of America, and Morgan Stanley to set a listing price and set up the required paperwork. However, the mega-banks won’t get to play the possibly lucrative role of actively setting up the initial trades.
The majority of its revenue still comes from Robux, its own in-game currency.
In 2020, it had been estimated that Roblox earns $12.50 for every 1000 Robux sold. The revenue earned is then used for further game development as well as paid to their content creators.
And while its revenue from Robux comprises the lion’s share of its revenue, it has found impressive success in these other areas as well. For example, the toys under Roblox were top sellers in major US retailer Walmart, showing that the company has alternative revenue streams.
Roblox also has advertising deals with Marvel, Lego, and Warner Bros. It also has partners like Walmart, who are able to sell Roblox-branded items bringing in revenue from its licensing agreements.
Roblox is also exploring new ways to monetise the game such as putting in-game advertisements on billboards and other paraphernalia to allow brands to market themselves without ruining the overall Roblox user experience.
1. Roblox Earns Money Through Robux
Robux (R$), which is a clever portmanteau of ‘Roblox’ and ‘buck’, is the in-game currency on Roblox. It was introduced on May 14, 2007 (alongside Tix) as the replacement of ROBLOX Points. Robux is Roblox’s main mode of currency; all paid items within the avatar shop are sold for Robux, including user-created content such as microtransactions and game passes. Roblox has effectively created its own economy, paid and run fully by Robux. In fact, this currency is not just an in-game currency. Not only is it bought and paid with real money, it can also be ( in some circumstances) exchanged back for real money. And that makes Robux serious business, not just as a revenue stream for Roblox itself but also as a determinant for the income their content creators receive.
In order to further monetise Robux, Roblox also has a subscription feature that gives users monthly allotments of Robux for a given fee. From $4.99/month onwards, users will become part of Roblox premium which not only gives a monthly payout but comes with other in-game perks like the ability to purchase exclusive items. This subscription model allows Roblox to scale its income garnered from Robux upwards and outwards. There are different packages, each with its own incentives, such as the perks they grant and the add-ons given. And while not everyone is a Roblox premium member or buys Robux, a sizable portion of the 32.6 million daily user base do, giving the company a steady income flow.
The most important feature of Robux is that Roblox developers are paid using Robux (This is only if the creator in question is part of the Roblox Developer Exchange Program, which is also known as DevEx) and then they convert the in-game currency to US dollars based on the prevailing rates. This means that the value of the game currency has very real implications on the livelihoods of developers and should not be seen as merely an auxiliary game mechanism. Roblox also has policies to control the cash-outs of Robux to U.S. dollars to prevent too much from being converted at once.
2. Roblox Earns Money Through Advertising Deals
Like many gaming companies, Roblox has had advertising deals in the past and now to increase revenue. Roblox is positioned in a unique position that makes it highly attractive to companies seeking to advertise.
The Roblox metaverse is so vast and filled with various entities that it is not surprising or out of place to see characters advertising for global brands or big names in the entertainment industry. In fact, Roblox has already had partnerships with some of the world’s most recognized brands such as Nike, Disney, Warner Bros and Gucci.
A prime example would be in 2019 where Roblox partnered with Disney for an in-game creator event that promoted Star Wars Episode IX – The Rise of Skywalker. This event had a series of lessons that would show gamers how to create their own spaceships.
In return, Roblox was compensated by the advertiser for this brand exposure. For brands like Disney or Lego, this opportunity can be considered a close-to-ideal case study in native advertising given Roblox’s 150 million monthly active gamers and predominantly young user base.
Another interesting example of Roblox’s advertising partnerships would be that with luxury goods brand Gucci. To entice audiences to buy products from the renowned fashion house, Roblox and Gucci created virtual versions of products in the “Gucci Garden Experience”, a unique initiative that gives Gucci first-hand consumer analysis as well as raising brand awareness.
For many advertising campaigns, it is the unique experiences that Roblox can create that makes it attractive to marketing, and the company is trying very hard to sell Roblox as such. While advertising revenue has indeed picked up over the last few years, especially after the Initial Public Offering(IPO), Roblox believes it will be able to earn more media dollars in the future as the platform develops its capacities and advertisers warm up to the idea of using it as a medium.
3. Roblox Earns Money Through Licensing Deals
Roblux also earns income through licensing fees. Partnerships with entities like Toys’R’Us or Walmart pay a licensing fee in exchange for being able to sell Roblox-branded items.
Largely, these items are toys inspired by some of the platform’s most famous characters and games. Interestingly, Roblux’s licensing agreements have seen massive success with their toys outperforming rivals like Fortnite and Minecraft.
Roblox branded toys have been big hits in Toys’R’Us and Walmart stores, being best-sellers or even selling out due to the high demand. In the first week of its release, Roblox’s Mystery Figs sold 20000 units in Walmart alone.
Not only is it sold in the US, there are Roblox sold across the world, from North America to Asia. Roblox also has plans to expand the scope of Roblox licensed products, moving further than just toys and looking to apparel and storybooks.
This will further increase revenue from licensing and Roblox is looking to let developers have a slice of the cake too by giving them a portion of the licensing fees from their creations.
4. Roblox Earns Money Through Royalty Fees
Royalties are paid whenever one party wants to get access rights to the intellectual property (IP) of another party. Whenever that IP is used, royalty fees must be paid. While its Terms of Use (under Ownership of UGC and License Grant to Roblox) states that developers retain all the copyrights to their creation, they must also agree to grant Roblox the right to license out that content.
Thus, other products and services can therefore use Roblox IP and display it on their app, platform, website, or more but every time they do, Roblox receives a royalty fee.
The Road Ahead For Roblox Into 2023 And Beyond
Roblox has previously stated that it wants to develop a more connected virtual world. CEO, David Baszucki believes that they can combine players’ experiences into a ‘metaverse’, connecting more people on a deeper level. He wants Roblox to be the stepping stone for the next generation to develop a new virtual experience.
In the future, we could see Roblox’s online gaming space be transformed into a virtual world with endless real estate that would let users experience and build what they want and that would be seen via virtual reality headsets. It would look like something from the 2018 film Ready Player One where users of the game Oasis can explore an enormous metaverse filled with fantastic and fictional structures and customize their character from an infinitude of choices like witch or ninja. In other words, Roblox is attempting to turn science fiction into a reality.
Interestingly, this idea of evolving the current state of technology( i.e. the digital world) into the metaverse has been a topic of incredible interest to many media companies. From Facebook to Fortnite, there are an array of tech companies that are starting their foray into creating a metaverse, a virtual universe characterised by fluid movement between platforms of work and play. In this hypothetical metaverse, which is created on the premise of 5G networks, we will be able to do everything real, virtually. Roblox is thus trying to make history by being at the vanguard to turn this into a reality; and at the rate it’s growing, this might be a very real possibility.
Secondly, Roblox will continue to invest in infrastructure and development for the game. Roblox is aware of its demographic and it will continue in its mission to create safe, positive spaces for players to experience. So far, it seems that Roblox has made good on its word by increasing spending to 94.1 million in 2021, on infrastructure and safety. Furthermore, it intends to ensure that Roblox remains a safe space for young people to express themselves creatively and let them use their imagination freely. While there are unsavoury characters prowling on Roblox, the many features that Roblox has added over the years, including parental controls, has made the company more trustworthy in the eyes of parents. This is good news for Roblox, considering the number of tweens and kids that log onto the platform daily to explore the panoply of games and to interact with their friends.
Not only that, Roblox is looking to change the framework that pays its creators to something more sustainable and accessible. This move is thought to be done to attract more creators to develop their games on Roblox on a full time rather than ad hoc basis. Indeed, during the pandemic, the repository of games on Roblox has been expanded and developed significantly since many were cooped up at home. With vaccine rates going up and the world looking towards the end of national lockdowns however, Roblox is looking to make full time game creation sustainable on its platform so that it can continue to pique the interest of many.
In the last three years, we have seen this company take off in popularity amongst younger generations. Now, as a public company, it has caught the attention of the older generations as it continues to grow. In the future, it wouldn’t be hard to imagine the Roblox community growing to include curious millennials and even some Gen Xers. In fact, Roblox has shown aspirations towards attracting users outside it’s main demographic by branding the platform as a space for creative expression rather than mere childish fun. Such a move shows that we could expect Roblox’s ever growing user base to have some older gamers as well, which might increase revenue given that these gamers have higher purchasing power.
Not only that, with Roblox’s move to create a metaverse, we might even see people come to use the platform for reasons other than just gaming. Already in November 2020, Roblox attempted to reach beyond games and tried to bring into its platform the music and entertainment industries. The Lil Nas X Roblox Concert Experience is a good example of what the future might hold for Roblox. It signifies the kind of boundary crossing and blurring that the metaverse should bring us, where we can experience concerts on gaming platforms and attend the events using our virtual avatars instead of going in person.
So let’s explore this idea further, the Lil Nas X Concert Experience was a virtual concert event on Roblox. This event was sponsored by the music artist, Lil Nas X to promote his new song HOLIDAY. (Although it was not the first virtual concert held on the platform, that honour goes to Ava Max and her Heaven and Hell Launch Party. The key difference between the first and second virtual concerts was that the one by Lil Nas X was well received by the community.) On Nov 10 2020, an event game was launched in anticipation for the virtual concert. The pre-launch party was held on the 13th of November and the actual concert was held from November 14-15. While there were elements of gamification and ‘traditional’ Roblox functions in the events, it was considered significant as a portend to the metaverse; the genre blurring, definition indefinite space.
WIth Roblox making moves to cement its place in the Metaverse, we can be hopeful for the company’s further growth in the future.
