Roblox is ready to grow up

Published: September 10, 2022

September 10th, 2022.
Roblox rode a wave of pandemic-era growth to a seven-fold value increase, an exploding user base, and a wildly popular Lil Nas X concert with tens of millions of attendees. That success largely all came thanks to Roblox's core user base of young and highly engaged players.

Now, those kids are getting older, and Roblox is trying to grow up, too. The all-ages, user-generated gaming platform is announcing plans today to add age guidelines to its games and significantly expand its advertising business as it works to court an older demographic, expand its revenue streams, and still support the needs of its millions of young players.

The changes are a major step in how Roblox thinks of its users and how the company approaches advertising. Roblox, and the millions of people creating games for the platform, will soon have a new way to make money and the opportunity to target a slightly older demographic. Roblox's ability to become a billion-person platform with thousands of creators supporting themselves on it will depend on whether it can translate these new features into growth and profit.

"When we got started out, the majority of the people on our platform were under 13. We've crossed a huge threshold now where the majority are over 13," Roblox CEO David Baszucki told The Verge. "We're very optimistic that long term, this type of technology is going to support people all around the world and in a wide range of ways of connecting and being together."

Up until this point, Roblox has perhaps been mostly known for its popularity with children, at one point, the company said over half of US kids under 16 played Roblox. Now, as its user base gets a little older, Roblox is looking for ways to keep them coming back and give advertisers more targeted ways of reaching the 52.2 million daily active users.

At the company's annual developer conference today, Baszucki announced a slew of sweeping changes to the platform, among them a new immersive ads system that will allow advertisers to reach players in millions of games, or "experiences" as they're called on Roblox. Until now, creators purchased banner ads using the in-game currency Robux, often resulting in nonsensical meme-like creations made to entice players to visit and play their games. High-profile brands have ventured into Roblox, too, by working with developers to create custom experiences: there's Gucci Town and Spotify Island and even a virtual Chipotle restaurant, among others.

The new ads system, meanwhile, is a way for brands to advertise across Roblox experiences through interactive billboards, posters, and other surfaces. Working initially with a group of selected companies and developers, the new ad system will allow creators to drop 3D ads into their own experiences, like a billboard in a sports stadium or on top of a cab in a game, and to get a cut of the ad revenue. In addition to ads within user-created experiences, brands will also be able to have "portals" that act like a tunnel between games, taking players to a new branded area in Roblox like a shoe store or a coffee shop. The company will begin testing immersive ads by the end of the year, with a full launch planned for next year.

"In effect, Roblox, where appropriate, will have 3D ad units that act as a massive ad server for all of these brands," Baszucki says. "We're very careful with who these brands are initially. But long term, this will move more and more to a self service model for appropriate brands for our platform."

Advertising in the metaverse is as of yet unproven, but brands are already eyeing it as the next place to target potential customers. In-game purchases on platforms like Roblox and Fortnite might offer a sign of the money to be made in the metaverse: Fortnite made $50 million off skins from just one partnership with the NFL, for example, and in Roblox, some players paid thousands for virtual Gucci products. But Roblox "bookings", the amount players spend on Robux, of which the company gets a cut, missed estimates last quarter. Roblox went public last year following an explosion in popularity during the pandemic, but its stock has fallen, and it's not yet profitable.

The push to bring more ads to Roblox is coming while there's scrutiny of how the company handles the advertising already happening on its platform. In a Federal Trade Commission complaint filed earlier this year, watchdog group Truth in Advertising says branded Roblox experiences are poorly identified, making it hard to discern whether a game is sponsored, especially for young kids. With immersive ads, Roblox will move with "extreme conservatism,'' Baszucki says, brands will only be able to reach players 13 years old and up, and Roblox will disclose when experiences contain ads.

If immersive ads are to be a boon to Roblox's business, the same promise exists for the developers responsible for making the games. Roblox developers have a handful of ways to make money on the platform: they can create and sell items like clothes for avatars or offer in-game purchases, which players can buy using Robux. In 2020, Roblox introduced premium payouts, which pay game developers based on time spent in the experience they've created. Roblox says it paid out $538.3 million to creators in 2021, and over 2.7 million were earning Robux in June. In terms of creator payout for ads, Roblox will "stay very consistent with the way we share revenues with the community today," Manuel Bronstein, chief product officer, says.

Currently, after app store fees and Roblox taking its own cut, creators are left with around 30 percent of revenue from in-app purchases, significantly lower than on other platforms. Some creators say that despite pouring time into developing games, it was difficult to make a profit, especially for the millions of kid developers who start out doing something they love only to get burnt out trying to make their game successful. The top 1,000th developer is making around $32,000 a year, and the vast majority of developers monetizing on the platform are over 18, according to Roblox.

At launch, the company is thinking about immersive ads as being a product for players ages 13 and up, and it will go hand in hand with new age guidelines on the platform that will designate certain experiences as being suitable for different age groups. To start, games will have three tiers: 13 and up, 9 and up, and all ages, with descriptions of what kind of content each game contains, like violence or blood. Parents will then be able to select which type of game they want their child to see.

"In the movie business, we have G, PG, and PG-13" And I think that's a good metaphor for where we're going," Baszucki says. "There's no R-rated content on Roblox. We think everything is really reasonable and no different than what we might find on streaming video or other channels like that."

Children still make up a large portion of Roblox players, just 52 percent of users are over 13 years old, according to Fortune. But Roblox is seeing the fastest growth in players who are in their older teens to early-20s, and Baszucki says the vision of Roblox as a platform for children is changing.

"As we look at the growth in the 17 through 24 [year old group], which is primarily people still socializing and playing, that perception is going away," Baszucki says. Some events, like certain concerts in Roblox, tend to draw an older crowd. And in the far distant future, there could be Roblox experiences aimed at adults, working in digital spaces, for example, or games more suited for people 17 and up.

Many Roblox users go to the platform to hang out with friends, and the company announced several updates to its avatar and social features at the developer conference. Avatars will be more expressive, with facial expressions like smiling and winking, and soon, Roblox players will be able to chat with each other using avatars, with their camera animating their avatar's expressions. The company will also begin testing voice chat with filters for players under 13 years old in addition to a 13-plus option with fewer restrictions.

Roblox relies on developers, from hobbyists to full-fledged studios, to build its attractions that bring in players. The company's $25 million game fund, which gives developers money and support to make the next big Roblox game, will also get an additional $10 million boost, Bronstein announced today.

The addition of immersive ads, age guidelines, and more social features signals that Roblox wants to prove it's not just for little kids anymore. Its goals to grow, and have "thousands" of developers making enough money to support themselves, depend on expanding its audience beyond the people who made it big in the first place.

"We have a mission statement where we want to connect a billion people with optimism and civility," Bronstein says. "But for us to reach that amazing goal and that amazing mission, we definitely need to age up, grow internationally, and all those things."

Source: Re-posted and Summarized from Mia Sato at the verge.