Roblox is an online gaming platform that generates revenues through its virtual currency, the Robux, used to create avatars and explore various gaming experiences. Each experience will be monetized based on how developers have structured the game, thus making them purchase upgrades and more.
Table of Contents
Origin Story
Source: Roblox Financial Prospectus
In 1989 David Baszucki and Erik Cassel programmed a 2D simulated physics lab called Interactive Physics.
This experience would be the foundation of what would later become Roblox.
Roblox nowadays is a platform where over thirty million people connect, play, and explore the various 3D digital world, entirely user-generated (built by independent developers).
Indeed, by 2020 Roblox counts almost seven million active developers.
Roblox has, over the years, championed a new virtual reality category; they called “human co-experience,” a form of social interaction that combines gaming, entertainment, social media, and even toys.
This category, called metaverse, is a virtual universe of 3D virtual spaces.
This metaverse might have become viable from an infrastructure standpoint as cloud computing, coupled with a high bandwidth internet and powerful portable devices, make it possible to build, access, and experience those virtual worlds.
Roblox Client: the consumer-facing application that enables users the exploration of 3D digital worlds.
Roblox Studio: the toolbox allowing developers to build, publish, and operating 3D experiences.
And the Roblox Cloud: the underlying infrastructure powering both Roblox Client and Roblox Studio.
Value model
Roblox value model is built around a virtual world made primarily of 3D experiences, entirely user-generated.
Therefore, on the one hand, Roblox has to inspire users to join and continuously access those virtual realities.
On the other hand, Roblox also has to attract independent developers and creatives to keep building and publishing. And they were running their virtual experiences.
So that users will be prompted to use the Roblox currency, the Robux, developers will build viable businesses on top of those virtual realities, and Roblox as a virtual ecosystem earns a small percentage on each transaction.
Mission and vision and core values
Roblox’s mission is to “build a human co-experience platform that enables shared experiences among billions of users.”
Roblox’s long-term vision is to recreate a “metaverse platform supporting a broader range of positive educational and social experiences.”
As such Roblox focuses its efforts in a few directions such as:
Fostering the community of users around the shared virtual worlds.
Supporting developers on the platform in creating, building, and operating those virtual worlds.
Working to make that virtual environment civil, safe, and secure for users.
Therefore one crucial aspect as the platform scales is to, on the one hand, keep developers motivated and, on the other hand, make sure that the quality of those virtual experiences remains high.
Thus, Roblox’s five core values are structured around these needs and they are:
Respect the Community.
Take the Long View.
Get Stuff Done.
Self-Organize.
Own It.
Value propositions and key stakeholders
As a two-sided platform with its entirely user-generated content, there are two core players:
Developers/Creatives building, publishing, and operating virtual experiences via Roblox.
Users experiencing the Roblox multiverse.
Value proposition to users
Users can create their avatars to explore the different virtual worlds through Roblox and engage with other users.
Therefore, in terms of value propositions, the more users will have a variety of virtual experiences, an engaged community, and several ways to personalize their virtual reality, the more those will become interesting for more users.
Value proposition to Developers and Creators
Since the virtual content on the platform is entirely user-generated, developers and creators are the platform’s most valuable users.
In fact, they help the platform development in several ways:
Building virtual experiences.
Building avatars and avatar items.
Building tools and 3D models for other developers.
These elements are the foundation of the platform’s success in the past and for future growth.
So how does Roblox incentivizes developers to create experience and creators to design avatars?
Roblox focuses on the two core metrics of developers and creators: earnings and user engagement within the virtual experiences.
In short, as long as developers and creators can earn from their work and they will have an engaged community supporting them, the more the platform will develop.
The more developers build experiences on top of Roblox, the more it will become advanced for other developers.
Those joining will leverage the toolbox built by experienced developers on the platform.
At the same time, experienced developers will monetize their experience by selling their tools and models to other developers.
In that respect, Roblox monetization is built on top of two marketplaces, one for users (to buy enhancements within experiences and avatars) and one for developers (to buy tools and models developed by others).
Technological model
A technological model is the set of principles, applications, and value proposition enhancements built on top of the Roblox platform.
What makes up the Roblox platform? That is made of three main parts:
Roblox Client: the consumer-facing application that enables users the exploration of 3D digital worlds.
Roblox Studio: the toolbox allowing developers to build, publish, and operate 3D experiences.
And the Roblox Cloud: the underlying infrastructure powering both Roblox Client and Roblox Studio.
The Devices Used To Experience The Roblox Platform (Source: Roblox Prospectus).
The main characteristics that make up the Roblox platform and that are part of its technological model (how the company enhances its value proposition through technology) are:
Identity: users have unique identities (avatars). Those help users express themselves and simultaneously export their avatars to the various virtual experiences across the platform.
Friends (Shared Virtual Experiences): the community side is extremely important as one of the core value propositions for users is to either meet their friends in the real world as avatars in Roblox virtual experiences or to meet new virtual friends on the platform (Roblox build upon the concept of social media and brings it to the next level).
Immersive: virtual experiences are 3D and immersive.
Low Friction(both for users and developers): simple to set up and free for users and easy for developers to build experiences to publish them to the Roblox Cloud to make them accessible to users on the Roblox Client (the consumer-facing platform).
Content Variety: Roblox incentivizes developers to build virtual experiences, that by 2020 count over 18 million experiences on Roblox.
Entrepreneurial ecosystem and currency: the economic foundation of the platform is the Robux, which users can purchase to buy avatars and personalize their experiences, while developers can earn through that, and the Robux can be exchanged in real-world currency.
Safety: Civility within the virtual worlds, safety for users is key to enabling the platform to continue to scale.
Distribution Model
Roblox is available across several devices, from desktop to mobile, and potentially VR tools like Oculus.
However, most of its distribution is through mobile devices.
Almost 50% of Roblox’s revenues came from distribution via the Apple App Store and Google Play Store.
More precisely, by September 2020, 34% of the revenues came through the Apple App Store and 18% from the Google Play Store.
Therefore, in terms of distribution is also crucial that Roblox cultivates its relationships and sticks with the policies, rules, and regulations of the two main mobile platforms (Apple Store and Google Play Store).
In addition, Roblox doesn’t manufacture mobile or virtual reality devices.
Therefore, Roblox has no control over its distributionstrategy, which though will highly depend on its known brand for users.
From that respect, the go-to-market strategy of Roblox has been that of investing in its technology (the platform underlying Roblox) to help user-generated content to be scaled.
The primary growth tool of platforms is a flywheel, and the Roblox flywheel moves along these lines:
The content flywheel:
Developers and creators can easily build, publish, and operate virtual experiences and avatars on Roblox.
The growing number of virtual experiences, avatars, and personalizations attract users.
The more users and the growing number of available models and tools attract developers and creators that make the content on the platform more valuable.
More users will join and spread the word about Roblox.
Thus making its currency the Robux a valuable incentive for developers to keep publishing valuable virtual experiences.
Roblox’s economic ecosystem is what will drive its future success as a business. The more players buy and use its currency the Robux, the more this will incentives developers and creators to enrich the content and experiences on Roblox, thus driving more users to buy and spend Robux, creating a virtual currency that strengthens over time.
Financial model
In 2022, on $2.9 billion in bookings (activity in a given period without giving effect to certain non-cash adjustments), compared to $2.2 billion in revenue, Roblox reported a negative free cash flow of $58 million and a net loss of over $930 million.
Roblox platform is built like a real-world economy, with its currency that spurs entrepreneurs to create and users/consumers to exchange its currency, the Robux on the platform.
While most of the experiences are free, with the Robux users can enhance their experiences, avatars, and more.
And for each transaction, Roblox will earn a small percentage.
Users can purchase Robux via one-time/as-you-go purchases or Roblox Premium, a subscription service including discounted Robux and other benefits.
Developers and creators instead can earn Robux in four ways:
By selling access or enhancements to virtual experiences developers create.
Through Roblox Premium, developers get paid based on the time premium users spend within those experiences.
By selling tools to other developers.
By selling items on the Avatar Marketplace.
Developers/Creators can exchange their Robux in real-world currency via the Developer Exchange Program.
To gain a bit of context, by September 2020, developers and creators on Roblox earned $209.2 million.
Some of those developers’ revenues are also spent on the Roblox internal ad network, another revenue source for the company.
Revenue model
In 2022, on $2.9 billion in bookings (activity in a given period without giving effect to certain non-cash adjustments), Roblox generated over to $2.2 billion in revenue.
The Roblox ecosystem isn’t yet financially viable, as it still recorded losses as of September 2020 (Source: Roblox Prospectus).
The Roblox Revenue model is driven by a single currency that drives three main types of transactions:
Transactions between users and developers/creators.
Transactions between developers.
Advertising of developers within the Roblox platform.
Cost structure
To sustain its technological infrastructure, Roblox spends/allocates money in a few ways:
Payment processing and other fees.
Developer earnings
Direct infrastructure costs.
Key Takeaways
Roblox is a virtual reality platform monetizing primarily via its currency, the Robux, used to enhance virtual experiences and buy avatars and other accessories.
Roblox platform’s content is entirely user-generated; developers are incentivized to build new virtual experiences and tools to enrich the platform.
Roblox builds upon the concept of “human co-experience,” a form of social interaction that combines gaming, entertainment, social media, and even toys. This goes toward the concept of the metaverse.
Roblox distribution is primarily based on mobile platforms like Apple App Store and Google Play Store.
Its revenues come primarily from the users buying Robux on the platform, developers’ purchases of tools, and the purchase of tools.
Key Highlights
Roblox Ownership: Roblox is owned by several individuals, including David Baszucki and Gregory Baszucki, who hold stakes of 2.3% and 2.6% respectively. Anthony Lee, the managing partner at Altos Ventures, holds a significant stake of 15.3%.
Roblox and the Metaverse: The text discusses how Mark Zuckerberg believed in the potential of virtual reality (VR) and the Metaverse when Facebook acquired Oculus in 2014. However, the vision of the Metaverse didn’t develop as expected in the short term, similar to Bill Gates’ vision for the Information Highway.
Meta’s (formerly Facebook) Strategy: Despite Zuckerberg’s conviction, the realization of the Metaverse didn’t align with the company’s expectations. Reality Labs incurred losses and revenue for VR headsets slowed down. Meta had to re-adjust its strategy due to financial challenges and expenses related to the Metaverse.
Metaverse and Profitability: The pursuit of the Metaverse impacted Meta’s cost structure and profitability. While the vision might still be relevant, the initial approach didn’t yield the expected results for the company.
The Emerging Metaverse on Other Platforms: The text suggests that while Meta’s Metaverse vision faced challenges, the Metaverse concept is being realized on other platforms, like Roblox.
Roblox’s Growth and Popularity: Roblox’s popularity is highlighted, with its daily active users growing from around 49.5 million in 2021 to nearly 59 million in 2022. Users spent a substantial amount of time on the platform, collectively engaging for 12.8 billion hours.
Business Model Recap
Element
Description
Value Proposition
Roblox provides a range of value propositions for its users: – User-Generated Content (UGC) Platform: Roblox offers a platform where users can create, share, and play games and experiences created by other users. This value proposition empowers creativity and allows users to be both players and creators. – Social Interaction: Roblox provides a social environment where users can connect with friends, join virtual events, and collaborate on projects. The platform fosters social interaction and engagement. – Cross-Platform Accessibility: Roblox is accessible across multiple devices, including PC, mobile, and gaming consoles. This accessibility ensures users can enjoy the platform on their preferred device. – Monetization Opportunities: Roblox provides opportunities for users to monetize their creations through the sale of virtual items and experiences, creating an incentive for developers and creators. – Immersive 3D Experiences: Users can immerse themselves in 3D environments and experiences, offering a unique and engaging gaming and entertainment platform. – Safety and Moderation: Roblox emphasizes safety by implementing moderation systems and tools to create a secure environment for users, particularly children.
Core Products/Services
Roblox’s core products and services include: – Roblox Platform: The core product is the Roblox platform itself, where users can access a vast library of user-generated games and experiences. – Robux: Robux is the virtual currency used on the platform. Users can purchase Robux with real money or earn it through various activities. It is used for in-game transactions, such as purchasing virtual items or accessories. – Roblox Studio: Roblox Studio is a game development tool that allows users to create their own games and experiences. It is a crucial tool for creators and developers on the platform. – Roblox Marketplace: The marketplace enables users to buy, sell, and trade virtual items and assets, including clothing, accessories, and avatar customizations. – Premium Subscriptions: Roblox offers premium subscriptions like Roblox Premium and Roblox Premium+ that provide monthly Robux allowances and exclusive items.
Customer Segments
Roblox’s platform caters to various customer segments: – Players and Gamers: These are the users who primarily enjoy playing games and experiences created by other users on the platform. – Developers and Creators: Developers and creators are individuals or teams who build and publish games and experiences on Roblox. They include amateur and professional developers, designers, and artists. – Parents and Guardians: Parents and guardians are concerned with the safety and educational aspects of Roblox, particularly when their children use the platform. – Educational Institutions: Some educational institutions use Roblox as an educational tool to teach coding, game design, and other skills to students. – Brands and Marketers: Brands and marketers have used Roblox as a marketing and promotional platform to reach a young and engaged audience.
Revenue Streams
Roblox generates revenue through several revenue streams: – Robux Sales: Robux sales are a significant revenue source. Users purchase Robux with real money, and Roblox takes a share of the revenue. – Virtual Item Sales: Users can buy virtual items, accessories, avatar customizations, and virtual goods created by developers and other users on the platform. Roblox takes a percentage of these transactions. – Premium Subscriptions: Revenue is generated from premium subscription plans like Roblox Premium and Roblox Premium+. Users pay a monthly fee, and Roblox provides them with monthly Robux allowances and other benefits. – Developer Exchange (DevEx): Roblox offers a program called DevEx, where developers can exchange Robux for real currency. Developers earn a share of the revenue generated from the sale of their virtual items or experiences. – Advertising: Roblox includes advertising within its platform, generating revenue from advertisers and marketers. – Royalties: Roblox shares a portion of the revenue generated by developers who create successful games and experiences on the platform.
Distribution Strategy
Roblox’s distribution strategy is designed to maximize user engagement and accessibility: – Cross-Platform Accessibility: Roblox is available on various platforms, including PC, mobile devices, and gaming consoles. This accessibility ensures users can access the platform regardless of their preferred device. – App Stores: Roblox is available for download on app stores like the Apple App Store and Google Play Store, making it easily accessible to mobile users. – Roblox Website: Users can access Roblox through its official website, where they can sign up, create accounts, and explore the platform’s features. – Roblox Studio: Roblox Studio, the game development tool, is made available for download from the Roblox website, allowing creators to design and publish games. – Social Media and Partnerships: Roblox leverages social media and partnerships with influencers and brands to promote the platform and its user-generated content. – Word of Mouth: A significant portion of Roblox’s growth comes from word-of-mouth referrals, as users invite friends and family to join and play together.
By December 2022, Roblox had almost 59 million daily active users on the platform and engaged 12.8 billion hours for the full year. Compared to 49.5 million daily active users in 2021.
In 2022, on $2.9 billion in bookings (activity in a given period without giving effect to certain non-cash adjustments), compared to $2.2 billion in revenue, Roblox reported a negative free cash flow of $58 million and a net loss of over $930 million.
In 2022, on $2.9 billion in bookings (activity in a given period without giving effect to certain non-cash adjustments), Roblox generated over to $2.2 billion in revenue.
Roblox is owned by David Baszucki and Gregory Baszucki, with a 2.3% and 2.6% stake, respectively. Anthony lee, managing partner at Altos Ventures, with a 15.3% stake.
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Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
