roblox-business-model

Roblox Business Model: Monetizing The Metaverse

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.

Origin Story

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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 also called metaverse is a virtual universe made of 3D virtual spaces.

This metaverse might have just 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 platform consists 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 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 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 own 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 success of the platform in the past and for future growth.

So how does Roblox incentivizes developers to create experience and creators to design avatars? Roblox focuses on developers’ and creators’ two core metrics: earnings and user engagement within the virtual experiences.

In short, as long as developers and creators will be able to 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 as 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 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.
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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 at the same time 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. In fact, almost 50% of Roblox’s revenues came from the distribution via 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 distribution strategy, 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.

The social flywheel:

  • Users join and play with friends.
  • They invite more friends, driving organic growth.
  • As users join, play and build engaged communities the platform becomes more valuable.

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The content and social Roblox flywheels (Source: Roblox Prospectus)

Roblox’s growth strategy is built around four pillars:

  • Platform Extension.
  • Age Demographics Expansion.
  • International Reach.
  • Monetization.

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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.

(Image Source: Roblox Prospectus)

Financial model

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 either via one-time/as-you-go purchases or via 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.

Developer/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, which is another revenue source for the company.

Revenue model

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 Business Model Highlights

  • Roblox is a virtual reality platform, getting monetized primarily via its currency, the Robux, used to enhance virtual experiences and to buy avatars and other accessories.
  • Roblox platform’s content is entirely user-generated, as such 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.

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