What does Roblox want to be when it grows up?
The hottest company in gaming seems lukewarm on the advertising business
I spent the past few days at the IAB PlayFronts in New York, and Roblox was everywhere.
Which was ironic, considering that no one from Roblox actually made an appearance at the show.
The company was featured prominently in roughly half a dozen presentations, as a range of in-game ad companies spoke about connecting brands with Roblox, which features upwards of 40 million games like Tycoon and Adopt Me.
That fact either spoke volumes about the stage Roblox’s in-house advertising business is in…or its view of the ad business overall.
Right now, Roblox does works with some brands directly, helping them to create experiences like the virtual Chipotle that blew up in 2021. This year the company is planning to roll out ‘immersive ads’ but timing - and scale are very much up in the air. Currently, Roblox makes its money on its virtual goods and Robux currency - and business is good…Roblox ‘bookings jumped 17% in Q4, to $899.4 million. Which is likely why Roblox has been happy to leave the heavy ad lifting to others.
Yet here’s the virtual and very real rub. The company lost close to a billion in 2022. And even as its average daily active users jumped to 56.0 million in 2022, up 23% year-over-year, it’s average bookings per daily active users dipped 14% year-over-year.
Meaning that the more popular it gets the less it’s making per user. At some point, you’d think that advertising becomes a priority. Except that advertising may not be Roblox’s jam, depending on who you talk to.
“They are just building slowly,” said one ad buyer. “It takes time.”
Yet another PlayFront attendee told me, “This company has a philosophy that is very anti-advertising. But they lost a billion last year. They need to do something.”
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Meanwhile, a fascinating cottage industry of companies has sprung up to fill the void:
For example the firm GameFam helped facilitate a Super Bowl concert with Intuit and Warner Music featuring Saweetie.
The in-game ad firm Anzu helped birth an American Eagle virtual store
SuperAwesome, which is part of Epic Games, stood up Fruit Loops World for Kellogs
Super League helped build NFL Super Tycoon
Block Evolution Studios has built Club Roblox, a role playing destination that reaches 3 million players each month, and would seem ripe for brand integrations
Someone at the show compared some of these activations as ‘mini Netflixes,’ which seems extreme, but the numbers are undoubtedly impressive. Moreover the engagement and formats seem to be crucial for brands to learn - now.
“There is this realization that Gen Alpha, Gen Z - this is where they live,” said. Ricardo Briceno, Chief Business Officer, GameFam. “Even if I don’t totally get it.”
Does Roblox itself get it, or care to?
“Roblox looks at itself as a platform, so rolling out ad units like dynamic billboards makes sense,” Stephen Dypiangco, Roblox / Metaverse Consultant told me. “But they will likely not want to play middle man between brands and game developers because all of the creative and logistical back and forth required to pull off such campaigns would be too difficult to automate and productize within their platform.”
So maybe Roblox is just fine with ceding this territory to third parties. However…
This year’s PlayFronts very much reminded me of the IAB NewFronts circa 2015-16. YouTube was there for sure, so was Break and Maker Studios and Studio 71 and StyleHaul and Fullscreen and Machinima…all selling YouTube ads.
Those companies are all gone.
Does this play out like the MCNs, where some get purchased and have good outcomes, but most didn’t, as YouTube eventually took command of the bulk of ad deals? Or if Roblox suddenly gets advertising religion and changes the rules - not unlike when Facebook encouraged a bunch of ad tech companies to help foster FBX, before blowing the whole product up and collapsing a mini-ecosytem?
The big problem with these analogies is that Facebook and YouTube were primarily ad-supported companies, while Roblox is not. There are examples of companies thriving on primarily selling virtual goods (like say, Epic Games/Fortnite). But in Roblox’s case, how long does Wall Street remain patient with those big losses?
Brandon Berger, partner at Platform Ventures, said that Roblox has upside in its ad business - to a point. “Every tech platform eventually wakes up and says, guess what - we need advertising!’, he said. “The problem with Roblox is it’s young.”
Indeed, even as Roblox touts the growth of its 13-plus audience, it’s primarily a kids vehicle today, which brings with it all sorts of advertising limitations and complexities. As an alternative, Berger said that he could see Roblox pushing further into commerce or even paid live events.
Maybe like YouTube, Roblox continues to lean into its creators, which may have massive star (and brand deal) potential? The company does have an executive, Aliana Miller, who joined last summer from Riot Games to head up Influencer Marketing. Roblox also features something called the Roblox Video Stars Program.
“Not only is there a huge opportunity for game builders to become influencers, it's already happening,” said Dypiangco, who cited MiniToon, the creator of the popular Piggy game who has over 1 million followers on Roblox and another 759K members of his Roblox group (along with nearly 900K YouTube subs.MiniToon
“If brands were to partner with creators like this, they could not only integrate into their games, but they could also use the creators' footprint in order to extend the reach of their campaigns. And that's just scratching the surface in terms of how brands can work with these creators.”
Embracing creators has worked for YouTube, even if Google doesn’t see any cash from most of those brand deals. Yet as Berger reminded me, Roblox gets a cut of any transactions developers make using Robux.
The other thing that Roblox and its developers have going for them is all this new IP that is being created for Roblox games. Who might be good at extracting more value from IP?
Well, there’s a new guy at Disney that wants to make a splash…