Bad business with Roblox
Bad deal
Ethan Gawronski was around 10 years old when he discovered Roblox. He immersed himself in his games, mainly to get in touch with other children.
Now at the age of 20, Gawronski has his own Roblox game that he works on full time with his girlfriend Elle Deppe. The couple, who met through the app, made more than $ 49,000 last month from their action game Bad Business, selling outfits and weapons that players can use to make their characters look cooler and perform better.
“In private developer communities there were people who made stupid amounts of money, and we thought we could do that,” said Deppe, also 20, in a recent interview.
Bad Business is among the millions of user-created games on Roblox, the children’s entertainment program set to go public on Wednesday after being valued at $ 29.5 billion in January. The company has built one of the most successful apps for Apple and Google devices by turning teenage users into game developers without forcing them to learn complicated coding. The company rewards developers by sharing 30% of sales with virtual purchases.
Roblox said in its latest prospectus update that it paid developers $ 328.7 million last year, up nearly 200 percent from 2019. This far outpaced the company’s revenue growth of 82 percent last year it posted total sales of $ 923.9 million.
More than 1,250 developers earned at least $ 10,000 in Robux digital currency, which can be converted into cash. Over 300 earned $ 100,000 or more.
Roblox urges potential shareholders to familiarize themselves with the high payouts. In its investor presentation last week, the company said it plans to offer even more to developers to promote higher quality content and fund larger teams of engineers, designers, artists and producers.
“What used to be a hobby has become a job for an individual and is now increasingly becoming the foundation for the large, incredibly creative studios that emerge on our platform,” said CEO David Baszucki, who founded Roblox in 2004.
Gawronski dropped out of college last semester after taking two years of courses at Grand Valley State University, where he switched majors several times. Deppe finished her two year associate degree in Portland, Oregon and decided that was enough. They’ve been living together in an apartment in Grand Rapids, Michigan, since last year.
The couple first met in person in 2017 at a Roblox developer conference. They soon began working together and two years later were invited to an accelerator program at Roblox on the company’s San Mateo, California campus. That’s where they started building up bad business.
“The goal of the accelerator program for us was to build something profitable enough to move in,” said Gawronski, adding that monthly sales have increased about 30% since September. “It was a bit of a gamble, but it worked.”
Gawronski and Deppe have updated the game every week or so with new weapons, maps, and other features. Along the way, they were able to add another full-time employee and eight contractors.
Roblox’s Covid Boom
Roblox has been a big beneficiary of the Covid-19 shutdowns that have pushed kids out of the classroom and away from their friends. With no school going and birthday parties canceled, the kids turned to Roblox, where they can virtually socialize, navigate theme parks, attend concerts, and play action games while staying in touch using the popular text chat feature.
Daily active users increased 85% to 32.6 million in 2020. The number of hours gamers spent on the app more than doubled to 30.6 billion.
This unexpected and unprecedented growth has posed some challenges for the developer community. The company has faced an influx of spammers and scammers out to take advantage of some of the millions of children who are ready and willing to spend their parents’ money on Robux.
In-game popups lure users with the promise of free Robux when they fill out a survey and then redirect them to other websites that don’t have Robux and even more spam. In some cases, Roblox developers unknowingly install a malicious plug-in from the game development studio that infects their own game.
“Given the popularity of our platform, we believe we are an attractive target for this type of attack,” Roblox said in its prospectus. The company says it invests to ensure that third parties cannot access user data and to prevent phishing, spam and malware as much as possible.
Roblox’s second largest expense after developer fees is infrastructure, privacy, and security. These costs increased 69% last year to $ 264.2 million.
Alexander Hicks, developer of the role-playing game Robloxian High School, said he noticed more spam at the beginning of the pandemic when there was a surge in new users. But he said the company took action fairly quickly to restore order.
Hicks has a deep commercial interest in Roblox keeping its site clean and successful. In 2020, his game studio RedManta doubled sales on the website to $ 2 million.
RedManta’s former Silicon Valley office
RedManta
In addition to Robloxian High School, RedManta is the developer of World // Zero, where children come together to fight monsters. Hicks founded the company in 2018 after leaving Carleton University in Canada and moving to Silicon Valley. He was already making $ 50,000 a month playing the high school game and was ready to reinvest his profits to build a business.
It wasn’t all right yet. An ambitious gamer with no real business experience, Hicks hired around 15 people, none over 22 years. His company’s initial efforts to duplicate Robloxian High School’s success failed, and RedManta burned money so quickly that he had to lay off many of his early employees.
“I was at capacity and when the game wasn’t going so well I could see a future where we wouldn’t have money in the bank to keep funding it,” said Hicks. “That experience gave us the foresight on how to scale without taking too much risk.”
Hicks’s business boomed over the past year due to both the pandemic-triggered growth of Roblox and the success of its second game, which, according to its website, has 1.2 million monthly active users. He also closed the Silicon Valley office for housing assignments and moved, at least temporarily, to Los Angeles, where he rents a house with friends.
Diversification to reduce risk
RedManta now has 10 employees in the US and Canada adding functionality to both games while working on the next prototype.
“The goal is to improve scalability so we have multiple games and multiple teams to stay diversified. So if one game goes down in popularity, we’re safe with others,” he said.
Roblox could soon offer developers another way to diversify: in-game ads.
So far, almost all of Roblox’s revenue has come from virtual items. More recently, the company has introduced a premium subscription service so that users can get a certain amount of Robux every month.
However, Roblox has started moving into branded content so companies like Warner Bros., Netflix, and Marvel can market their products through virtual experiences. The pop band Why Don’t We hosted an exclusive launch party on Roblox for their new album over the weekend.
Sam Drozdov, former product designer at Facebook, sees a potentially greater untapped advertising opportunity. In January, he launched Bloxbiz to enable game developers to place ads in their games using 3D billboards and posters.
Drozdov said that some developers did this themselves and ran static ads in their games. However, there was no advertising network to connect companies with hundreds or thousands of Roblox titles in an automated manner, although in-game advertising is a rapidly growing business for mobile, console, and computer games.
Bloxbiz Roblox Promo
Bloxbiz
Bloxbiz is still testing the technology and has not yet started making money. A key challenge is enabling brands to reach a large number of users while targeting the types of games they want to reach and avoiding the ones they don’t. For example, they may want to stay away from violent games or focus more on those involved in food.
Drozdov said Bloxbiz will share the proceeds with the developers and will mostly take care of those who have popular games but not make enough money from Robux to make it their full-time job.
“Roblox wants them to make money, but a lot of them are not yet at a point where they can make a living,” Drozdov said. “We were interested in how we could speed that up and create a new monetization option for Roblox game developers.”
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