Matt Ball has a must-read post on the paradoxical phenomena of Roblox: In terms of active users, it's both the most popular metaverse platform by far and most popular online game in the world, but somehow continues to be unprofitable. (Second Life, despite a tiny user base compared to Roblox, makes an estimated $20-30 million in annual profit.)
Roblox began this year with 354 million monthly active users, counted 400 million MAU in July, currently has 380 million MAU, and averages 350 million MAU through 2024. (Data via Matt, citing RTrack.) In other words, the platform already started 2024 with more users than the entire United States has people, but Roblox is still likely to reach half a billion MAU in the very near future.
As to why it's currently unprofitable, Matt's post delves deep into all the details. Key factors include heavy research and development spending, deep app store fees charged by Apple and Google for payments through Roblox's mobile app, and low monetizing users (since most of them are kids).
But as Matt writes, Roblox the company is working to address that last challenge:
Not only is Roblox continuing to grow its 13+ and 18+ playerbase, the company released a new photo ID-based 17+ age verification system in 2023 that enables eligible users to play age-gated content (i.e. content that is specifically made for adults and might have more or higher fidelity violence, gun-based play, etc., or more aggressive monetization loops). The same platform tools that are used to produce 17+ content can also be used to produce higher-end experiences (PlayStation is evidence of the premium users will pay for “premium” games). Moreover, Roblox continues to benefit from increases in its cultural cachet (which should enable higher prices for Roblox’s virtual goods), as well as more playtime per user (PlayStation has higher player ARPU in part because it has about twice the hours played per user per month).
That includes fostering AAA-like Roblox games like Battlelines. The underlying challenge will be leaping over what I call the Metaverse Age Cliff, where usage tends to drop off sharply when virtual world users reach their early 20s. The company seems keenly aware of this, adding a telephony feature and promising user-to-user dating experiences. Then again, Intrance and LAGurlz, creators of the hit Roblox experience Starving Artists featured in my book, met online as Roblox creators in their teens, are now twentysomethings who live together and run a successful Roblox development studio. Avatar love finds a way.
Anyway, read all of Matt's post here.
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> In other words, the platform already started 2024 with more users than the entire United States has people
Key question: how many of these "users" are actual people and how many are bots? (I assume that UGC developers have strong incentives to use bots to increase their profits in various ways.) The data provided by Google trends is probably less affected by bots and tells a very different story about how interest in Roblox has evolved over the years (stagnating in 2019, then rapidly growing during the pandemic, then stagnating again since 2022).
> As to why it's currently unprofitable, Matt's post delves deep into all the details. Key factors include heavy research and development spending,
Another way of looking at the heavy research and development costs (and other compensations for employees) is that these costs might include money that (senior) management successfully funnels into their own pockets and those of their buddies (and away from the pockets of investors and shareholders). Thus, (senior) management might not have a lot of incentives for Roblox to become "profitable" in the accounting sense.
> deep app store fees charged by Apple and Google for payments through Roblox's mobile app,
The counterargument is always: they don't have to offer Roblox as mobile apps (and their underage users would probably waste less money if they wouldn't offer these apps).
> and low monetizing users (since most of them are kids).
The revenue of Roblox is probably as big as it is because most of the users are kids: most of Roblox' monetization would not and does not work that well with grown-ups. (And most of the top-spending users are probably influencers and UGC developers, i.e., people who also profit from the kids and wouldn't be on the platform if it wasn't for the kids.)
Anyway, it will be interesting to see how Roblox evolves.
Posted by: Martin K. | Thursday, August 22, 2024 at 05:10 AM