A couple of years ago, Marcus Holmström and his Stockholm-based game studio, the Gang Sweden, were approached by an entertainment-industry client about building something for the Roblox platform—a metaverse-style collection of games and diversions executed with blocky graphics and wildly popular with kids.
It sounded like an opportunity for an easy win: Members of Holmström’s team had loads of experience with so-called AAA games—some had worked on mainstream blockbusters like Return to Castle Wolfenstein and Warhammer: Vermintide—while much of what was happening on Roblox was built by the platform’s own community. “We thought we were going to do really, really well,” Holmström recalls, “because the competition was really low.”
Wrong. “Crash and burn,” Holmström admits. “Nobody liked our game.” The Gang Sweden learned the hard way that Roblox was something singular.
For starters, their game was heavily goal- and competition-oriented—you know, like a game. But lots of tween Roblox users were really on the platform to hang out with each other, almost like it was a social network; turns out there’s a lot of free-form loitering in the metaverse. At the same time, the Gang’s game was complex, leaving a lot up to users to figure out. The young Roblox audience, however, preferred a bit of hand-holding, with clear directives and activities. The studio realized the Roblox audience is engaged with the platform because it’s giving them what they want.
And that audience is not to be taken lightly: 54.1 million average daily active users spent a combined 11.8 billion hours on the platform in the first quarter of 2022. Many spend Robux—an in-platform currency you can acquire with actual dollars—on experiences as well as on digital wares to individualize their avatars or hangout spaces. And, perhaps most remarkably, over 10 million Roblox users have built experiences and games for others to enjoy—nearly 30 million of them, in fact. A good chunk of those users are earning money from their creations, to the tune of $538 million in 2021. While these are mostly young people who grew up on the platform, it’s hard to overstate the importance of these user/developers to the Roblox ecosystem. They basically are that ecosystem.
And yet, as remarkable a job as Roblox has done cultivating this community, the company remains well short of profitability. In 2021, it reported a loss of about $490 million on $1.92 billion revenue. And as a usage surge fueled partly by the pandemic showed signs of cooling down, Wall Street lost enthusiasm for the Roblox story; its share price has dropped by more than half since its November peak.
Even so, that hasn’t scared off the likes of the Gang, let alone the legions of self-starter creators building on the platform. In fact, the Roblox ecosystem has become increasingly robust: Some indie developers are morphing into professional studios, and experienced gamemakers are positioning themselves as Roblox specialists, sometimes with venture capital backing.
The Gang Sweden is now focused exclusively on Roblox. With 67 employees, it has created more than 15 games, including the bona fide, million-player-a-day hit Strongman Simulator (which involves visiting a virtual gym-like environment and performing various feats for strength and energy points). Its games generate revenue through the sale of upgrades as well as items like virtual clothes and gear. The company also builds custom environments for clients like Vans and supercar-maker McLaren.
Plenty of other studios are pursuing similar models on the platform. Branded experiences from a Hello Kitty café to a Chipotle “burrito building” game to “music-themed islands” from Spotify to “Gucci Town” have become a routine feature of the ecosystem. (That’s a development that has attracted criticism from advertising watchdogs.)
The upshot is that the Gang Sweden—which Holmström says is profitable, with rapidly growing revenue—is one of many examples of a third party that has figured out how to make money on Roblox.
The question is whether Roblox can figure out how to make money, too.
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Roblox may seem like a recent phenomenon—it went public in March 2021—but the enterprise has been around since 2004. What’s much newer is its current operational model, which revolves entirely around encouraging third-party developers—from the creative teenage amateur in her bedroom all the way up to studios stocked with game veterans. Sign up for a Roblox account today and you’re presented with a blizzard of options for exploring its version of the metaverse. The number of these options that were created by Roblox itself is close to zero.
Or, you could argue, Roblox created all of it. Devising the right set of digital building tools, crafting the right incentives, and actively cultivating a sprawling developer community is itself a creative act. And it took years of experimentation and course correction.
In its earliest days, Roblox resembled a “learning tool,” says Justin Sousa, senior director and global head of developer community at the company. A kind of physics simulator that kids could use to make objects and spaces with digital blocks, it attracted “nerdy kids” (Sousa means that as a compliment) in the 12-to-14 age range. For a time the company experimented with an advertising model, ultimately deciding that this didn’t mesh well with the community that was taking shape.
Instead, Roblox doubled down on that community, and on the idea of its metaverse as a place where people spend money. Essentially embracing the now-familiar “creator economy” model, the company began more actively encouraging developers to make monetizable experiences on the platform—and taking a cut of the proceeds. When a Roblox user buys digital accoutrements for their avatar, objects to fancy up their virtual spaces, and the like, the company keeps about 30% for “platform fees.”
In 2015 Roblox launched what it called an “accelerator” program to help select homegrown developers up their game, through a kind of boot camp, currently offering about 40 developers a year specialized training and direct access to its engineers and other Roblox insiders. At first, the company encouraged certain kinds of games and experiences, but soon it shifted to just supporting whatever the developers wanted to do. “We merely give you the hammer,” Sousa insists. “I don’t care if you build a house, shack, or a shoe, that’s up to you.” (Actually, Roblox later clarified, there are limits: The company has elaborate community guidelines and parental control settings intended to keep the platform safe and appropriate for its young audience.) More recently, Roblox has kicked off an even more open-ended Game Fund initiative, doling out $25 million in grants to developers.
Some graduates of the accelerator program have gone on to start their own studios. Nathan Clemens, founder of Simple Games, is one example. He’s 21, and his partners are his sisters, Naomi (18) and Rachel (15), and their parents. Working with a team of contract coders, they’ve produced about 15 games, including a popular role-playing game called City Life, with total revenue in the low seven figures. (Clemens won’t get specific, but notes that Simple Games has given more than $150,000 to charity.)
“I never really played Roblox,” Clemens confesses, and in fact he’s never been much of a gamer. But he discovered the platform—and, more to the point, its Roblox Studio building tools—when he was about 14. By then he’d already learned 3D modeling and computer-aided design (CAD) rendering, using programs like Google SketchUp. He realized he could make money applying those skills for people developing Roblox games. And then he realized he could work with programmers and make his own games. “From there,” he says, “we learned just how large the market was.”
His parents, Jeff and Shannon, kept an eye on this, and as Nathan’s enterprise grew they got directly involved, mostly on the business side. Naomi joined in at age 15, developing her own projects; her newest is called Layered Clothing, basically a virtual dress-up competition designed to take advantage of a new Roblox feature that improves the results of tricking out your avatar. Rachel, who has a digital art bent and is fluent in programs like Procreate, joined in at around 12.
Nathan describes his experience in the accelerator program as transformative. At 18, he spent three months in California, with Roblox’s financial support, focused entirely on the ins and outs of making the most of the platform, through programs and presentations on everything from interaction design to finances. “It’s chaos, and it’s amazing,” he says. “After that I was Roblox full-time.”
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He’s not the only one. In fact the Roblox ecosystem, after years of slow and gradual growth, seems in the past couple of years to have achieved the virtuous flywheel effect that creator-economy companies covet: The more people are able to make a living—or even become a millionaire—by developing on the platform, the more users they bring in; and the more user engagement grows, the more attractive it is to develop for the platform. At this point, Roblox culture transcends actual participation on the platform—there are Roblox-oriented YouTubers and publications and Twitch broadcasters, and the company hosts annual developer events where creators mingle and forge new relationships (and deals).
Given all this, why is Roblox still reporting negative earnings? Roblox chief business officer Craig Donato argues that this is the wrong question. “Internally, we don’t talk about revenue and profitability,” he says. Instead, the company focuses on “bookings,” and cash flow. Roblox collects cash when a user buys Robux, its in-platform currency. (The cost varies depending on how many you buy and whether you choose a “subscription” option that bills you for fresh Robux every month, but, for instance, you can buy 800 Robux for about $10.)
Generally, users go on to spend those Robux on experiences or virtual objects, and that revenue is amortized over the lifetime of the things they buy; a virtual shirt, for instance, might be amortized over 25 months. The upshot, according to Donato, is that while this slows earnings, the company is cash-flow positive: “Our bank account is getting larger, not smaller.”
Skeptics point to Roblox’s softer numbers since pandemic lockdown life has ebbed: Total estimated bookings are down a couple of percentage points from a year ago, and the per-user booking average has slipped too. Analysts have cut their revenue estimates, and in some cases become more openly bearish. Goldman Sachs analyst Eric Sheridan, for instance, recently dropped his outlook on the stock from buy to neutral, citing the likelihood of continuing slowed user growth in the short term; and Bank of America analyst Omar Dessouky has lately slashed his RBLX price target.
For its part, Roblox appears to view both the COVID-era spike and its subsequent fade as anomalous moments on an overall growth path. And the company shows no signs of wavering from its strategy of doing everything it can to boost growth—investing in the platform, expanding servers, and, most crucially, greasing that creator/content flywheel. The essential idea is that eventually, there will be enough users spending enough money on the platform that income from “bookings” eclipses the costs of expansion and platform maintenance, resulting in traditional profits. (Even some of Roblox’s Wall Street critics tend to see the company’s long-term prospects as promising, particularly if you’re a believer in the potential of the metaverse.)
Two of its strategies to that end seem particularly notable. One is the introduction, in 2019, of “engagement based” payments to developers. For fledgling creators, it can take time to build up enough of an audience to realistically monetize a game or experience. These payouts can serve as an incentive, or stopgap measure. The developer doesn’t even have to pursue them; funds simply show up in their Robux account. “We want them to be able to earn money as they’re investing time,” Donato says. Roblox doled out $86.1 million in engagement payouts in 2021—about 16% of total payments to developers.
Second, Roblox has adopted a seemingly neutral relationship to brand incursions on the platform. This is striking because those incursions are definitely happening, and it seems likely their frequency and pervasiveness will increase—as well as their potential for monetization. But Roblox currently doesn’t seem to want to deal with brands directly; instead, it encourages them to work with developers—whether homegrown like the Clemens family, or outsider pros like the Gang.
The bottom line, Donato says, is that it’s easier to just let that dynamic play out within the ecosystem, and for brand experiences to rise or fall on their own merits, rather than try to play a more direct partnership role. In fact, Sousa, the developer lead, notes that Adopt Me (one of the most popular games on Roblox, involving caring for and swapping virtual pets) has included multiple brand “integrations” linked to Disney properties. That, he says, is what Roblox generally prefers: brand involvement, but without the company serving as the direct middleman. “We just try to create a level playing field,” Donato agrees.
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There’s a third strategy that has had only light impact so far but could turn out to be a crucial part of Roblox’s future. Sousa points out that the average age of Roblox users is creeping slightly upward: 52% are now over 13. Seeing that number go up—or being “age agnostic,” as Sousa puts it—has become a company goal. Thus the encouragement of experiments like yoga spaces, or realistic travel-oriented experiences. Even digital events like concerts and DJ sets can attract a slightly older teen audience. (The company says 17- to 24-year-olds are its fastest-growing user group.)
One obvious reason for this emphasis: As a business, Roblox depends on users spending money, and accomplishing that goal with an audience of children is a complicated challenge. Younger users need parental involvement to set up Robux accounts, but adult supervision beyond that varies widely, leaving open the possibility of dubious transactions. In April, the nonprofit group Truth In Advertising filed a complaint with the Federal Trade Commission, charging that Roblox “allows advertising to be surreptitiously interlaced with organic content in a multitude of ways.” Around the same time, the platform made an unfortunate cameo in pop culture when Kim Kardashian’s 6-year-old son apparently encountered a mention within Roblox of a sex tape of her and a former boyfriend. (The company reportedly removed the “experience” where the tape was mentioned, and banned its creator.) Scammy bots are also a problem, and Roblox has filed a patent for a technology designed to ferret out counterfeit versions of virtual goods.
Even legitimate sales can raise concerns when you’re talking about preteen consumers whose brains are still literally developing. And there is, by design, a lot of spending on the platform. Digital merch sales from a Lil Nas X Roblox event reportedly approached $10 million. Certain rare items—coveted either because of their utility in a particular game, or simply for the same status reasons that link scarcity and value in the physical world—cost thousands of Robux.
“There’s a lot of opportunity to scam people in Roblox, especially kids,” notes Ian Bogost, an author, game designer, and critic, and media and computer science professor at Washington University in St. Louis. That could involve anything from pressuring them into buying “gifts” or giving away digital objects they’ve acquired, for less than their true value.
But as Bogost observes, Roblox has managed to remain remarkably unscathed by the kind of parental panics that have surrounded everything from violent games to the Pokémon craze to concerns over Fortnite. Perhaps it has something to do with Roblox’s blocky, nonthreatening, even clunky aesthetic, Bogost says: “Maybe parents think: ‘It can’t be that important. Something that was important would look better.’”
Roblox points to its content moderation efforts, which it describes as extensive, and as one of the company’s significant expenses. In addition, the Roblox executives and developers I spoke to repeatedly cited the platform’s “community” environment—precisely because it’s a world that’s been built largely by its users, users have a vested interest in keeping it honest and safe.
Ultimately, Roblox needs that to be true: On almost every level, it has bet its future on the creativity, acumen, and ethics of the ecosystem it has cultivated. Shrugging off traditional earnings isn’t a strategy that works for long, and Wall Street already seems to be losing some patience. But as Donato says, the 18-year-old company believes that today’s strong cash flow numbers will evolve into tomorrow’s profits. “We’re just getting going.”
