Roblox Business Model | How Does Roblox Make Money?

Roblox is an online gaming platform that allows you to create and play various multiplayer games. You can create your own game or play games created by others. As of today, the Roblox gaming library contains over 50 million games.

Roblox earns money through the sale of its in-game currency known Robux. Some other source of revenue for Roblox is through advertising, licensing, and royalties of games on the platform.

Roblox was founded in 2004 and had a headquarter in San Mateo, California. The company has grown to become one of the most popular gaming ecosystems in the world. The company is scheduled to go public via a direct listing in 2021.

What is Roblox?

Roblox (NYSE: RBLX) is a multi-faceted gaming platform that brings together players and developers. While you might think that it is a gaming platform for older people, 54% of its users are under 15 years old.

Business Model of Roblox

Roblox allows developers to create games for the platform. Users can then play and customize their characters. It is a highly interactive, immersive community with over 20 million playable experiences.

How Does Roblox Work?

Users can play various multiplayer games on Roblox once they sign up on the platform. As of May 2021, the Roblox library features more than 50 million games for its users.

Developers can create games for Roblox on Roblox Studio, which is the proprietary frame development tool for Roblox. 

Business Model of Roblox

It allows you to create your avatars and customize them using Roblox digital currency known as Robux. 

However, if you are short on cash, you can earn Robux by participating in various special events on the Roblox platform. 

You can play games with your family and friends and communicate with each other individually or in groups. Because 

Roblox is primarily aimed at children as its core demographic is between the ages of 9 and 15; various cuss words are censored to keep the platform child-friendly.

Parents can edit the game’s settings for their child on Roblox. They can customize their child’s access to games, who their child can communicate with, and many more to keep their child and platform safe and children friendly.

You can access and play the games associated with Roblox via its website and play via the platform’s website, mobile and tablet devices, Oculus Rift, and Xbox. You can download the Roblox app for both Android and iOS devices. 

Success Story of Roblox

Roblox Corporation founded the Roblox platform in 2004 by David Baszucki (CEO) and Erik Cassel in San Mateo, California.

Baszucki, born in Canada on 20 January 1963, began his undergraduate studies at Stanford, where he did masters in computer science engineering.

He decided to start his own business after working for four years in the industry. He co-founded Knowledge Revolution with his brother In 1989.

The primary service of Knowledge Revolution was to develop applications for educational purposes by Apple’s Macintosh users. 

Interactive Physics was one of the first products of the firm. Interactive Physics was an app that assists users in learning basic physics concepts. Users could even conduct experiments in a two-dimensional environment, which was extremely advanced at the time.

The team kept continued to develop and release additional educational applications over the years. 

Knowledge Revolution was acquired for $19 million in 1998 by California-based MSC Software after nine years of operation.

Baszucki was promoted to VP of the company as he stayed at MSC. He departed from MSC four years later, in 2002, to start his venture, Baszucki & Associates, an investment firm. He even hosted a radio show called KSCO Radio in Santa Cruz in 2003.

However, after taking a break for some time, Baszucki decided to return to the startup environment again. He made his friend Erik Cassel as co-founder of this company.

Baszucki met Cassel in the 1990s after joining Knowledge Revolution. Cassel got to know about Knowledge Revolution through a MacUser magazine and immediately applied for a job at the firm. Cassel was accepted, and he joined the firm after the interview.

Cassel eventually advanced to Vice President of Engineering at Knowledge Revolution and remained even after MSC was acquired. The duo kept in touch with each other even after they departed from the company.

They would love to discuss how users of Interactive Physics could experiment with the software and create their designs, making it a super friendly and enjoyable product. This was when they decided to build a similar software for gaming purposes after meeting again.

Baszucki and Cassel worked on what would become Roblox for over two years, writing all of the code and designing all of the graphics themselves. 

They planned to launch GoBlocks.com as the domain and brand name for their startup. The platform was later renamed Dynablocks before making its way to Roblox in January 2004.

Roblox launched its beta version a year later in 2005. Roblox initially struggled to gain traction until Cassel suggested that Baszucki open up the platform and its development kits for outside developers. 

It was the moment when Roblux took new heights.

Roblox was finally released to the public a year later, in 2006. The team kept experimenting with paid ads to acquire users in the beginning. However, the team soon understood that the platform was skyrocketing on its own and did not need to be promoted with sponsored ads. 

Roblox Business Model | How Does Roblox Make Money? 1

Roblox was able to host various games on its platform as the platform’s users developed the content. 

This gave a rapid boost in the growth of Roblux, attracting more users, who in turn created and played more games for the platform.

Roblox’s operations were solely driven by word-of-mouth in its initial years. The company’s growth enabled them to raise their first round of funding in August 2009, generating $2.3 million in cash on hand for the platform.

The website of Roblox was receiving close to 6 million monthly visitors a month by 2011. 

However, not everything was going smoothly for the company. Cassel had been diagnosed with cancer a year prior. He fought the disease for three years before succumbing in 2013. He was 45 years old at the time.

Roblox capitalized on brand partnerships to expand its advertising base. Roblox used to generate money from video ads played before a user started to play the game.

Roblox would next partner with companies such as Disney, Lego, and Hasbro, and various others. These partners would then use the Roblox platform to promote their products and services, such as upcoming films.

Roblox’s cloud-based architecture allowed them to create a cross-platform gaming experience. The team of Roblox then went ahead to launch.

  • An iOS app in 2012 for Apple Users.
  • Android App in 2014 for Android Users.
  • Oculus Rift and Xbox App in 2015.
Business Model of Roblox

Roblox team would select only a few games for each launch after being convinced and confident that the game would work on the specific gaming device. This enabled new users to become acquainted with the platform, thereby reducing friction.

Two innovations would serve as the firm’s inflection point. 

The first one is Robux, the digital and in-game currency of the Roblox platform in 2007. Robux is one of Roblox’s two currencies, alongside Tix, delisted from the platform in 2016.

The second was the launch of the developer payment program in the fall of 2013 by Roblox. The program allowed developers to be compensated for the games they create. 

When users made any purchase items within their game using Robux, a portion of the purchase was reserved for the developer. Roblox would retain the remaining amount for itself.

Roblox was able to pay out over $500,000 to participating developers within a year. Conor and Darragh Griffin of Limerick, Ireland, who was also the game Sword Fighting Tournament creators, were able to earn well over $10,000 per month from the Roblox platform.

Before that point, the developers only launched games on the Roblox platform out of their passion. However, the payment program for developers fueled the ambitions and dreams of numerous aspiring entrepreneurs, who eventually began to compete for their pursuit of additional cash.

This resulted in an inflow of new and exciting games to the platform and improved the games’ quality.

Roblox Business Model | How Does Roblox Make Money? 2

Developers started to create worlds with compelling storylines to attract an increasing number of gamers to their games. 

As of today, Roblox pays over $250 million per year to its developers.

Moreover, the firm invests a significant amount of money and resources in nurturing the talent on their platform. For instance, the company frequently invites developers to collaborate with its research and development team on software enhancements as part of its accelerator program. 

Also, Roblox employs several of these developers as interns and full-time employees.

Similar to Minecraft, influencers frequently amplify the rise in popularity of those games. Twitch and YouTube channels such as Flamingo or Tofuu with millions of subscribers have promoted Roblox over time.

Roblox entered the physical world of retail after being present in more than half of all US households. 

The company announced the launch of a line of toys featuring its most popular game characters in collaboration with retailers such as Toys’R’Us In 2016.

Sadly, everything did not go as planned for Roblox. Roblox quickly encountered the same problems that user-generated content platforms have faced for the last decade, such as Facebook and Twitter.

Hackers altered the code of a Roblox game and “gang-raped” a 7-year old minor in 2018. 

The victim’s mother intervened immediately, but the incident sparked fuel to the ongoing discussion about the potential negative consequences of Roblox. 

Similar incidents such as games filled by hackers or KKK members who bypassed the language filter of Roblox surfaced.

The company responded by launching several initiatives. It hired Laura Higgins, a UK-based online safety expert, as its first director of digital civility in January 2019. 

Additionally, Roblox was one of the ten companies that founded the Fair Play Alliance, a group dedicated to eradicating toxic behavior in video games. 

Finally, Roblox hired more staff to moderate content and promised to hire more cybersecurity and engineering experts to keep the platform safe and secure for children.

Roblox’s platform has grown in popularity over the years despite these setbacks. Roblox’s continued growth and went to the point when the company announced filing for an initial public offering in October 2020. 

However, two months later, the firm withdrew from the IPO, fearing losing money.

The reason being DoorDash and Airbnb both went public in December 2020 and had to lose billions of dollars due to their respective valuations being significantly overstated. 

Roblox raised another round of funding in January 2021, allowing its employees and long-term shareholders to cash out. The company intends to pursue a direct listing instead of going into IPO.

As of 2021, Roblox now employs over 2,000 individuals across two San Mateo and Shenzhen locations in China. Over 150 million people visit its platform each month, making it one of the most visited websites on the planet.

How Does Roblox Make Money?

Roblox generates revenue by selling its in-game currency, Robux, advertising, licensing, and royalties.

The Roblox Business Model is freemium, where the games are free to play. However, users need to pay to unlock additional features and customizations in the game.

Let’s take a closer look at the revenue methods of Roblox in detail.

Robux – Roblox Digital Currency for its Platform

Robux is a virtual in-game digital currency that players can purchase to pay for customizing their avatars, access certain experiences, and enhance their experiences while playing games on the Roblox platform.

You can purchase Robux using its one-time payment or using its monthly subscription known as Robox Premium.

The monthly subscribers of Roblox receive additional discounts at stores, increased returns on the resale of items, and the ability to trade items with other users.

As per the reports of Roblox S-1 filing, the majority of Roblox revenue comes through Robux sales.

Business Model of Roblox

The average lifetime of a paying user is 23 months on the Robux platform.

Roblox then distributes a portion of that revenue to its developers, as mentioned above. To be more precise, developers receive 24.5% of all revenue generated by their games. In 2020 alone, developers were able to earn more than $250 million combined.

Licensing

Walmart and Toys’R’Us, who are partners of Roblox, pay a licensing fee in exchange for the right to sell Roblox products at their stores.

Typically, these are toys based on some of the platform’s most popular games and characters.

Advertisements on Roblox Platform

Roblox collaborates with multiple brands, including Marvel and Lego, to promote its products and services on its platform.

Roblox partnered with Disney to promote Star Wars Episode IX – The Rise of Skywalker through an in-game creator event in 2019. The event featured a series of events in which gamers learned how to build their own spaceships.

The advertiser then pays Roblox for their brand exposure. Given Roblox’s 150 million monthly active users and predominantly young user base, this is a near-ideal case study in native advertising for brands like Disney or Lego.

Royalty Fees

Royalties are required to pay whenever someone seeks access to another intellectual property (IP). A licensing fee must be paid whenever the intellectual property is used.

Roblox states in its Terms of Use (under Ownership of User Generated Content and License Grant to Roblox) that while developers retain all copyrights, they agree to grant Roblox the right to license out every content.

As a result, other products and services can utilize that IP and display it on their app, platform, or website, among other places. When this occurs, Roblox is compensated with a so-called royalty fee earning.

How Much Funding Did Roblox Generate?

Roblox has raised a total of $855.7 million in venture capital funding across nine rounds, according to Crunchbase.

Andreessen Horowitz, Altos Ventures, Warner Music Group, Tiger Global Management, Tencent, and Dragoneer Investment Group are among the company’s prominent investors.

What is the Current Valuation of Roblox?

Roblox is currently worth over $41 billion, making it one of the world’s most valuable video game companies. The valuation was disclosed in January 2021 as part of the firm’s Series H offering.

Does Roblox Make Money? What is the Revenue of Roblox?

Roblox reported revenue of $588.7 million in the first nine months of 2020, which was 68 percent higher from $349.9 million in 2019. Over the same time period, the company reported a net loss of $203.2 million, which is higher than $46.3 million a year ago.

Who is the Owner of Roblox?

Roblox disclosed its ownership structure in its November 2020 S-1 filing. 

However, it should be noted that the latest Series H round of funding, which has diluted the ownership structure even further, is not included in the prospectus.

Through his investment with Altos Ventures, Anthony Lee was the largest shareholder with a 21.3 percent stake in Roblox at the time of the filing.

Baszucki, the CEO and founder, remains a close second with a 12.5% stake. However, because he owns all Class B common stock, which entitles him to 20 votes per share, as opposed to Class A common stock, which entitles him to one vote per share, he has a combined voting power of 70.7 percent. 

This vests Baszucki with a veto-proof majority of votes – and possibly the ability to overturn any contrary board decision.

Meritech Capital holds 10.3 percent, Index Ventures holds 9.9 percent, and Tiger Global Management owns 7.3 percent.

How many Users Play Roblox?

Roblox now has over 31 million daily active users who play the game on the Roblox platform regularly, according to the firm’s S-1 filing. This represents a nearly 100% increase from the previous year, 2019, when Roblox had 17.6 million daily active users.

Additionally, the company announced in July that its game attracts over 150 million monthly active users.

Roblox website receives close to 900 million monthly visitors. As a result, Roblox is one of the top 50 most-visited websites worldwide.

What is the Future of Roblox Business?

Roblox has stated its intention to create a more integrated virtual world similar to the one depicted in ‘Ready Player One.’

David Baszucki — a.k.a. ‘Builder man — the company’s CEO — believes that it can aggregate players’ experiences into a metaverse.’ He wishes for Roblox to serve as a springboard for the next generation to create new virtual experiences.

Roblox Business Model | How Does Roblox Make Money? 3

One point of contention with Roblox is that it effectively runs its own economy. Regulating shady practices and scams on a platform that allows users to customize and develop their own virtual reality is difficult on this platform.

On the other hand, Roblox is aware of its demographic and will continue to work toward the goal of creating safe, positive spaces for players to explore.

This company has exploded in popularity among younger generations over the last three years. As a public company, it now has the attention of older generations as it continues to grow. It’s not difficult to envision the Roblox community expanding to include curious millennials and even Generation Xers.

Overview of Roblox

Date of LaunchSept 1, 2006
HeadquarterSan Mateo, California
Business TypePublic
FoundersDavid Baszucki (co-founder, CEO), Erik Cassel (co-founder)
IndustryVideo Game
Overview of Roblox

Revenue of Roblox

YearsRevenue
2020$920 million
2019$435 million
2018$335 million
2017$45 million
Revenue of Roblox from 2017 to 2020.

Quarterly User Spending of Roblox

YearsUser Spending 
Q3 2020$308 million
Q2 2020$319 million
Q1 2020$188 million
Q4 2019$174 million
Q3 2019$143 million
Q2 2019$118 million
Q1 2019$109 million
Q4 2018$91 million
Quarterly User Spending of Roblox from Q4 2018 to Q3 2020.

Users of Roblox

YearUsers
2020150 million
2019100 million
201880 million
201735 million
Users of Roblox from 2017 to 2020.

Daily Active Users of Roblox

YearDaily Active Users
202033.4 million
201917.1 million
201810.9 million
Daily Active Users of Roblox from 2018 to 2020.

Valuation of Roblox

YearValuation
2021$41 Billion
2020$4 billion
2018$2.5 billion
2017$1.1 billion
Valuation of Roblox from 2017 to 2021.

Payout to Developer by Roblox

YearTotal Developer Payout
2020$250 million
2019$100 million
2018$70 million
2017$30 million
Payout to Developer by Roblox from 2017 to 2020.

What are the Total Downloads of Roblox Apps?

As per reports of June 2020, Roblox has been downloaded more than 383 million times combining both Android and iOS Devices according to GamesIndustry reports.

What are the Demographics of Roblox Users?

Roblox is highly popular among children under the age of 13 years. It has been the most popular entertainment app under the age of 13 years as per TechCrunch report.

How many Roblox worlds have been created?

Roblox currently has approximately 50 million games, though this number fluctuates every few months.

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How much more valuable is Roblox now that it has completed its initial public offering?

Roblox increased its valuation by 850 percent between 2020 and after the IPO listing announcement.

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