In February 2020, Roblox closed a round of venture capital funding that valued the company at $4 billion. Just nine months later with millions of people stuck at home, Roblox doubled in value to $8 billion. Following yet another funding around in January 2021, the company’s value ballooned to $29.5 billion. Ahead of the most anticipated IPO of the year so far, I explore what Roblox actually is, how it’s become so popular and valuable, and why you should be paying attention.
If you’re over 25, you might have a vague idea of what Roblox is. Something about blocky avatars and digital currencies gamified in an online world. If you’re under 25, you might have more than just a vague idea. You might spend nearly as much time on Roblox as you do Snapchat, Twitch, and TikTok.
According to App Annie, Roblox is the fourth most popular app among Gen Z users. As of August 2020, Roblox had over 164 million monthly active users, with it being played by over half of all children aged under 16 in the United States and three-quarters of children ages 9 to 12.
A company filing reports 29% of Roblox users are 9-12 years old, 25% are under 9 years, 16% are 17-24 years old, 14% are 25 years old or more, and 13% are 13-16 years old. It’s a remarkable breakdown given the industry’s battle to win over Gen Z, whose spending power greatly increases once users become teenagers. Filed as an imminent direct listing offering with a user base growing by the day, the clock is quite literally ticking.
To better understand how Roblox became a generational phenomenon and why you should care in the first place, I take a look at the company’s humble beginnings and incredible trajectory.
What is Roblox?
Founded by David Baszucki and Erik Cassel in 2004, Roblox is a free-to-play online game platform and game creation system that allows users to program games and worlds, allowing other users to enter these games and worlds. Games range from first-person combat to puzzles, while worlds include everything from tropical islands to haunted castles and everything in between.
The platform officially launched on September 1, 2006 and became COPPA compliant (Children’s Online Privacy Protection Act) in March 2007, an important milestone given Roblox’s target audience.
Over the years the game has become more and more sophisticated, allowing gamers to pay real money to become premium members and to purchase an in-game currency called Robux. With Robux, gamers can buy clothing, weapons, and accessories for their characters.
In the last few months, Roblox, with over 150 million global users spending billions of hours on the platform, has become a kind of virtual schoolyard playground where gamers meet to play, chat, and create.
It’s also become a place to learn. According to Roblox, nearly 30% of users reported that they started learning to code and build their own games during the pandemic, helping push the narrative that Roblox is more than just a schoolyard: it’s a schoolhouse.
How did Roblox become so popular?
For much of Roblox’s life, it was a relatively niche community, a combination of co-founder Baszucki’s press aversion and a number of other platforms with similar concepts launched around the same time. That all changed in the mid-2010s when technological tweaks made it easier to play on phones and Microsoft’s Xbox.
Today Roblox is considered at least as popular as competitor Minecraft—the best-selling video game of all time—whose likeness has been adapted into books, LEGO collaborations, and an upcoming film. At the core of what makes Roblox so popular is its never-ending sense of discovery.
Independent developers create more than 20 million new games a year for the platform and get a percentage of the money that users spend on their games. Because a majority of game developers are teenagers, college students, and young adults working alone or with a small team, Roblox has created a virtual world with very real value for an entire generation.
This self-sustaining ecosystem, fueled in large part by the coronavirus pandemic, has caused it to skyrocket from an entertaining if misunderstood way for kids to pass time to a cultural phenomenon where many parents actively encourage their children to responsibility engage with the platform in light of recent stories highlighting the career possibilities afforded by Roblox.
How much money do Roblox developers make?
The Times profiled 20-year-old Anne Shoemaker, who relocated from Florida to Silicon Valley two years ago to live near other developers as she coded games for Roblox. At first she didn’t make enough money to consider it a full-time job. That all changed when the pandemic hit.
Since March, Anne has made around $500,000 off the back of her two Roblox games: Mermaid Life, a fashion-centered role-playing game, and My Droplets, a pet simulation game.
Tellingly, some children who grew up on Roblox never left, turning the platform into what YouTube has been for Millennials. Times subject Alex Balfanz, 21, began coding games on Roblox when he was 9. In 2017, as a high school senior, he released a Roblox game called Jailbreak.
On its first day, Jailbreak counted more than 70,000 players at once. By August 2020, it had been played more than four billion times and makes a few million dollars per year.
While Anne and Alex are outliers among their peers, Roblox says 345,000 of its two million developers make money and split their profits with the company 50/50. The top dozen developers are a different story, with games generating an average of $2 to $3 million a year.
Why should I care?
The story of Roblox is the story of virtual realities. When microtransactions were introduced to video games in 2006—Bethesda sold cosmetics in The Elder Scrolls IV: Oblivion for $2.50—players scoffed at the idea of paying real-world money for a virtual good. Nonetheless, Bethesda’s experiment paid off: the cosmetic became the ninth best-selling piece of downloadable content (DLC) in the game and was still being purchased more than two years after its release.
In 2008, Apple launched the iOS store on iPhones and games there used microtransactions as their main source of funding. By 2011, iOS apps made over $3.6 billion in revenue with over 15 billion downloads. 80% of that revenue came from mobile games.
In the last decade, virtual goods have become more and more accepted by wider culture, and now account for staggering sums of today’s biggest video game publishers. Activision Blizzard, which owns the Call of Duty and Overwatch franchises, among others, netted over $1.2 billion in microtransactions between July and September 2020. Total revenue for the quarter was $1.95 billion.
Roblox is feeling this surge in a big way, too. Revenue from the game’s mobile app came in at $493 million in the first half of 2020, up from $228 million in the same period a year ago, according to analytics firm SensorTower.
Roblox’s prospectus shows bookings (the gaming industry’s primary measure of sales) grew 171% in the first nine months of 2020 to $1.24 billion from $458 million the prior year. In the same period, daily users grew by about 80% to more than 30 million, each spending an average of 2.6 hours a day on Roblox.
Luxury labels like Gucci are producing virtual collections for video games, while new brands are looking past digital-first and setting their sights on digital-only. I profiled RTFKT Studios, a brand gunning to be Supreme for the Digital Age, just a few weeks ago.
It remains to be seen if this unprecedented momentum continues in a post-vaccine world but if the upcoming Roblox IPO tells us anything, it’s this: virtual experiences have become all but inseparable from real ones and consumers are willing to spend big to have them. The companies that create immersive virtual experiences or offer virtual goods with a perceived real-world value will come out on top.
Roblox is a step ahead of everyone, creating an immersive virtual experience with the purpose of empowering users to create their own virtual worlds where virtual goods are only a few Robux away.
Brock Cardiner is the Content Director of HERO® and the Editor-in-Chief of Elsewhere. Previously Brock was the Editorial Director of Highsnobiety.