Roblox is getting into ads to diversify beyond virtual goods

Roblox has built a user base of over 52 million by providing a gaming and entertainment platform primarily aimed at children. Now the company wants advertisers to join in the fun.

As part of its annual developer conference on Friday, Roblox is announcing plans to launch ads next year, marking the company’s first significant effort to diversify its business beyond virtual goods in games. Ahead of the rollout, Roblox said it would test ads with unspecified developers and brands by the end of this year.

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Manuel Bronstein, chief product officer of Roblox, said the company has already tried some online ads with brands like Warner Bros. and Vans. The ads were displayed in an experimental ad format that Roblox called “portals,” he said. He also said the company remains committed to its core business, which allows players to spend real money on Robux virtual currency that can be used to level up and purchase in-game items.

“We have an incredible transactional economy, and we will continue to invest in it,” Bronstein said. He called the company’s push into online ads a “good strategic bet” that is “at the start” of its development.

Roblox debuted on the New York Stock Exchange in March 2021 and saw its market capitalization top $80 billion in November as investors flocked to high-growth tech stocks. But this year’s economic downturn has punished these companies, with Roblox losing 60% of its value in 2022.

In August, Roblox released second-quarter financials that missed both top and bottom results, and revenue growth slowed to 30% from over 100% a year earlier. The company said in its quarterly filing that it generates “almost all of our revenue” from the sale of Robux.

Roblox CEO David Baszucki told CNBC in February that the company has “many opportunities to increase monetization” and he cited advertising and immersive 3D shopping as potential areas for growth. To date, the company has focused on “building a safe and civil platform” and growing its daily active user base, Baszucki said.

Roblox describes its next ad offering as immersive ads, though there’s no standard format for how they look yet. Bronstein speculated that future ads in the metaverse — an online world where people socialize, work, and learn — might look like digital billboards that people can use to buy goods like shoes or even branded digital coffee mugs.

In the portal’s ad tests, when users interact with the brand, they can be automatically transported to the company’s virtual Roblox community, Bronstein said. At this point, companies are just trying to figure out how ads can work in Roblox and other metaverses.

Regarding Warner Bros. and his recent Roblox test, Bronstein said “they were fascinated by the results.”

Roblox is getting into online ads during a turbulent time in the market. Meta and Snap’s Facebook business has been hit particularly hard by Apple’s privacy changes in iOS, making targeting more difficult. The economic downturn has led a number of companies to cut advertising spend, and the emergence of TikTok has added a new avenue to the mix.

Meanwhile, Amazon and Apple are ramping up their advertising business as companies that rely on these platforms spend more money marketing themselves to consumers.

In this context, Roblox will have to prove its worth before brands open up their wallets in any meaningful way. Companies could use their metaverse ads “as connections to the real world,” Bronstein said. For example, a company’s branded digital item could function as “a coupon to buy something from a store” in the physical world.

Roblox faces the additional challenge of serving ads on an app primarily used by children. All Roblox ads will be labeled as “immersive ads” and children under 13 will not be able to interact with them, the company said. The company is also adding more guidelines to inform parents and children about virtual experiences suitable for certain age groups based on criteria such as violence.

In addition to ads, Roblox is launching other new features, including a tool to help users more easily discover virtual worlds and experiences they might be interested in, as well as chat features, more immersive avatars that include animations facials and other designer tools.

In the second quarter, Roblox’s daily active user count soared 21% year-over-year to 52.2 million.

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