Roblox jumping into ads in effort to diversify beyond virtual goods

Roblox has built a userbase of over 52 million people by providing a gaming and entertainment platform that’s mostly been targeted at kids. Now the company wants advertisers to join the party.

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

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

“We have an amazing transactional economy, and we will continue to invest in it,” Bronstein said. He featured the company’s push into online ads as a “good strategic bet” that’s “early” in its development.

Roblox debuted on the New York Stock Exchange in March 2021, and saw its market cap swell past $80 billion in November, as investors poured into high-growth tech stocks. But this year’s economic slowdown has punished those businesses, with Roblox losing 60% of its value in 2022.

In August, Roblox reported second-quarter financials that missed on both the top and bottom lines, and revenue growth slowed to 30% from more than 100% a year earlier. The company said in its quarterly filing that it generates “substantially 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 3D immersive shopping as potential areas for growth. To date, the company has focused on “creating a safe and civil platform” and growing its daily active user base, Baszucki said.

Roblox describes its upcoming ad offering as immersive ads, though there’s not yet a standard format for how they will appear. Bronstein speculated that future ads in the metaverse — an online world where people socialize, work and learn — could resemble digital billboards that people can use to buy goods like shoes, or even branded digital coffee cups.

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

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

Roblox is jumping into online ads during a period of turbulence in the market. Meta’s Facebook business and Snap have been particularly hurt by Apple’s privacy changes in iOS, which make targeting more difficult. The economic slowdown has led a number of companies to pull back on ad spending, and TikTok’s emergence has added a new avenue to the mix.

Meanwhile, Amazon and Apple are bolstering their ad businesses, as companies that rely on those platforms are spending more money to get in front of consumers.

With that backdrop, Roblox will have to prove its value before brands will open their wallets in any meaningful way. Businesses could use their metaverse ads “as connections with the real world,” Bronstein said. For instance, a company’s branded digital item could function like “a coupon to go buy something at a store” in the physical world.

Roblox faces the additional challenge of serving ads on an app that’s predominantly used by kids. All Roblox ads will be labeled as “immersive ads” and children under the age of 13 will not be able to interact with them, the company said. The company is also adding more guidelines to let parents and children know which virtual experiences are suited for certain age groups based on criteria like violence.

In addition to ads, Roblox is debuting other new features, including a tool to help users more easily discover virtual worlds and experiences that may be of interest to them, as well as chatting features, more immersive avatars that include facial animations and other tools for creators.

In the second quarter, Roblox’s daily active user count climbed 21% from a year earlier to 52.2 million.

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