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At Roblox Investor Day late last year, Roblox CFO Michael Guthrie shared details of the platform’s plans to grow its advertising business.

80% of engagement on Roblox today is from non-paying users, so it’s not surprising to see Roblox turning to advertising as a growth lever. It is following in the footsteps of mobile games, where in-game ads have been estimated by Eric Seufert and data.ai to be about one-half of global mobile games revenue.

In-game advertisements, therefore, represent a massive growth opportunity for Roblox, where 78% of engagement is mobile. Considering that Roblox is a $3.3B virtual economy growing at ~20% per year and driven by in-game monetization, one might conclude that they are sitting on an additional $3.3B advertising opportunity in present day terms.

The size of the opportunity ultimately depends on how Roblox designs the unit economics of their ad economy, but according to developers I spoke with, they are currently taking a similar cut as they do their virtual economy of at least 70%.

It is important to remember that mobile advertising took years to perfect and drive the revenue volumes it does today. One way for Roblox to potentially shorten the timeline to doubling its revenue, and the revenue for its developers, is for Roblox to introduce rewarded Immersive Ads, akin to rewarded playable ads on mobile. Rewarded Immersive Ads would enhance the effectiveness of advertising, significantly reduce the cost for brands to advertise on Roblox, and enable thousands more brands to have a presence on the platform.

The Rewarded Playable Ads Opportunity

In its Investor Day presentation, Roblox mentioned that it is currently testing rewarded video ads. 

This is an exciting opportunity for Roblox when you consider:

• Unity found 80% of players were willing to engage with video ads granting in-game rewards, while over 50% of developers found rewarded ads to be the biggest source of revenue. 
• An estimated 50% of mobile revenue comes from in-game advertising.
• Roblox has a 70M daily active user base, 80% of which go unmonetized. 

Rewarded video ads is an important step for Roblox, but is it enough to become 50% of Roblox’s revenue? We can look to mobile games for answers here.

According to IAB, “TreSensa, Inc. compiled data from over 100 playable ad campaigns between 2016 and 2019 and found that the average engagement rates for playables served as in-app interstitials range between 15% and 30%, meaning that when presented with a playable, roughly one in five consumers will choose to engage with it and spend time with a brand.”

Playable ads have also long been seen as the most effective in-app ad format by agency professionals. For example, Rovio has reported a 40% lower cost per paying user and a 70% lift in day seven return on ad spend through the use of playables. Further, IDC estimates that more than 50% of game developers in the US purchased playable ads campaigns (37% purchased regularly and 17% occasionally). And Chartboost cites a 53% increase in monthly impressions and 2.6x better conversion with playable end cards versus static end cards.

In some ways, playable ads already exist on Roblox today. They’re called Immersive Ads, and just like playable ads, they transport players to a branded experience. The problem is that these experiences are incredibly expensive to develop, and have struggled to deliver the ROI brands need to justify further investment. 

This is not due to brands’ lack of trying as there were over 240 activations last year, many of which paid handsomely to leverage Roblox’s new Immersive Ads feature. The issue lies with how Immersive Ads impact the discovery algorithm and what constitutes a branded experience on the platform today.

Roblox’s Immersive Ads Problem

Today, Roblox players engage with immersive advertisements by walking through a shiny, branded portal which transports them to an entirely new game than the one they were just playing. They enter a new experience with limited context or design cohesion, and often the player is disoriented and promptly leaves; They may not even return to the original experience.

Nobody wins in this scenario: The original game maker loses a player who had willingly engaged with its game, the advertiser receives a player who is not interested in playing the game, and the player’s session is interrupted, hurting Roblox. But the damage doesn’t stop there.

The vast majority of player acquisition on Roblox is driven organically by its discovery algorithm, which looks at average session length, retention, and monetization when deciding where to send traffic. When advertisers teleport players to their experiences and they leave instantly, those experiences see significant drops across all metrics.

Ironically, this acquisition strategy ends up handicapping the game's chances of achieving the prized organic acquisition that makes developing for Roblox such a compelling proposition. To illustrate, a game with 20 percent acquisition from Immersive Ads and an average session length of 18 minutes would see their average session length drop by 18%, taking an experience from 18 minutes to under 15 minutes.

Roblox’s discovery system will move impressions towards games with the best performance within their genre, so in this example the game would go from 95th percentile to 70th percentile, likely impacting the games potential for organic discovery.

Roblox appears to be taking steps to make this a smoother experience by allowing players to return to their original server and save state, as well as giving the developer the ability to choose which advertisers are shown in their experience.

However, advertisers in the audience for this RDC talk heard no mention of improving the effectiveness for the advertisers themselves. This is concerning for brand advertisers when you consider:

• Most advertisers are brands sending players to their branded experiences. Christina Wootton, Roblox’s Chief Partnerships Officer, also shared that 34% of brand partners purchased portals to acquire players, and that 90% of players acquired through the portal are net new users.
• Roblox is relying on developers and agencies to educate brands. Wootton also hinted at Roblox’s reliance on developers and agencies to be their de facto sales force. Many of these developers are reliant on revenue from building branded experiences, which may not be the best way for brands to activate on the platform and may be a conflict of interest.

Today, Immersive Ads are sending unqualified players to branded experiences, which themselves have struggled to be effective. The current user experience is disruptive and disorienting. Teleported players often leave instantly, dropping branded experience metrics and preventing them from reaching organic discovery. There is a lot of friction, and this is reflected in the slow adoption from advertisers to date.

The top 50 developers, who roughly make over 50% of total platform revenue, only get 1% of their earnings from Immersive Ads. Richard Sim, Roblox’s Senior Director of Product, hinted at the slow adoption to-date in his RDC talk: “We have hundreds of publishers who are showing Immersive Ads, but we have millions of experiences.” So while there is a ton of inventory for Immersive Ads, Roblox needs to address the aforementioned UX challenges and provide clear value to brands in order for advertising demand to catch up.

Fortunately, there is a solution that will lower the barrier to entry while boosting engagement for brands advertising on Roblox.

Immersive Ads and Brand Experiences Should Behave More Like Rewarded Ads

To increase adoption of Immersive Ads, Roblox needs to ensure they become a welcome part of the player experience. That could look something like this:

• A player happens upon a portal that offers a reward if the player completes a task in the advertised game. 
• The player walks through the portal and enters a continuous experience with simple gameplay like an obstacle course.
• When the player reaches the end, they are teleported back to the original experience and receive their reward.

If the brand has a larger experience it wants to drive players to, it could also include an option to continue on to that experience. For example: I could play the Fruit Loops Obby and then decide if I wanted to continue to Fruit Loops World or go back to the previous game I was playing. This would bring in more qualified players and smooth the transition from one experience to the next. Furthermore, this prevents uninterested or disoriented players from leaving and potentially ‘killing’ a brand’s organic discovery.

For all of this to occur Roblox and brands will need to change their current approach, but not by much:

• Roblox is already working on Rewarded Video ads,so expanding this to Immersive Ads is not a stretch. Roblox needs to add an API that allows the original experience to read that a reward event was triggered in the advertising experience so the player can receive the reward when they return to their original experience.
• Brands would need to adopt a different mindset. Rather than trying to create persistent experiences, which for the most part become ghost towns shortly after launch, they should make their experiences short and replayable, leaving an impression and making players happy to engage given the reward that they receive from their original game. These shorter experiences would be far less costly too, enabling more brands to activate on Roblox achieving the same or better play sessions, brand recall, and other metrics brands care about.

It’s still early days, but brands expect to see a return on their advertising, especially for being early adopters. Roblox is currently pushing brands to adopt a lackluster immersive advertising experience that drops their most important metrics, which is a lose-lose.

In order to truly drive outcomes (and ultimately get Roblox 50% of revenue driven from in-game ads), brands need to start thinking about branded experiences as playable ads, and Roblox developers need to be able to reward players for engaging with those experiences. If they do, more advertisers will come to the platform unlocking demand, developers will introduce more advertising slots to grow their revenue – and that $3.3B annual revenue opportunity becomes a lot more attainable for Roblox.

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