Is Roblox Turning Into TikTok?

All right, next topic is Roblox RDC. So, I already mentioned I recorded a podcast if you want to go a little bit deeper. So, here are the three topics that I wanted to get you guys' thoughts on. One is the DevX rate increase, number two is rewarded ads, and number three is Roblox moments, which was basically adding Tik Tok like features inside of Roblox. Okay, so on number one, the rate increase. So here's what happened. There is an 8.5% DevX or developer exchange rate increase. The rev share with developers has been extremely low when you add everything up. So when you start to take out platform fees and what Roblox takes and all of the other things, a developer basically only takes home about 21%. So, in this move of increasing the DevX by 8.5%. They're also removing or changing some of the other programs that they have in

place around the creator affiliate program and the engagement playout. And ironically, UEFn is only an engagement payout platform. And you know, Roblox says it a little bit differently since there are AP monetizations. Also, they announced that 29,000 devs have actually cashed out money from the platform using the DevX platform. This was in a year kind of time frame. Reportedly, there are 3.1 million total devs, meaning that only about a percent take cash out from all of the developers. So, Phil, this has to be your number one. I mean, please tell me I'm not crazy. What do you think?
So many interesting things happened here. I mean, like, where do you start? So I think what was interesting about the DevX rate increase was that it's the rate at which Robux converts into real cash. So if you remember like they get paid in Robux from the consumer from the player and then they have that stored and then they can cash it out at that fixed exchange rate. And so the way they've altered the developer share is by changing that exchange rate. So you

actually have an incentive if they increase rates like this to hold on to cash because remember now cash that you stored instantly became more valuable which is interesting. And so I was like thinking today like oh man it's almost like they paid you out basically an interest rate for keeping the capital floating in the system which I think becomes really interesting. Like if you remember Starbucks they have so much of their capital floating around in gift cards just kind of swishing around and like you can't quite like write it off but you can kind of depreciate it. I think that shit's super interesting but I think overall the question is like what is the appropriate dev share for them that maximizes Roblox's GDP because that is what they are after. they after GDP. And if you remember, there's this thing called the LER curve which tries to describe the relationship between tax revenue and the tax rate. And so if you have a tax rate of 100%, you have zero tax revenue. And that's because no one produces, right? No one would produce with a tax rate of 100%. And if you have a tax rate of zero, you don't capture any tax revenue, right? Because the tax rate is zero. And so there's a maximum tax rate that will maximize the revenue

that you can get. So this was originally proposed by an economist named Lafer during the Reagan administration. And so the question is is like you got to remember there's elasticity. So even though they're increasing the dev share payout, they're not writing this off in the P&L for an equivalent amount because they know that there's going to be a snapback effect where there's going to be a supply side increase in the amount of content that people are able to make on the platform. Like that is one of the most limiting factors is that there's only so much money going to the developers for them to reinvest in the platform. Like remember Adopt Me was a headcount of 50, right? Okay. And so the thing that's limiting them from scaling is like they need they need more revenue capture. I was just surprised they didn't make it a marginal tax rate like Steam where if you earn above a certain amount, the amount that's earned above that bracket is taxed at a lower rate. You basically get a, you know, superstar effect, so to speak. I'm surprised they didn't move down that and they're doing down this flat framework. That was my biggest surprise.
Nerd.
That just became the GameConn.
No, no, no, Philip. Though, okay, hold on, hold on a minute. There's no [ __ ] way they would do that, right? Because

the majority of the money is being made by a very small percentage of the overall games. And so you start increasing the rate in which you're giving those developers, the bigger developers that we talk about all the time.
Totally. That would [ __ ] them. They would get no revenue, right? All their revenue would be gone if they start doing that [ __ ] You know,
they're increasing the payouts right now. I think it's just a question of how targeted you want those increased payouts to be. Look, I think I think it's good visibility that they're increasing the payouts, but I'm just saying like they can't do a progressive mo is that right progressive model. They can't do a model in which they pay out more percentage to the ones that are hitting a certain mark because that's where all the revenue is generated.
The Steam model, I guess.
Yeah. They can't do the Steam model.
So, so why do you think Steam does it?
Well, because Steam is fixed at 30%, right?
And this goes, I think, down to 25%. I forget the amount that it's triggered at. I think was it 100 million, 50 million? But it goes down to 25% as the second bracket. But
it goes down, right? It doesn't go up.
Correct.
Correct.
So that's what I'd suggest here is like why not keep let's say the exchange rate

they have now for developers earning under let's say $100 million and increase it for people above a certain amount. So you're only giving the gains to your biggest producers so that like AdoptMe can scale.
Let me see if I understand this is when the rate goes down on Steam, Steam is taking less of a cut. When the rate goes up on Roblox, they're paying a developer more. So right.
Yes. Correct.
So that just to keep it straight in my head,
the payout is increasing. The amount they pay out per Robux is increasing. So developers who are sitting on capital now have more that they can get paid out that it's worth more in the conversion.
Interesting. I do think that it's a consolidation. I mean, just like any of these platforms that we're seeing, it's like a pyramid scheme where at the top is most of the revenue with just a couple of games. Although Roblox is now seeing new games come in at the top with steal a brain rot with crow a garden like games that hadn't been in the top like exploded to the top with your lovely egregious and predatory monetization capabilities making a lot

of money. So it does feel more consolidated at the top. I don't have one any one of those charts. Maybe we should look that up to see like how many
look this model does not work for traditional developers like a 7030 model will not work right in terms of the amount of money right but this supports the overall like platform because it's just all about discovery engagement repeat right and they need more and more content right to come in and so this works for what it is right I don't think it'll ever change right and I guess we have a whole podcast about double A and AAA development that I haven't listened to but I I just it doesn't make sense to do it.
Well, it's just difficult especially because those developers don't understand how to make games successful for this audience is the other thing. Like most of the successful developers are 20 who grew up playing Roblox games.
That's a great point. That was in the Voldex episode. Like like they brought in a really really talented team and kind of essentially build an aggregator for Allbox games where they take these

early hits and kind of add the PM the live ops expertise on top of it. But when we discussed that in the podcast, they basically said like I'm paraphrasing, but they don't know what makes these kids tick. Like they can't come up with original ideas. They can only take the existing ones, which is interesting business model.
Yeah, because they're all old, dude. I I hang I met with those guys. They're like they're not quite
The founder The founder is like 12. Have you met him?
The founder of Voldex?
Yeah,
he's 20. He's in his low 20s. Yeah.
Oh, no. No. I met the other guy.
12 compared to me.
Like I'm an old man. I
Moving on.
Yeah. Right. So, rewarded video. I wanted to hit on this one because this is I think Crest, you're going to love this as a way to monetize the mostly unmonetizable, which are kids. So, here's what's going on. They already announced rewarded video in partnership with Google. GameFam talked about this on the podcast. They're in the beta for the program. And so, Joe was talking

about this. Their experience has been, you know, like slow good early signals would be the way I would categorize what he said. So, the launch of rewarded video is coming in a few months. So the gist is it's early. It's promising. I think this is going to be one of the biggest things that they can likely do to juice revenue that feels a little bit less predatory than what we're seeing in some of the moni the you know Phil's favorite techniques. This will be in a sense what I think solid and they're taking a page for mobile freeto play. I think from other people I've talked to who went to RDC. Mike Doom was like I felt like I was back at Zingga and all of the like PMs were you know there doing the data jockeying trying to teach and everyone like how does mobile freeto play work how does ad monetization work so I think we're going to see them really leveling up Chris thoughts
I don't want to be revisionist history here but I just want to be clear on my point of view on this whole thing is that this when they started doing rewarded advertising or I found out that they were partnering with Google on this

this was actually the big thing that made me bullish is that they are unlocking advertising like it's something that the founder was hesitant to do but again Manuel brought this and created the opportunity now what I thought at the time was that banner ad advertising was [ __ ] stupid right because that does not work right that does not work in a interactive content and I will argue that to the death right but rewarded advertising is a completely different animal and then partnering with Google was really smart because I think what they know how to do this stuff and so like working together to make it work within the platform makes sense. Having said that, having said that all there is a huge learning curve for these podunk small developers, right, to get these stuff in integrated properly within their game. So it's not like this seamless transition, right, to one thing and it's a big challenge for them. But again, they need to monetize the unmonetizable, right? They have these huge audience numbers that they're not monetizing. And so like any type of

activity that results in trying to monetize that audience is great, right? And my understanding is that Roblox and Google Google's making it more plugandplay, like much easier for people to implement. And that's bullish, but the next thing is even more bullish.
Yeah. So just to wrap that up because Crush, you made a great point. You have to have a 100,000 DAUs on your game or experience to even apply to do rewarded video. So they're not opening it to every single person. you've got to have kind of a minimum amount of traffic and I have heard that they have reduced the amount of like clicks and setup dramatically less to make it much easier to set that up. So the next one, let's move to Roblox moments. All right, so we're watching a video together. If you want to watch on Spotify video or on our YouTube channel. So here's what Roblox Moments is. And I wouldn't be true to my marketing roots if I didn't talk about this feature. Basically, it adds Tik Tok short form video to Roblox. But what a player can do is capture, edit, and share a moment while others then can

click join to instantly try out the experience. So you actually get in a sense cap cut inside of Roblox where you can, you know, capture the moment of the game that you're playing, you know, share of moment by early on the platform, others can then join. Roblox is actually releasing the moment's API to developers and the source code so that folks can integrate it into their own experiences. Right now it is live. It's not getting a ton of traction. When I talked to Joe from GameFam about it, he's like, "Oh, we'll see. We'll see. You know, likely this is just in the early early stages, but I would have to imagine if you're a kid and you're doing what we all want to do is, you know, share your favorite moments and they make it super super easy that this is going to be a great kind of like in-app marketing platform and a and another self-expression platform." So, Phil, thoughts big deal. I think we're missing the big story line with Roblox. I think Eric is so myopic in my topic on this like issue. Like I think it's time like to start raising the alarm for them too.

These guys are becoming aggregators. They're starting to control discovery. It's very clear what the product play is here for all of these, right? It's about the ecosystem. And not only that, remember they own the engine, right? They own the whole [ __ ] stack. And if they own demand, they are going to work their way up the supply chain. This is value destructive for the industry. And don't get me wrong, I am amazed at their success. Don't get me wrong, I cheer them on. There's a lot we could offer in terms of product advice for moments. This is definitely also a way to counter, I would argue, the rise of short form video, right? And this is something Ben Thompson Ashetry, who's who's a great writer, has commented that the feed is increasingly becoming a place where you serve any type of content. And that used to be social content, but it can be anything. It can be games, it can be AI videos, which Facebook has been rumored to be testing with great success. And I think Roblox views this the same way because they are not gamers. This is not a company that is friendly to us. There was a Twitter video that went viral recently of someone's a day in the life of Roblox and it was the most pampered Googleesque

experience that they're just completely foreign. It's not a gaming company and Sculpey had this issue and they fixed it. The market disciplined them, but when you walked in the office there was not game art that was being celebrated everywhere. That came later, right? It started as a tech company. Concrete floors, certain type of lighting. And so I think we need to be extremely skeptical of Roblox from an industry perspective. Even if we think they're incredible in their success and maybe you should explore it, maybe there's brand marketing, all that stuff can be true, but they are starting to represent a real threat, especially if people really do retain on the platform because they will aggregate demand and they will use that to control suppliers. This is a real threat.
How how is that different from what I've been saying for like years on this podcast?
Oh, I still think we have to recognize that they're like on the march, right? like they they continue to march and they continue to grow and they continue to have success. And I guess the question is like are are they going to slow down? Is this where they top out?
And the reason that GameFam is not like bullish about [ __ ] moments is because it [ __ ] them. It absolutely [ __ ] them, right? It just supports the it supports

the platform. It doesn't support game developers. Correct. Right. Basically creating All right. Sorry. Let me step back a little bit. So when I heard about Moments like 6 month I don't know a year ago or whenever I [ __ ] heard about it they they acquired this company called Gilded way back in 2021 right and this company was building this tool and technology for social like kind of like [ __ ] uh Discord. They're basically building a Discord and they acquired it to actually put it within their ecosystem. And so this is could be huge, right? Because there are billions if not trillions of minutes of interaction with Roblox's platform on [ __ ] Tik Tok and YouTube, right? Like they want to capture as much of that as possible, right? And once Manuel unlocked advertising, then now they're creating a [ __ ] platform. And I said I wasn't going to use the F-word, but it just keeps coming out
and the cookie jar.
Yeah. They they unlock advertising. Now they're building another platform in order to advertise that is actually a real platform is not banner advertising

in stupid Roblox games, right?
Yep.
This is huge, right? This could be huge, right? And it just opens it up. And I agree with everything just Philip said, but I don't think it's against what I've been saying. It's like this is not good for gaming, right? And this is certainly not good for the developers, right? Like they are technology company creating a platform to build up, you know, things. So most likely people will move from playing games to actually looking at Tik Tok [ __ ] on Roblox potentially anyway. That's the potential. And so from a stock perspective, just to be clear, from a Wall Street perspective, this freaking is gold. And if you don't think that people knew about this 6 months ago when this stock started [ __ ] going to the moon, right? You're kidding yourself, right? All these guys knew. And that's why the stock kept moving is because of this. And that's why when they announced it at the robot convention, the stock has done nothing, right? because it's already priced into the stock. So anyway, you gun to my head. Are they going to be successful? I am not quite sure. Even though I'm bullish and I think Wall Street's

bullish for a good reason, the fact is executing against this is going to be freaking hard, right? The techn technology side of it is really, really hard. Getting these low-end devices to be able to actually execute against this [ __ ] like building out like these moments in a piece of crap like Android device circa 19, you know, 2020 is going to be impossible, right? But they're making an effort and Wall Street loves this [ __ ] right? Because at the end of the day, they have failed to monetize the majority of their audience despite all these numbers going up and to the right. The fact is that only a small percentage of the audience is spending money and only a very very small fraction of a percent of the developers are actually making money on this platform. But again, this is all great for Roblox. And so what I can say with reasonable certainty for the next 12 to 18 months they will likely increase arpoo in North America and Europe and that is freaking bullish right for the stock. So that's what Wall Street cares about and that's why this I still would be interested in this stock at this even at this level because I think this is really interesting. So is that clear Bill? I mean does that

No, no, that that that's fine. That's fine. I would say I actually don't believe in moments like I I recognize their imperialist skull. Like I think that's I I mean you have to just appreciate that like there's no saying that they don't think they can dominate and own. So like that is what I would want to recognize and that's a threat to us. I think moments is a struggle because remember it's going to be vertical rather than horizontal which is how most games are played. I'm not quite sure how you interface with it. And remember it can't just be like an ad spawn demon of like brand advertisers. Like it actually has to engage with people and provide like meaningful moments for them to connect.
It's UGC. It's not for brands. It's like a kid going in and sharing a moment. I mean, unless they start selling that to an ad, to a brand,
they have to start with like actually noble intentions of like we want people to engage here. We need to give the user value rather than just figure out how I can tack on an ad platform to this like Tik Tok style video. Like they're now under the gun of Wall Street and like this has to be good in and of itself. This has to be entertaining in and of itself. How does this integrate in the platform and enhance the Roblox

experience is something that I don't think they've clearly answered yet. You and I are arguing the same point like because they actually have to put this Tik Tok thing in the Roblox app.
It has to be part of the loop.
Yeah. It has to be like a a a correct
they don't they don't understand their own core loop. They don't understand how to game like they ran their first live ops remember platform live ops event earlier this year. Like this would be a great opportunity to do like a Pokemon Snap style meta event. Any anything like you're [ __ ] game developers. Make a [ __ ] game like like do do what you're good at. Well, actually I wouldn't say that, but
so they have done the live ops event the last two years actually and then they did talk about that they are releasing the moments API and the source code to all of the developers to try and incentivize them to do exactly what you're saying you because you I agree with you unless it is baked in it is very easy for a 10-year-old to go in to capture their own moment and share it. It's going to be difficult for that to happen. But if you're relying like I call this like a social gaming hub

instead of going to the movies or the mall, Jen A is coming in here to be with their friends. Now if you're giving them a tool to share with their friend and basically send them a Snapchat, you know, in or Tik Tok inside the game like, "Hey dude, look what I'm doing. I just teabagged somebody in my game. Come check this out." And then they can click join and come in their game. It is both amazing for a developer and scary as hell because you are about to lose a lot of your audience unless you go after that alpha of the Gen Alpha friend group who's going to pull all of their friends like all around the ecosystem. So it is both exciting and terrifying. [Music]