Edition #1: Roblox & VR's "Revival"

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I'll be toying around with a format a bit until I'm satisfied, but I'll try to keep things consistent enough - particularly with regards to frequency (bi-weekly; 🚫spamming!) and length (< 7-minute read, unless something really exciting happens). That said, this edition will be a bit longer.

Alright, on to the newsletter...

The Roblox Revival

Last month, one of the most popular social gaming platforms in the industry made a surprise announcement:

Following this announcement, Roblox launched an open beta via the Meta Quest's App Lab (basically, Meta's early access program for XR apps) on July 27th, and has garnered 1m+ downloads within five days - per Roblox's CEO. While the above has been big news within the VR Twitter Bubble, the significance of this move by Roblox seems anecdotally understated (dare I say underappreciated) by mainstream tech - which is a shame because this might be one of the most consequential things to happen in XR this year and for years to come.

Hyperbolic statements aside, a Quest-native version (vs the existing, underutilized PCVR version) of Roblox has the potential to be a Quest 3 system seller in the short term, and a force that dramatically expands the XR user base in the medium-to-long term. To understand why, a bit of context is warranted:

What is Roblox?

If you or your friends have younger Gen Z or Gen Alpha kids, chances are you've at least heard of this platform in passing. But for those of you who aren't aware, Roblox is a gaming platform (and defacto social network) that consists of a wide array of games and virtual hangouts (collectively called "experiences"; of which 15+ exist) that are built entirely by creators from within the Roblox community - under a model generally referred to as "User-Generated Content" or UGC.

The Roblox platform consists of the Roblox Client - where users can discover new experiences and trade virtual items within a company-controlled marketplace; Roblox Studio - where creators can use the company's proprietary game engine to create experiences and/or virtual items (such as in-game consumables, avatars, gear, accessories, battles passes, etc.); - and Roblox Cloud - the platform's hosting services & infrastructure layer.

While the platform is "free-to-play" Roblox makes the vast majority of its revenue from selling a virtual currency called Robux for fiat, which players use to buy virtual items (within the relevant experience or on the marketplace) or access to experiences/private servers.

Roblox creators earn Robux from in-experience purchases (virtual items, passes, private server subscriptions), the sale of experience-agnostic avatars & accessories, engagement-based payouts, developer-to-developer plugin sales, and immersive ads (more on this later). Eligible creators are then able to convert their Robux into fiat; note that during March 2023, ~4.5m creators were earning Robux.

Roblox's gross margin is the spread between the conversion rate applied to users buying Robux, and the rate charged to creators when exchanging their Robux back to fiat. To illustrate, Roblox might charge a user $1 for 100 Robux, and then pay out $0.28 for 100 Robox when a creator cashes out - thus capturing the $0.72 difference to cover payment processing fees, R&D, infrastructure investments, and general overhead expenses.

In effect, Roblox is in the business of managing an ever-growing virtual economy and acting as a central bank.

Roblox In Numbers

Roblox generated $773.8m in bookings (predominantly consisting of virtual currency sales) during Q1 of 2023; this implies an annualized rate of $3.1bn for 2023 (vs $2.9bn for the FY 2022). This estimate likely underestimates the sales boost from Q4 seasonality (holidays, etc.). Something to note here is that Roblox's bookings growth has continued despite the Covid Hangover afflicting the gaming industry at large.

Roblox's user growth and engagement metrics tell a similar story:

Yes, that's 66m DAUs and 14.5bn+ hours of engagement; I'm not sure there's much I can add to the above other than 🤯. Both metrics seem on track to surpass FY 2022's 56m & 50bn, respectively. For reference, the global install base for VR HMDs is estimated to be ~ 26m based on Meta's presumed market share and leaked internal sales data as of early 2023; additionally, Quest device monthly retention was estimated to be 6m+ HMDs (as of Oct 2022).

Given the above, it's not difficult to imagine the impact that engaging the Roblox userbase can have on accelerating Quest/VR adoption among younger cohorts that have both time to spare and an appreciation of social gameplay.

That said, there are nuances to be aware of:

Breaking down DAUs by region and age, one can see that a significant portion of Roblox users are located in regions not fully supported by Meta (ROW & parts of APAC) and age groups that may or may not be supported by Meta (under 13), although this risk is partially alleviated by Meta's suspiciously timed decision to lower the minimum age of account creation to 10.

I think one can somewhat conservatively assume that Meta's VR user conversion total addressable market (specifically with regards to total Roblox DAUs) is between 40 - 45m, which is roughly twice the existing install base of Quest devices. However, I expect the immediate opportunity to be a bit more modest.

Per Roblox analytics site Rolimons.com, approximately 3,400+ experiences are active, but it's clear from current data that a small subset of those active experiences attract a significant portion of engagement. For example, only 75 experiences (or ~2% of total active) boasted concurrent player bases of >10K as of 8/6/26.

Additionally, most of the top experiences are not optimized for VR. The current Roblox beta, as far as I've been able to ascertain, essentially hit the on-switch and allowed users to access experiences that were "VR-compatible" but not necessarily built specifically with VR in mind.

For context, Roblox has technically been accessible via PCVR - which involves running the program on a computer and streaming content to a headset (or via cable). For that portion of the Roblox community, there does exist content. As you can see, however...

Few active experiences that were built with VR in mind exist (the first title is specifically cross-device friendly). While the above table doesn't capture every VR-native experience in Roblox, it's a good indicator of the lack of content today.

Roblox certainly has quite a bit of work ahead if it's serious about VR-native experiences. That said, a lot can change between the current beta and a proper Quest Store release, and I'm confident a lot of the existing UX/UI issues will be fixed to the point that VR-native or friendly Roblox content becomes compelling. Thrillseeker put it succinctly:

Main Insights

• There's a Massive Convertible TAM Opportunity...

  • Meta has an incredible opportunity to revive VR enthusiasm by onboarding tens of millions of daily Roblox users via a successful implementation of a Quest-native Roblox app. While the existing beta is still pretty rough (I've spent about 5 hours exploring), it's likely that major bugs/compatibility issues will be fixed ahead of a proper Quest Store launch - and the additional compute horsepower + visual fidelity afforded by the upcoming Quest 3 won't hurt.
  • Additionally, integrating microtransactions into the VR version likely presents an opportunity for Meta to generate revenue from the store take-rate as Reality Labs suffers from lackluster revenue. That said, I strongly suspect the 30% rate won't apply to Roblox; Meta needs Roblox more than vice-versa.

• ...Success Would Likely Solidify the Quest's Average User Profile...

  • Given the demographics of the Roblox userbase, an influx of Quest adopters from that community would significantly impact the average user profile - possibly further solidifying what has been anecdotally noted about the Quest VR community since the 2021 Holiday Season (and partially substantiated by the success of titles such as Gorilla Tag) i.e. that it's mostly "kids."
  • If the above comes to pass, it would likely impact how the upcoming Quest 3 should be marketed, what existing or future VR devs should be building to achieve success, the extent to which older age cohorts would find the Quest ecosystem appealing, etc.

• ...And The Implications For Gaming/Consumer VR Devs Would be Significant

  • Much of the content on Roblox consists of a mix of both traditional game genres (such as Tower Defense & Shooters), social + roleplay hangouts, and absurd concepts (Natural Disaster Survival, anyone?). What, and how, Roblox users play should be something VR devs should keep in mind if they intend to tap into that user base.
  • It's also important to point out that Roblox users are very much accustomed to free-to-play, microtransctions-heavy business models - a monetization form that has been historically harder to deploy in VR, given the ecosystem's size (although titles such as Population One & Blaston adopted free-to-play).

One final point. Roblox has been quietly piloting a new product to a select group of brands:

By leveraging its scale of engagement, user data, and unique medium, Roblox is planning on building one of the first large-scale, spatial advertising networks - a move that could (if pulled off correctly) dramatically expand the platform's already impressive sales metrics.

It's clear from even a cursory analysis that Meta's VR ecosystem needs Roblox more than Roblox needs VR, especially given how small that segment of Roblox's platform is today. That said, Meta is an OG in both building and monetizing social media networks via programmatic advertising - arguably the best at it. Which makes me wonder...

Is it possible that, in return for Roblox bringing their network to the Quest, Meta is offering strategic & technical support to supplement Roblox's nascent immersive ads product?

🎯Quick Takes

• Google has reportedly killed its Project Iris augmented reality glasses - The Verge

  • Combined with the news earlier this year that Apple has placed its AR glasses project on hold indefinitely, and that Meta has evidently decided the same, it appears that "passthrough AR" enabled by mixed reality headsets (really just VR cosplaying as AR) is the immediate future for mixing the real world with the digital.

• Vision Pro Headset's Complex Design Forcing Apple to Make 'Drastic' Production Cuts - MacRumours (based on Financial Times reporting)

  • As I not-so-subtly implied in my blog post from June, I'm of the opinion that Apple's entry into the XR (or is that spatial computing?) industry may represent an "IBM PC Moment"; in other words, a validating signal from an established computer hardware player that spurred commercial/enterprise adoption. In my model, widespread XR adoption will be predicated on productivity-focused use cases subsidized by employers ala the PC Revolution in the 80s.
  • That said, supply constraints combined with a high price will make that scenario harder to materialize, unless Apple actively promotes this product to professional power users - a feat made more difficult by promotional material highlighting mostly consumer use cases. While that might make sense within the context of modern Apple's consumer-centric DNA, the above limits the kinds of Vision Pro-exclusive apps that can be profitably developed within the next two-to-three years. I expect the best-performing ones to be cross-platform.
  • Perhaps there remains a dark horse in this spatial computing race, in the form of the mythical Valve Deckard...

• Immersed Visor Next-Gen XR Headset is Unlike Anything We've Seen - Mixed Reality News

  • The makers of Immersed, a popular VR Desktop app, are getting serious about their software by launching dedicated hardware - namely a higher-end, lightweight headset purely focused on monitor replacement & productivity. I'm not sure how many units they'll ultimately sell, but I'm supportive of productivity-focused XR applications, and more generally a larger ecosystem of hardware providers. I'll be keeping my eyes on this one.

• Humane Will Begin Taking Orders For Its Wearable AI Projector 'Later This Year'- Inverse

  • Following an interesting, and somewhat divisive, TED Talk, Humane - a spatial/ambient computing product startup founded by ex-Apple designers - announced that pre-orders for their debut product will open up later this year. Humane's approach to spatial is specifically minimalist vs. existing bulky, visually encompassing headsets and reflects a very particular vision & philosophy regarding the human-technology relationship - which, for the record, I have an immense amount of respect for. I'm just not particularly convinced of it's utility and potential for mass appeal outside of certain use cases, at least in the short term.
  • Either way, I'm supportive of approaches to technology that exist outside of the world of Big Tech. Let's wait for the first round of reviews before passing judgment.

📋XR Job Opportunities

• Sales Representative - ShapesXR

• [Multiple Roles] Engineering, Product, Customer Success, etc. - Gravity Sketch

• [Multiple Roles] Graphics, Product, Software Engineering - Bezel

• Full-Stack Software Engineering Manager, XR - Autodesk

💸Reality Check

*This section would normally be reserved to highlight major fundraising announcements within the XR/Spatial Computing Industry - however, we're in a bit of dry spell. I am aware of a few closed rounds but unfortunately, I'm not able to say much for now. Check back in soon - in the meantime, peep this Guide to Raising Capital for XR Startups by Metaverse Monday's Don Stein.

❓Super Random

I've been toying around in the early access version of a Sea of Thieves-esque, pirate-simulator called Sail VR. Here's the aftermath of my first successful pirate ship raid:

Be sure to check out the game if you have a VR headset, and follow the official Youtube account for entertaining pirate content (no affiliation btw).

❗Important

I'm fortunate to meet both XR investors and founders in my line of work, so if you happen to be either one, please check out the links below to fill out a brief survey - who knows, you might end up meeting your next investor or hot deal opportunity!?

✅One More Thing...

If you made it this far, thanks again for taking the time to read the words I've thrown out into the void - it means a lot. As I begin to get into a regular cadence, feel free to reach out if you know of any XR job postings I should include, fundraisings that I missed, or topics that you would like to see covered (my Twitter DMs are open).

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See you in The Wired 🥽