Free-to-play gaming companies like Roblox (RBLX -0.08%) can monetize users in various ways, one of which is by displaying ads. However, no one really likes their game being interrupted by a 30-second video. Therefore, companies have to straddle a challenging line between optimizing income and keeping users happy.
In this video from Motley Fool Backstage Pass, recorded on Sept. 27, Fool contributor Jose Najarro explains to analyst Sanmeet Deo and fellow contributor Jon Quast how Roblox is getting creative with advertising. Increasingly, users may not even realize they're being shown an ad, thanks to this new strategy that several video game companies are trying.
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Sanmeet Deo: Now, I think, Jose, when we were talking a little bit offline, you were mentioning something about ads and how Roblox and some of these other companies are using ads or partnerships and what that trend is going. I'd love to hear your thoughts a little bit of that too.
Jose Najarro: Definitely, for me, I think the gaming world, especially with Roblox and Fortnite, two companies that are really known for, I want to say the early stages of the metaverse. I feel like companies are using this tool to advertise to consumers without us, the consumers noticing. Because right now, the typical way of us getting advertises if we're watching YouTube, we're going to get hit with a 30-second ad. If we're watching some form of TV, we're going to hit with some form of commercial, and that to us is not, I want to say a positive experience to some extent, unless the commercial is super funny, unless we really, really, enjoy the actors or something, that experience of advertisement is not pleasant.
I think the metaverse with Roblox and Fortnite, with like the music parties. The music parties is pretty much just a huge advertisement of that CD, but is creating that advertisement and more of a positive aspect where us as the consumers, we don't know we're getting advertised on. I think Roblox early in September, they did a partnership with Vans [part of VF Corporation], many know them for the skate shoes. They created this form of skate park inside the metaverse. Again, it's a free experience so anybody can play. But this is also more of a form of free advertisement to some extent because they still have to do with the overall game development. But I believe with Roblox, is not a super expensive that's developing your own game. But in this Vans skatepark, you're able to see all their shoes, you're able to see some of the skateboards that they might sell or some of their skateboard collections.
For me, I do believe this metaverse is going to allow new users or the consumers to get advertised in a more pleasant or positive matter. I do believe there was also, it's a super expensive clothing line, Balenciaga [part of Kering], that they partnered up with Fortnite that if you buy a super expensive hoodie, I think was like $650, you also get a digital code to wear that hoodie within your avatar to some extent. If you don't want to spend $650, I think you could still just buy the digital hoodie yourself. But again, now you're paying to wear this digital hoodie and again, in a form of advertising, you'll be showing off this digital hoodie to everybody else in Fortnite. Again, it's going to be another positive way for big companies to use this tool where even us as a consumer we're not going to mind. I think that's going to provide some great conversion rates which companies are going to like a lot.
Deo: Yeah, I know, absolutely. I just wanted to share this screen here so the viewers get an idea of what we're talking about here. Roblox, if you see this picture right here, this is a little skate park experience that they have in Roblox. The advertising is very subtle. You can see Vans' logos on this guy's shirt. You can see here on the side of the board.
They do this in movies as well, it's like that same movie advertising they're doing in the metaverse in this world. Then if I want to buy the Vans shoes or shirts, or objects in Roblox, you get Roblox, you pay Roblox to get that ad and you outfit your avatar with that experience or that tool. Then also like you were talking about Fortnite, Balenciaga. You guys can see a picture now.
Did you say you knew what the price was for paying for this in Fortnite?
Najarro: I think for the hoodie itself, if you want to get the real hoodie and with the code, it was $650 or $750 or you can just go with the skin itself. I think the skin includes the dog. It's not just the hoodie itself, it includes the dog or whoever that's supposed to be. That's around, I think, $8 just for the hoodie and the playable character. Then they also have different, I think, the shoes, I think those are different in prices as well, but I think the highest was no more than, I think $12, and it's so much cheap as a dollar.
Deo: Yeah. You can see some of these pictures, Tier-2 with a hoodie, these outfits different things that you can buy. Here you go. The price of costs, this hoodie, for example, right here costs $725. Then it's still a bargain compared to what would I guess for the real hoodies which would be $995.
But it's amazing to me because my son plays Fortnite as well and it almost seems like every other day, he's asking for V-Bucks, which is the virtual currency in Fortnite. Then he's got his character outfitted, it was like he gets the new LeBron drop or I think he got Ronaldo or one of the famous soccer players.
There's also a question for you guys, how do you see this merging with NFTs? Because essentially this is like an NFT. Obviously, we can buy a bunch of these Balenciaga Fortnite hoodies, but maybe they do a drop on one of these metaverses or these games in Fortnite or Roblox, a one-time thing where we're putting out a signed LeBron's jersey or something and it's a one-of-a-kind item that you can buy on Fortnite or Roblox or whatever and it's essentially an NFT. Do you guys think these things are going to be merging together at some point?
Jon Quast: For sure in the sense that somebody's going to try it without a doubt. Just for those who don't know an NFT, a non-fungible tokens. These are digital items that are unique and can be owned. I think those are the two real properties that would distinguish an NFT. Anything on my computer, I can hit copy paste and now it's not unique. You can't do that with an NFT. They are one of a kind and you can tie your ownership to it through the blockchain.
Yeah, digital artist taking off, people are making these works of art in their computers, their NFTs, and they can be bought and sold. The question is, will these exists in the metaverse? To an extent they already do. I've heard of a house in the metaverse that sold for more than my house that I live in. It's on the metaverse, it's not even real.
On one hand, I would say yes, you're going to see NFTs in the metaverse. On the other hand, what you see here from Balenciaga, they are making it one-time and they're selling it over and over. There's better margins here than if you have to change it up to make it a unique item for an NFT. I think the brands are going to be more incentivized to go the Balenciaga route where let's sell a sweatshirt but to as many people as want it, we'll sell it a million times. It doesn't matter to us because it's basically pure profit at that point.