In this LevelUp episode, Melissa sits down with Phillip Black, Game Economist at Game Economist Consulting and a cohost of the Deconstructor of Fun podcast. Together, they dive into what makes a game economist, the differences between game economies and real-world economics, the success of Roblox, and what other apps can learn for their own virtual economies.

Tune in or read the highlights here:

So I think that the key question I always get is what's the difference between a game economist and a game economy designer. And there's certainly a Venn diagram that has those things overlap. 

Game economists tend to have more traditional training in economics. They tend to understand things like the principal-agent problem. They understand things like perfect competition. They understand the shape of demand curves, why they slope downward, why supply curves slope upward, and when supply curves don't slope upward.

They have a lot of training in traditional economic thinking, and they also have the econometrics package. So they have the empirical package about how we go out and measure things, how we estimate things, how we might run experiments, and how we might set them up in the proper way.

So they have this really awesome tool set, both from a theory perspective of trying to describe problems. The thing that game economists are trying to do is figure out how to marry those things together into analyzing games and how to understand them. That's a very different approach than a traditional game economy designer. Game economy designers have an incredible toolset in and of themselves, but I think it's a question of trying to take that traditional approach and see what we can't learn about games. 

Game economies and the real world 

Sometimes economists can get pigeonholed into finance. And it's really a toolset to analyze the world around us to understand how people respond to incentives. There was a definition that was given in the 1930s that economists have really rallied around, which is really about studying human behavior as a function in which we have unlimited needs and wants and limited means to be able to fulfill them.

And so how we make that rational decision is kind of what economists are trying to examine from a menu of almost unlimited options. I think that's very different when we get into the virtual world.

We tend to think of prices as being really important, that prices give us a lot of information about supply and demand. They give us a lot of information about relationships. And in most virtual economies, we don't have real prices. We don't have prices in the traditional sense where they're a function of supply and demand.

Usually, they're set at a fixed level. And that to me is really the big difference. 

How Roblox works

So I think the story of Roblox can be divided into three different areas. I think there are developers, there are players, and I think there's this new content category they've been building, which is creators.

So I think to talk about just developers and players, the best way to approach it would be with a simple story. So what happens is that a player gets onto the Roblox platform, the app, and they have a variety of experiences that they can choose to go into, and those experiences are developed by third parties. 

They've built them in a proprietary engine that Roblox has provided them. And when a user goes into the platform, let's say a game like Adopt Me, that's an experience they have on the platform where you are able to sell pets. 

And so what happens is that the user will say, okay, well, I want that pet and it's priced in Robux, which is a platform-wide currency that players will exchange real-world money for.  I can go and I can buy that item within the experience. Now a lot of the experiences have intermediate currencies. So you might go in and you might buy Robux, and then when I'm in the Adopt Me platform, there might be another currency I need to buy with that Robux to be able to buy that pet.

The reason you might have that intermediate currency, in a situation like Adopt Me, there might be a situation in which the developer also wants the player to be able to earn the currency without paying.

So there might be a function in which part of the way you earn that currency to purchase that pet and adopt it is just by playing the game. And the other part might be by purchasing Robux. So you have a lot more flexibility when you have an intermediate currency. 

And so what happens is you make that purchase and the developer gets the Robux inserted into their account. And then what that developer can do is they can go and they can cash out that Robux at a given exchange rate set by the Roblox platform for real-world money. Now there's a very heavy platform fee here. 

But that is the basic story here is that players buy Robux, they spend them on experiences and the developer ise able to cash out. They also have some engagement-paced payouts, which have been a more recent addition to the platform. 

I think the third category that they've been spending a lot of time on is these content creators. And so what they're able to do as a content creator is that you build individual items for avatars. There is a platform-wide avatar that you get when you sign up to the Roblox platform, it's the representation of you.

What you can do as a content creator, you can create hats, dances, or shirts, and then you can sell them on the platform. Roblox will certainly take a fee, but as a creator, you’re able to take some of the fees from those purchases. 

Why Roblox works

They've made a proprietary engine that's easy to use. It's very easy to publish an experience on the Roblox platform. They cover things like the operating cost of revenue or basically server costs. Server costs are a significant portion of many high-fidelity HD experiences. I used to work on Battlefield. I can tell you from personal experience, that getting that bill every month was sticker shock, sticker shock for how much it takes to run a private server for a game like Battlefield.

So they cover a lot of those costs. They cover moderation, they cover payment processing. They cover a lot of things that you might not expect as a developer that you have to put up with. So I think, on the one hand, they kind of have the supply side sorted. But I think the far more important part of this is the demand side.

They have 250 million users on the Roblox platform. And where there are users that have wallets, developers will follow. If people are willing to spend, then people will create experiences for them. 

Let's put these tips to good use

Grow your app business with ironSource