So I was following this recent story about Unity and its change of pricing for low-tier users of the platform to create games. You know me, I don’t care much about the Internet outrage - it was a good time to go and dig a little deeper into Unity’s business model and the reasons why they were trying to go there. You see, most business decisions tend to be rational and are not trying on purpose to destroy themselves. In the case of Unity, the company has extraordinary challenges:
- it’s growing very fast in revenue, year after year
- But its expenses are also growing on a steady pace as well
- The company has yet to turn a profit. They are currently losing about a billion of dollars per year.
So when you bleed that much cash, there are various things you can do:
- Increase existing revenues while controlling expenses, so that you manage to surface above the water
- Develop new sources of revenues (new businesses) where you may have a better margin ratio than your current one
- Focus hard on cutting down expenses (this usually means tight budget controls, and eventually layoffs if needed)
I stumbled upon the webcast from the execs (CEO and CFO) from earlier in May 2023, and since it’s a call with investors, investors can ask a bunch of questions and there’s usually some interesting things discussed about strategy for increasing profitability and such. Turns out that John Riccitiello, the CEO of Unity, mentioned back at that time, while answering a question, that the company would be looking at turning the low-tier users (who were not paying much for far) into a new revenue source (he’s specifically mentioning the runtime, which is what is installed at the end of the day on every machine that runs Unity games). Check it out:
Before the runtime cost increase, he goes into the mention that AI, and in turn cloud services running AI models, would be a new source of revenues for Unity and that it would be a major revenue driver going forward.
Regarding pricing, it’s worth noticing that they already executed a change of pricing for the editor earlier on, and that did not seem to cause any kind of attrition (I am guessing with higher tier customers). The CEO then considered that there was definitely an opportunity to tap into the non-paying users, by justifying the benefit of having technologies like Barracuda (AI inference model) part of the runtime instead of having to use costly servers.
Barracuda AI can apparently do many things, such as style transfer:
Or simulate ray tracing…
In any case, I don’t expect most developers to suddenly drop Unity and run towards alternative. There is always inertia. Changing one’s tools or workflows incurs a heavy cost in time and mental load, and companies can get away by introducing just “enough” friction but not too much to cause people to forgo the platform. Naturally, some developers who were already on the fence will take this event as a good trigger to go to Unreal, or Godot, or make their own engine… but I suspect the majority will remain on Unity, because there’s really a lack of good alternatives (in terms of feature parity).
Expect a more complete article on this subject sometimes soon.