The VR space is crowded by many players – Facebook, Google, HTC. No one knows which headset will become the dominant headset. Irrespective of who succeeds, there is one company that will come up on top – Unity.
What is Unity?
Unity is a game engine – a tool that lets game developers build games for different devices. How is a game engine relevant for VR? It so happens that many elements of a game engine are also useful for VR content creation. A game is typically a 3D environment and the same tools can be used for creating a 3D environment in VR. Therefore, Unity has become the largest VR content creation platform in the world.
90% of all VR content for Samsung Gear and 85% of content for Oculus has been made using Unity . This has led to a jump in Unity’s valuation; it raised $181Mn in Series C financing in 2016 at a valuation of $1.5Bn .
How does Unity create value?
Unity is a platform that enables developers to create VR games/content that can then be released onto various VR devices.
Unity creates value in 2 ways:
- By providing a platform through which game developers can easily create games: Game creation in Unity is as simple as dragging and dropping elements. For e.g. if one wants to add a football in a VR application, one can easily “drag” a sphere from Unity’s database and “drop” it into the application. Similarly, one can also drag and drop elements like “physics law” into the content so that all objects obey the law of physics like gravitation, Newton’s law of motion etc.
- By allowing developers to release games to various devices: Unity eases the porting process (i.e. modifying a game from one platform to the other). Thus, developers can build once and release to multiple devices (Oculus, Vive) with very minor changes
How does Unity capture value?
Unity uses network effects to capture value. While it captures most value from its main platform (content creation platform), it also has 2 other platforms through which it captures value as well.
Capturing mechanism # 1: Content creation platform (refer to exhibit 3 above)
Unity has more than 1 Million developers on its platform . On the VR device side, it has integrated with all the major devices (Google, Oculus, Sony). As more developers join, more hardware players are incentivized to integrate with Unity and this in turn attracts even more developers.
Unity captures value through subscription pricing . It is free for indie developers. This is a strategy to attract game developers when they are inexperienced so that they are loyal to Unity. For more serious developers, Unity charges $35/month/license and for professional setups it charges $125/month/license. Moreover, Unity also works on a customized basis with large clients. For e.g. popular game developer – Electronic Arts – is an enterprise partner of Unity and uses Unity for all its game development .
Capturing mechanism # 2: Asset store platform
In addition to in-built tools and content elements (like spherical objects, physics element), Unity also has an “app store” of its own called asset store . Many Indie developers produce content and game assets (like characters, background scenery) for other large game developers. Unity takes a 30% share of revenue for these transactions .
Capturing mechanism # 3: Unity ads platform
VR game developers are beginning to monetize their games through ads. Unity gives them the option to integrate Unity’s SDK into their games (which will let Unity serve ads in those VR games). Unity’s ad business has steadily grown to almost $100Mn in annual revenue (this includes both ad revenues from VR devices as well as desktop/mobile). Unity takes a 40% cut on all the ad dollars that it displays through its ad platform.
Unity can accelerate its growth through:
- Expansion into value chain: Unity has expertise in game development. It can become a publisher of game/ applications to capture additional value (right now it captures value only through tools that allow game development)
- Leverage network effects for AR: Same developers would be creating AR and VR content. Unity can leverage its strong network effects in VR to get a head start in AR
- Expand into non-gaming VR segments: Unity’s tool is optimized for game development. Unity can expand its tool to become more relevant for movie studios, sports entertainment companies