Read the full interview HERE
We recently interviewed the former Head of Strategy, APAC at Unity Technologies, one of the world's largest game engine suppliers.
- Positioning of Unity vs Epic's Unreal engine
- Unity's shift from perpetual licenses to SaaS business model
- Unit economics of a large studio using Unreal vs Unity engine
- How Unity can increase LTV for studio customers
- Why Unity is best placed to win market share in engine applications outside of gaming
- Risks to Unity from Unreal given Epic's publishing success
How did you look at the lifetime value of the developers?
If you think about perpetual license sales, you have a certain license price. Let’s say, $1,500 to $2,000 per seat. Then if the studio is mid to large sized, then you probably need enterprise support, where if you have an issue, you have to ask Unity, because it’s hard to solve, internally. That was a serviceable product, back then. You could probably sell source code, if the studio was acquainted with Unity. All these companies represent an average lifetime value. It was quite simple.
Was that $1,500 to $2,000 per year, per seat, or is that over a three-year license?
It’s forever, because it was a perpetual license. Usually, in Unity, every 18 to 24 months, we had major updates. These major updates could be sold at 40% to 50% of the original price. When we calculated lifetime value, for big accounts, we had historical data and we had average update periods and then we had average recycle or renewing contract periods, globally. Then we had a combination of seats and services and source code, all together. We can have small, medium and large ideal prototypes or models where they have a certain number, with a certain cycle period. We can assume that if we acquire this sized studio, in this region, then we could expect this much lifetime value coming up.
It got trickier and more lively when we transformed to a SaaS company. As I mentioned, onboarding and everything, it was really complicated and you have a lot of layers, including certificate revenue and things like that. Then the Asset Store revenue really kicks in. Asset Store did exist prior to the SaaS model, but with this frequent engagement with the SaaS, the Asset Store can be really sellable. It’s quite interesting to understand that if we had an accurate calculation, in terms of lifetime value, in the perpetual license model, then it could indicate the pricing point for the SaaS model, as well. It’s a really good indication to understand the willingness to open their wallet, basically.
What was the retention, on average, for the larger accounts, versus the massive long tail of developers using Unity?
I don’t have the hard numbers but, obviously, for the major accounts, their retention rate was really high. Unity fans would use Unity 100%, but most major gaming studios, they probably use 30% or 40% of their entire gaming product with Unity. Having said that, let’s say a major gaming studio had 100 gaming developers and they are split and are developing five different titles; maybe 20 developers per title. Probably they are using Unity for three titles; that means 60 developers out of 100. These three titles have a developing period of 12 months and then usually, if this ends, maybe not simultaneously, they have another upcoming title, as well, so it goes on, one by one. But eventually, if you flatten that out, usually the retention rate is, I believe, over 70% or 80%, for a major account.
Why is it so high? I think that if that studio was developing games 100% with Unity, the retention rate can go up and down. But a lot of major studios, I think, are using Unreal for several titles and using Unity for several titles and maybe several with their in-house engines. The specific share is more sustainable, in the longer run.
You’re saying the retention is around 70% for paying users of Unity?
70% was going back to my example of 60 developers out of 100 are using Unity. 70% means that, after 12 months, maybe 70% of those 60 people will still be using Unity.
They would be paying, as part of the studio, for Unity and then they will be working on new titles, but then the others just drop off and go and work on different engines and different titles?
Exactly. But then the new title has a chance to use Unity or Unreal, but they are pretty consistent.
So the studios just buy different licenses, per seat, and then just have a flexible model where they can take developers off different engines and move them around?
How does that compare to Unreal, which is more of a fixed revenue share?
I believe, recently, Unreal has adopted a Unity-like model. For the smaller studios they don’t really force the revenue share model. They just sell licenses in an affordable way. I think subscription model wise, the business model develops in a similar way. I think what matters is large studios. With hobbyists, the retention rate is really high. Hobbyists can just adopt and play for a week and then they can just leave. They probably come back six months later. If you calculate it that way, the retention rate for Personal will be really, really high. But that’s actually the intention of building Unity Personal.
How do the large studios look at insourcing the engine, potentially, versus using a third-party engine? If a game is a big hit, do I want to bring some of the game engine in-house or am I happy to keep paying Unity because it’s a fixed price, no matter what?
I don’t think there’s a clear answer. As I mentioned, devices are all connected, but the variations are going crazy. We are trying to do the same game with my cell phone, my tablet and my smart TV. You have to invest a lot of money into all of this, just to develop your own in-house engine. As long as the third-party engine performance is great, I don’t think that there is any reason to develop your own. At the same time, if your game becomes very successful and you become one of the major accounts, I think there is some room for you to request to Unity or Unreal, that they develop a certain feature that you might really want to highlight in your game.
What do you think is the biggest risk for retention on Unity?
I don’t think there is an obvious or immediate downside for Unity, in terms of retention perspective. Rather, I think there’s a risk for further upsides.
So you think that there are not that many risks to Unity falling below that 70% retention number, but more opportunities to actually increase it.
Exactly. If you think about it, you have to think about competitors or alternatives, if you think about the risks for retention rate. Except for Unreal, you don’t really see any competitors evident here, in gaming engines.
Read the full interview HERE