The Making of an Oligopoly in Gaming: Part-II

In Part-I of this series of articles, we discussed what’s the functionality of gaming engines and why it’s required for almost all games. In this article, we will start by discussing why gaming engines are a winner takes all type of business segment followed by a discussion on the various gaming engines and their pros & cons.

There are many reasons why we think only a handful of gaming engines will have the majority of the market share. Here are a few reasons:

• Switching costs: There's a very high switchover cost to remove or extract a gaming engine from a game and migrate it to a totally different game engine. It requires many software developers to change a lot of code followed by extensive testing. Hence, once a game is built, it’s unlikely to change the gaming engine.
• Incumbency: Developers who have experience working with a particular gaming engine continue using it for the next set of games they develop unless they are forced to move to a new engine. However, moving to a new gaming engine involves a steep learning curve and so there’s inertia as well as additional time and costs involved in reskilling a set of developers to use a different gaming engine.
• Gaming Engine Features: Gaming engines are optimized for either PC environment or Mobiles and hence moving to a gaming engine that is optimized for a PC may not work well for mobile games.

We believe most of the games developed over the next few years will use either of these two gaming engines: A) Unreal and B) Unity. There are others such as Roblox which are also a gaming environment, not only a gaming engine but they are close enough. The difference is that the game player has to download both the Roblox environment and the game separately while with a gaming engine (Unreal, Unity, Frostbite) only the game has to be downloaded from the app store. Hence, Roblox doesn’t meet the low complexity criteria of most game developers. Gaming engines like Frostbite developed by large studios such as Electronic Arts are not widely used outside of Electronic Arts and so will find it difficult to gain acceptance amongst the developer community. Game engines charge anywhere from 2-5% of the game revenues and hence it’s a critical part of the game development process. We discuss the Pros & Cons of Unreal & Unity: -

A)??Epic’s Unreal Gaming Engine: The Unreal Engine is a game engine developed by Epic Games.

a. Pros:

??????????????????i. Unreal works with a lot of different game companies & genres, so they get a lot of different input into their engine; the engine improves as more games mean more developers using their code base, contributing to the game engine source.?

???????????????????ii.????Unreal has good workflows and emphasizes ease of use. It supports multiple genres, from first-person shooters to action adventures to games that are even somewhat casual. Unreal Engine supports all platforms. They were among the first to support true cross-platform play with Fortnite, which runs on Unreal Engine. One can play on mobile, and different mobile devices can play against their friends on consoles and PCs.

???????????????????iii.????Finally, Unreal’s strength is its ability to minimize the time it takes to improve the engine and get it out to players, the live service model, continuous integration approach with their customers and with their internal game teams that really improve the player experience rapidly rather than having to make a change to an engine and wait years for it to get out to players. In general, for larger, more complex games, Unreal has a much better performance compared to any other game engine.

b.????Cons:

??????????????????????????????????i.????Epic games primarily develops video games and Unreal comprised less than 5% of Epic’s revenues. Hence Epic’s games compete against games their gaming engine customers make. Large video game-developing companies may not want to leave their fate in the hands of a competitor.

??????????????????????????????????ii.????Epic sued Apple in a fee-sharing dispute for its games sold through?Apple’s App store. Consequently, Apple didn’t renew iOS licenses for Epic for quite some time and Unreal’s game engine developer kits weren’t completely updated with each new iOS release. Epic’s feud in its video game business hurt the game engine customers; the customers had no say in it and even worse there was no clarity on the resolution timeline. There were concerns about similar issues with Google’s play store as well as Microsoft’s Xbox. It’s a major game engine supply chain management risk for game developers.

B)??Unity Gaming Engine: Unity wouldn't even exist if?Epic (Unreal)?didn't take their eye off the mobile game engine space.?Epic didn't emphasize Android and iOS. Now Unity is one of the major alternatives to Unreal’s engine.

a.????Pros:

????????????????????????????????i.????For a small developer that just wants to make a really simple game from scratch, the Unity engine is extremely easy to use. To quickly develop a game that is simple and fun without an extensive game development background, Unity is the gold standard. It’s easy to use, easy to install, lots of tutorials and developers can get up to speed very quickly.

????????????????????????????????ii.????Its widespread usage ensures most developers know how to use it and there’s no learning curve while developing a new game.

????????????????????????????????iii.????Unity provides extensive support; for e.g if it’s a custom mobile platform: the lowest end of Android devices.

????????????????????????????????iv.????Unity has optimized the engine for the Arm instruction set primarily used in mobile devices and integrated their mobile-ads stack into their Unity software stack for smartphones.

b.????Cons:

??????????????????????????????????????i.????Unity game engine doesn’t perform very well in complex multiplayer games developed for PCs. Unreal offers low-latency multiplayer connectivity. Unity is quickly catching up with Unreal for these complex games.

???????????????????????????????????????ii.????Unity also lags behind Unreal for games that require very high levels of visual fidelity.

?Conclusion: We believe, as these two gaming engines gain market share, other gaming engines will likely be obsolete in terms of feature set and developer familiarity. It may be difficult to stop the formation of this oligopoly in gaming engines in the short to mid-term. Eventually, Unity is likely to command the lion's share while Unreal may be relegated to a distant second.

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Link to The Making of an Oligopoly in Gaming articles:

1.????The Making of an Oligopoly in Gaming: Part-I - https://www.dhirubhai.net/pulse/making-oligopoly-gaming-part-i-ketul-k-sakhpara-cfa