Unity Software Steps In?It

Sep. 28, 2023 11:43 AM ET Unity Software Inc. (U)

Summary

• Unity faces backlash from indie developers over changes to their pricing structure after undercharging for years, and creating expectations that it would always be that way.
• Raising prices is never easy, but it is also not this hard. This was one of the worst failures of corporate communications I have ever seen.
• They need to repair their relationship with developers and also fix their pricing issue. These goals are now at odds with each other.
• I believe this is a fireable offense for CEO John Riccitiello. I do not say this lightly.

This article discusses Unity Software Inc. (NYSE: U) and the backlash it has faced from indie game developers over changes to its pricing structure. Here are the key points from the article:

Background: Unity Software is known for providing game and metaverse design tools and middleware, similar to its competitor, Epic’s Unreal Engine. Indie game studios often use Unity’s tools to develop games, as it reduces upfront costs and offers favorable terms.

Pricing Changes: Unity had previously underpriced its software, offering perpetual licenses for as low as $1,500 and promising not to charge royalties on game revenue like Unreal Engine. However, the company recently announced changes to its pricing structure, introducing royalties based on game install and revenue thresholds.

Backlash: Indie game developers expressed anger and frustration, feeling that Unity’s pricing changes were a sudden “rug pull” after years of favorable terms. The way these changes were communicated to developers was criticized as one of the worst corporate communication failures.

Complex Pricing Structure: Unity’s new pricing structure was criticized for being complex and difficult to understand. Developers were particularly concerned about the impact on games available through subscription services, streaming games, and free-to-play mobile games.

CEO Responsibility: The article suggests that Unity’s CEO, John Riccitiello, bears responsibility for the communication failure and backlash. The CEO’s absence from addressing the issue was noted, with another company executive, Marc Whitten, having to face the fallout.

Reversal: In response to the backlash, Unity backtracked on some of the changes, applying them only to new games starting in 2024 and beyond, and reducing the scope of royalties. However, the damage to trust with developers had already been done.

Financial Challenges: Unity’s financials were mentioned as a concern, with the company historically incurring losses despite substantial revenue. Share-based compensation made up a significant portion of expenses.

Future Uncertainty: The article concludes by stating that Unity needs a fresh start with developers and someone who can improve its financial situation without destroying it. There are concerns that the pricing changes and the loss of trust could drive developers toward free open-source software alternatives.

Overall, the article highlights the challenges Unity Software has faced in managing its pricing changes and the negative impact on its relationship with indie game developers. It also questions the company’s financial sustainability and leadership in light of these issues.

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