Gaming's Next Respawn with John Riccitiello (Unity) | Disrupt SF (Day 1)
10:36PM Sep 5, 2018
With that, I'd like you to please welcome huge round of applause for our next guest from unity john Riccitiello and our moderator Lucas Matney
Alright, well, if any of you guys are addicted to mobile games, there's a pretty decent chance you should be blaming this guy, one half of over one half of only mobile games are built on the Unity platform, Unity has raised around $600 million at a $3 billion valuation reported valuation.
And they've done so because there's so much potential for a real time rendering product for work and for play that developers can be building with. So john, it's great to have you by the way. But, you know, let's just start off what is the game engine in the first place. So
let me describe a little bit of what a game engine does, and, and sort of how we got there. So
cast your minds back to 10 to 15 years ago, anybody that wanted to build a game, you know, they basically picked a platform that pretty much brought along with it the required choice of a programming language. And they would write out a game program that had lots of art assets, lots of animation, lots of sound, but it also had the need to write a render to write a system for animation to write a system for sound, to write a system for physics, to write a system for you why you're reading system for you x. And when they would create that product, that game and it was perfect for one platform. And they wanted to get to a second platform, they largely start over, they could reuse some of the assets, some of the art, some of the sound, but it was basically a port, that was a huge amount of work. So interestingly enough, you know, super successful games like Clash of Clans from Super cell was first out on iOS, but it took them another year to write the program to get to Android. That was the reality of the game industry, lots of coding, lots of repetitive work in the form of renders, and, and UI UX, and physics and lighting. And then unity came along. And for the game companies and accomplish two goals that were close to magic one, you didn't have to rewrite any of that stuff. And in fact, you didn't need to start out with programming unity presents an interface we're all pretty familiar with, it looks a little bit like an Excel pulldown menu or a word pulldown menu. And you basically build your game your draw the car, you draw the race crap, you put the car on the racetrack, you write a script to explain it. And it's done. So you basically draw your game you don't program and then unity creates and compiles the code for now over 30 platforms. So you don't have to do anything to get to a second block form, whether that second platform is Mac to PC, or Android iOS, or Oculus, or HoloLens or Magic Leap or your set top box. So it basically took a process that was enormously complex, made it simple and made it infinitely more powerful. And those attributes those virtues were enough to take a tiny little company that made a game engine for hobbyist to a place, you know, just a few short years later, where half of all games in the world are built on the entity. So that's the first insight is it transformed the game industry we attracted competition of course, but you know you to use the market leader and so is it half of all mobile games or half of all games period. It's pretty much half of all games period. We have different market chairs, depending on the platform. But more than half of all mobile game filter they are built in unity more than 60 to 70%, depending on the platform have everything built for it for
tape machine and your CV for virtual reality, or augmented reality, or any of the XR platforms are built in unity. And then about a little over half of all the games built from Nintendo's platforms are built in the internet a little bit less than that for Xbox and Sony, but in aggregate, also more than half. Okay,
man. So let's talk a little bit about how the game industry has been monetizing itself over the past decade. I mean, you know, particularly I know Unity has a huge focus on indie developers in 2018, is it easier or harder for indie developer to support themselves making a project
I mean, one starting point, I think it's easier. But let's be clear, it's not easy to be budding director in Hollywood. It's not easy to be a bartering you know, musician wanting to make it to the top of the charts. It's not easy to be a first time novelist. You know, wanting to write somebody hits the New York Times bestseller, us and creative world of gaming is no different. It's never been easy. But what powers unity more than our tack is a simple philosophy, which is the world is a better place with more creators, we drive ourselves to put the most powerful tools possible in the hands of creators, small and large, so they can realize their dreams. And you know what I see, look, it's, there's nothing wrong with being a consumer. But it's even cooler to be a creator. And we're trying to set up frankly, the world so that people from all over the world can be creators. We have content creators in every country in the world safe three, North Korea, the Vatican, and one more, I can't remember the moment but everywhere, there are unity creators creating and that's you know, across Africa and Latin America, the Arctic Circle, and we think that's incredibly cool.
So like, kind of talking about the like, our free to play and models for gaming increasingly
are in the big studios, kind of a winner takes all environment or is that has that always been the case. Alright, so you know, what you're getting at Lucas has a couple hundred thousand games, or are launched every quarter, not a million a year, that's a huge number of entries, but walk into your bookstore and try to say how many of the authors you recognize, etc. It's not different. And other art forms, there's 10s of thousands of films submitted to Sundance every year, how many of them do you know, and you know, of those million games, you know, maybe 1000 ever get to the top 100 and then only for a fleeting moment in. So ultimately, building a successful game requires a massive dedication to the craft and making something great, a lot of people, you know, don't have the persistence to pursue that to the point of excellence. That's a very hard thing to do. But then the second thing is, even if you've got that capability that actually someone's built into you and your team, if you're really maniacally focused on creating something special, you also have to find an audience
you know, it's notable, in my mind, at least, that Blade Runner first edition did not find an audience, you can make a great film, and it doesn't necessarily become a head now hit for me. Now, the game industry is very similar to that. And one of the things that unity recognized about four and a half years ago is it finding an audience was hard. And we created tools for user acquisition and for monetization of games that literally helped get to a place where not just the top hundred games can can make money and help developers be successful. But several thousand of these games can be commercially successful to the point where the developer can make money. And then others at work as hobbyists, or small developers can generate enough income and enough user acquisition through our platform to realize enough success to keep going. So we're nowhere near to Don, when we say there's several thousand I mean, there's millions of folks out there, but it used to be a few dozen.
And we feel very proud of the fact that we've enabled many, many, many more to be successful. So you have all these developers creating stuff on unity. Is there any desire, I know that you have like a little bit of a discovery platform, you know, on your website? Is there any desire to turn this into a store or some sort of subscription where people who built on unity, there's an easier way for them to get access to all the Unity content?
Let me just provide some perspective. So unity games are downloaded 2 billion times a month. Okay, unity games last year were downloaded over 24 billion times they exist on well over 3 billion handsets. 3 billion handsets. What we can track a lot of developers on a lot of track, so 3 billion handsets. And we create an ecosystem to reach those 3 billion users through a cross promotion, advertising cannot purchase network, which is something we've never had before. And so that's an amazing offer, generally, for developers to reach an audience. So in essence, we already have that now, you know, do I want to compete with the App Store or Google Play or, you know, or other, you know, app stores? Not necessarily, you know, our goal isn't to try to figure out in this case, how to monetize the transaction, we're spending a lot of time figuring out how to reach that audience and help our our audience of our developers reach an audience that's right for their games. And we're getting good at that. Okay.
I mean, so the, the game does your is fortnight right now. And that's not built on unity. But in 2016, Pokemon GO was a huge title, and that was built on unity. Do you regret the fact that, you know, your pricing structure goes after, you know, just charges per seat on a subscription basis versus grabbing a cut of, you know, a huge profitable game?
Well, I mean, we would definitely have more money, if we charged a royalty, you know, games on unity, you know, about $10 billion a year and rising rapidly, it would be fun to have 10% or 20% or 30%
of that. But we have a SAS business and it does does very, very well. So
we also think it's fair, you know, if somebody creates a Pokemon Go, you know, they use our tools, we probably cut their production time in half, we took their costs to get to multiple platforms to near zero. And we allowed them to build something with probably half the team. So the economics are massively compelling, what we didn't do is charging five or 10%, I'd love to have five or 10%, but they're better business people than that. And what happens when you charge your royalty, at least in my opinion, the most ambitious among of resent what you're doing, you're taking a cut of their creative brilliance. And it is, in fact, their creative brilliance.
I mean, I chatted with some of the folks at Epic Games who make a rival product, Unreal Engine. And, you know, one of the things they talked about is that their engine is able to accomplish as much as they do, because they have titles like fortnight that they're building on a regular basis, and their, you know, their game studio, how do you compete when you're not in building games yourself
by getting 100 times more customers who use our product and to give us that feedback. So we've got teams inside of literally dozens of studios where we work with them. And look, you can make the argument but the facts are simple. using mobile as an example, a little over half of all games
are built in unity outside of us one competitor in China Cocos, which has a good position in China, but behind unity, no one else has more than one share. So if you are not going to knock any individual competitors, but the markets voted on which model works, and we're pleased to have won that election, unlike a quantity of developers, but there's still a ton of really high revenue titles that are going with Unreal Engine half my top 50 top half of the top 100 built in unity half no one else has more than two or three entries there. So my point is, when you look at the top 10, the top 20 of the top 50 the top hundred but I will give you this we don't have 100% market share yet.
Why? Why are they building on those other platforms? If unity is where it's at? Well, no.
I mean look, I actually think epics and an amazing company, and I think fortnight's been amazing product. And I love having great competitors that come after us. There's no issue with that. I think it's wonderful. We would be a lesser company if we didn't have competition, trying to innovate in ways that maybe what maybe we didn't think about at some point. And we can go after that. I think competition breeds excellence. And I am glad for the competition. And Tim's when he's a friend is a good guy. But in terms of the models, their model has produced a great revenue stream for them. And games, we don't have that our models produced a lot more of successful customers, you can I'm not sure what superior they both have their advantages. Okay,
now. So as you're looking at kind of emerging markets, I know you've been really outspoken about AR and VR, what's in it for you trying to capture a pretty, you know, tiny audience, but you know, own it at the
so we're about two thirds of all AR and VR. But when I speak of new audit markets, I wanted to speak also to other industries. So because AR and VR is not yet a consumer smash, although it's it's rising, and it will ultimately get there. But it's used extensively and the architecture world it's used extensively and construction, choosing section of a and manufacturing and on the auto industry. And it's used extensively on, you know, leaks for visualization and film. So here's a blinding inside of the obvious. Why would any other industry use a game engine, you know, they've got their system and the film industry put a bunch of folks up against the green screen, the camera shoots them, animators come in, and the director gets to see the work in a couple weeks time they then edit or reshoot, but the process works great movies have been made of it, all the Marvel movies were made that way. And you know, my Blade Runner, the second time we've made that way, what unity
does it here's the inside when you're
playing again, which you see on the screen. That's film quality work. But the frame you see when you push the joystick forward in one 60th of a second is a fully produced frame created instantly. that's never been seen anywhere in the world that is insanely powerful, and displaces a huge number of ecosystem partners are folks that help the film industry, the construction industry, AR, and VR and auto, and all sorts of other folks. They're doing things expensively slowly and in ways that don't give them the feedback when you do something instantly, the director can ask an actor to do something and look at it a second later and say, This is what you've got, this is what we've done. This is what it looks like. Let's redo it to act a little bit different. And when they wear goggles, by the way, when they're acting, they can see the animated monsters around them. As opposed to having a swing and thin air hoping that it looks realistic. The production advantages are massive. And it's instinctive as, and it's fully three day if you build it in unity. This is a you know, little known secret. But it's important you put a camera in one place on an old film, you shoot from one side that the cameraman later wants to, or the director later wants to move the camera, they're stuck in unity, the cameras are a raid around, you take that shot when the camera met with a retro later wants to say, I'd like to move the camera over a few feet or the other side. That's that fast. Sure. And so we estimate that on the production side, whether it's film or the auto industry for car configure raters or for autonomous driving, which I should probably talk about in a second, all of these things, their costs go down dramatically. And the efficacious of the success that they have rises dramatically. It's real time 3d is here to stay. And it's disrupting the auto industry, from design through the car configure it is on autonomous driving, it's disrupting architecture, engineering and construction alignment of things to do in real time, what used to take weeks and months, it's doing the same in the film industry, its early stages, but these industries will be transformed every bit as much by this technology is anything else what's happening out there. So I
don't think there's, you know, for people who have tried VR, or, you know, one of the few AR headsets and I think there's any doubt that there's some really cool applications that, you know, could definitely, you know, penetrate a lot of different markets. But, you know, as a company that has raised a lot of money, and there's been, you know, a lot of your investors have spoken to the promise that, you know, a VR AR world can, you know, built on unity can really be powerful, do you feel that, you know, headset market growing is going to be essential to your company being, you know, reaching their potential. So,
Lucas, the first time you and I met was at a conference we put on called vision. And at that conference, I presented this notion I would call the gap of disappointment. And I put it out there. And what I was saying is this, all of the analysts are predicting this hundred billion dollar AR and VR market taking off from here and it's going to happen and couple years and I do a curve look more like this, which took five years or so to meet seven years to me, where the projected analysts were putting in the production of the analysts were putting out I said that because at the time and still today, I think most of the AR and VR stuff targeted for the consumer is really in beta format. They're not cheap enough there. They don't work well enough. They don't have enough good control systems. We can't see your arms and your legs and most of them and use them in an interactive way. There's not a lot of content I come from, you know, background of the game industry and a launch man, billions of dollars of marketing billions of dollars. A tooling around CPUs, and GPUs at the world have never seen before, billions of dollars invested in content. So a huge number of things came at a consumer price under 500 bucks. I know what a content launch or a platform launched looks like this designed to conquer the world. I've lived through all of them from PlayStation and Nintendo to Xbox and others
AR and VR is mostly to this day and launched the developers I mean, name the content, maybe it's not there yet. I think it will be there yet. What's been fascinating is watching how fast industry takes up a call everyone doing retail design it a lot of them are using HoloLens from Microsoft, the film industry is starting to to to center in terms of production around vive and Oculus, you start to see the Jet Propulsion Lab, you know, use vive and Oculus and also hollow lens, you know, in particular, for designing Mars rovers, the architecture industry, when they design a stadium now, they let the investors that are putting that together, walk the stadium and see a basketball team on the court. So they understand what they've built, what it looks like. And because they do all about in the day, they can say, I want it to be 330 on November 13, to look what the what some game might look like with white streaming through because we can simulate that in real time. And it's being used extensively in the auto industry for the same purposes. And so it's it's not a surprise that if you will, with commercial obligations have proceeded to consumer applications, because at least in my mind, we haven't seen a consumer launched yet. Now we make tools, we don't sell headsets. We don't sell games, we don't sell AR applications. So all the people that are building stuff are using unity and they're paying us to use Yeah, it's working just fine for us. Okay. Um, it's eventually gonna turn into market so at least from the investment perspective, it's exactly what we laid out. So you know,
quickly talking about kind of whatever a platform that people think is kind of current generation which is smartphone AR You know, I think, at GTC, you talked about how, you know, there's a lot of potential from, you know, the hundreds of millions of devices that we're going to launch with AR core and AR kit. I think people tried to keep their expectations pretty limited with the beginning ones they thought they might have like a Zippo lighter kind of equivalent, but we didn't really even seem to get that far. Like, where do you think those platforms are? And are they worthwhile for consumers yet,
so I would, I would say actually, right now, there's probably just shy of a billion devices out there that are AR kit and they are core compatible. So that means it can pick up their phone and have an AR ready device. I would say less than 10% of people even know that capability exists on their phone, if you've got a Arkadin AR core on your phone and you have used it raise your hand out there,
three or seven. All right, we got an alert, I guarantee you
it's on almost like this is a not a poor audience here. I can be sure. But almost all of you have it and you haven't used it that the reason for that is we haven't yet seen the compelling applications we will start to see compelling applications maybe this year, maybe next. Weirdly, it might come through advertising. Okay, so one of the things that that unity is putting out now to our advertising platforms. You're playing a game you get an ad, it can be an AR VR ad. So Aaron AR you see as a pretty big filter bottle comes into your phone suddenly, maybe the first time any of you weirdly you get it through an ad might be the first time you actually use a on your phone. Okay.
All right. Well, we're out of time. Sadly, I appreciate us getting to dive into some of the monetization stuff happening in the industry right now and I'm a little bit about the the inklings of the AR VR industry growing out there john, great chatting with you. Thanks so much for Lucas just
remember the world is a better place with more creator so let's help make that happen.