Unity’s Successful IPO — What Does it Mean for XR Developers?

Unity debuted on the New York Stock Exchange (ticker ‘U’) last Friday Sept. 18, with a closing price of $68.35, a strong finish of 31.44% over the offer price. There was so much interest in the stock, that the IPO price was raised to $52, up from a previous target range of $34-$42 per share. During the day, the stock traded as high as $76.79, temporarily pushing the company’s value over $20 billion.

By Friday, Sept. 25, a week later, Unity closed at $89.85 for a market cap of 23.66B – a strong first week.

That’s good for Unity and its existing investors, but what does it mean — if anything — for XR developers?

The IPO will allow Unity to cover some of its debt and continue its commitment to R&D while it works on a path to profitability. Last year, Unity lost 163 million on revenue of 542 million, though it’s revenue numbers continue to grow and it becomes incrementally more profitable.

Sustaining this rate of negative profitability while still growing services is complicated, especially when Unity’s main rival Epic is so flush with cash thanks to Fortnite’s success.

Some developers fear that the IPO means that Unity’s commitment to developers will waver as the company tries to fulfill its obligation to investors. This is a reasonable worry, though doesn’t account for the fact that privately held companies also have significant external investment — Tencent owns 40% of Epic, for example, and investors in privately held companies also have significant sway over operations.

Unity's Range of Solutions, with Operate Products contributing the most revenue
Unity has a wide range of products, grouped into ‘Create’ and ‘Operate’ Solutions — ‘Operate’ Solutions, especially advertising, drive revenue the most.

One of the most interesting aspects of the S-1 filing was that it revealed that a significant proportion of Unity’s revenue – 62% — derives from it’s ‘Operate’ solutions, than from the ‘Create’ side of things. Since most XR developers have fewer opportunities to take advantage of the Advertising and Live Services features that drives revenue for Unity, the infusion of cash will hopefully allow Unity to continue to devote significant R&D to the set of ‘Create’ services – the game engine and Editor Extensions – that XR developers rely on.

Another important piece of information from the S-1 filing is that Unity dedicates a substantial 47% of its spending to R&D efforts, which should continue apace, if not expand.

My hope, though I’m doubtful it should come to pass, is that the money freed up in this move will allow Unity to be more generous with pricing of Editor Extensions such as MARS. Given the price point per seat of Unity Pro, developers at this tier were rightly frustrated when MARS was released as a separate 600/year/seat subscription. Rolling this feature into Pro seems like it could go a long way to improve developer sentiment – there were a lot of complaints about the pricing of MARS, prompting (probably empty) threats of moving over to Unreal.

Still, if Unity wants to retain its position as the engine of choice for XR developers, it makes sense to be generous with features that reinforce their position, and given the small proportion of revenue generated by Editor Extensions, doing so might be financially more viable now.

Even though it’s unlikely that any pricing changes will happen soon with MARS – it’s only a few months old – having the company broadly in a position to continue making investments in improving tools for XR developers is good news.

Unity’s Carte Blanche project aims to help a wider range of developers to create with their engine, powered by a VR-based interface.

Unity has a a frustrating tendency to abandon development on promising features such as UnityXR, and it’s possible that the funding will allow the company to rededicate resources to these interesting, but not financially rewarding, projects. One such project that’s been announced but not yet released is called Carte Blanche, an authoring tool that allows less technical developers to build in Unity via a VR interface. This kind of innovation will push XR forward while also providing access for a wider variety of creators.

Unity’s continued innovation will in turn provide incentive for competitors such as Epic to up their game, so that we can hope to see some new XR focused features out of Unreal as well. For now, I’m cautiously optimistic that the successful IPO will bring some good things to XR developers directly, and indirectly enhance the XR landscape more generally.