Unity Technologies aims to bring video game tools into the real world

Every year, video game designers spin up more exquisite and immersive virtual worlds. Players can now wander through giant, shifting landscapes that are edging closer to being indistinguishable from real life.

Many of those worlds are built using software designed by San Francisco-based Unity Technologies Inc. and wind up in games like Monument Valley 2 and Pokemon Go. Gaming is serious business, helping Unity net $500 million in revenue in 2019, according to the company. The closely held company hasn't previously disclosed the figure. 

It's not just gamers who appreciate a perfectly rendered tree or skyscraper. Unity is betting the next wave of growth will come from industries such as construction or retail that could benefit from offering their customers a unique view of a future condo building, park or shop. The vision is stunning, but it's not necessarily an easy sell, especially right now. While gaming is on a tear, benefitting from millions of home-bound people who are weathering the Covid-19 pandemic by sheltering in place, the rest of the economy, including construction and retail, has been hit hard by the forced closures of businesses. Convincing such industries to buy and learn a new software tool may be a tall order.

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Showing Unity can grow beyond fantasy worlds is becoming more important, however, with a potential initial public offering in the near future."They're not going to continue building the business year over year only serving gaming," said Joost van Dreunen, a veteran industry analyst who most recently ran Nielsen's gaming research division.

Chief Executive Officer John Riccitiello has a long history in the industry. He led Electronic Arts Inc., one of the industry's giants, from 2007 until 2013. The following year he joined Unity, taking over from founder David Helgason and switching the company's one-time license business into the recurring subscription model that has helped boost revenue across the technology industry.

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Last year, a former Unity executive, Anne Evans, sued Riccitiello for sexual harassment and threatening to derail her career. The allegations against Riccitiello are false, a spokesperson said.

Unity's revenue growth rate is above 30% and gross margins are over 80%, Riccitiello said. Pitchbook estimates the company's private market value to be about $6.3 billion. Such numbers, and investors including the Canadian Pension Plan Investment Board and Silver Lake Management, could make a good case for a public offering. Cheddar, a financial news network, reported last year that the company was aiming for an IPO in 2020, but Riccitiello declined to comment in an interview on his plans. One of Unity's biggest rivals, Fortnite maker Epic Games Inc., recently held talks to raise funding that would value it at more than $15 billion. In Unity's view, most industries have been stuck in a static dimension, relying on Adobe Inc. tools to edit images or Autodesk Inc. software to build 3-D digital models. But clients and consumers are increasingly demanding more immersive experiences, Riccitiello says.

An engineering firm hoping to win a contract to build an airport could lead their presentation with a fully functional model complete with airplanes that respond to weather and air traffic conditions. Luxury retailers who are traditionally opposed to selling products online could replicate their in-store experiences with sumptuous online stores and virtual reality glasses. A musician dropping a new album could create a virtual concert for fans to step into and enjoy from anywhere in the world. The lockdowns keeping people at home around the world show how this kind of technology could be useful.

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Unity is already selling to non-gaming customers. It helps Volkswagen AG train employees, was used by filmmakers to shoot the recent "Lion King" movie and by the Hong Kong International Airport to simulate changes in passenger volume. Unity Create, the non-gaming part of  the company's operations, now makes up about 10% of its business, Riccitiello said in February. That was up from essentially nothing 18 months earlier and the unit is growing faster than other parts of the business."The thing we've been searching for in science fiction and future imaginings of how the world will work, we're the company building that," Riccitiello says.

Unity may build it but will the rest of the world come? The video game industry is filled with engineers and computer scientists, technical people who are comfortable using complex software. Pushing such technology on marketers in luxury fashion may be more complicated.

"An architect doesn't want to build an application, they want to build a house," Riccitiello says, acknowledging the challenge. Unity has built tools to let customers import static files into its system, easing the challenge of starting from scratch. But Riccitiello concedes Unity will have to help its clients along.

Unity already offers design help to customers and is pushing deeper by acquiring Finger Food Advanced Technology Group, a Vancouver-based firm that has used Unity to build immersive worlds for clients like Microsoft Corp. and Lululemon Athletica Inc.

Offering hands-on training to encourage the use of its software could dilute Unity's image as a pure software-as-a-service company in the minds of some investors. But Riccitiello says industries across the board are becoming more technical, and as 3D design skills become more important, employees will be able to use Unity without any help.

"I haven't come across a single partner that got started with this and then went back and stopped," Riccitiello says.

Besides selling software and advice on how to use it, Unity has a massive mobile ads business. Developers can choose to have ads show up in their games, giving them a way to make money beyond in-game content and charging for the games themselves. Unity takes a cut of ad sales. The system serves 23 billion ads a month and reaches 2.2 billion devices, the company says.

That scale shows how big Unity is in gaming, and how it managed to hold its own as mobile gaming surpassed the traditional world of PCs and consoles. Apps made with Unity are downloaded 3.3 billion times a month and more than half of new mobile games are designed on its software, according to the company.

Gaming is a competitive and ever-changing landscape. Aside from Epic Games, which also makes a popular game engine that competes with Unity's core offering, tech giants like Alphabet Inc.'s Google and Amazon.com Inc. have been encroaching on gaming turf.

Amazon has its own game engine, known as Lumberyard, that integrates directly with the company's cloud platform and popular streaming service Twitch. Some of the biggest game makers, like Take-Two Interactive Software Inc.'s Rockstar Games, have built their own custom software specially tailored to their needs.

"We're still mostly supported by the game industry," Riccitiello says. But "our fastest growing business is outside of gaming. We're the bleeding edge of tomorrow for the world's content."