The Epic-Unity Duopoly: Two Companies Taking Over Gaming (and more?)

According to Newzoo’s senior market analyst Tom Wijman, the global gaming industry will generate USD$159.3 billion in revenue this year. That is approximately 9.3% year-on-year growth. Much of it can be attributed to lockdown measures increasing people’s appetite for gaming, but the pandemic has only exacerbated an already growing trend. Two companies in particular are vying for the top market share and may even expand beyond the industry itself.

Unity Technologies and Epic Games are the two biggest independent manufacturers of software engines powering video games. They both sell toolkits that enable developers to create games without having to start coding from scratch every time.  These ranged from two-dimensional puzzle apps to three-dimensional first-person shooters and augmented reality (AR). They are also responsible for the hyper-realistic graphics seen in many games today. Some of their most popular contributions include Fortnite: Battle Royale, Activision’s Call of Duty Series, Microsoft’s Gears of War and Pokémon Go.

Unity Technologies’ success is built upon mobile gaming, the gaming industry’s highest growth segment. Today, Unity’s engine powers nearly half of all mobile games along with a 60% share of all AR and virtual reality (VR) games. This translates into annual revenue of USD$300 million.

Although Unity’s pricing model is based on its client’s product revenue, but organisations that have less than USD$100,000 as an annual revenue or in total funding can receive a free version of the Unity Engine. This fuels business with smaller studios by enticing them to use the Unity Asset Store, an online marketplace where developers can trade pre-configured gaming assets; be it buildings, weapons or landscapes. Unity uses it as another source of revenue by taking a 30% commission from all transactions.

Epic Games’ Unreal engine is known more amongst PC and console gamers. However, a majority of Epic’s revenue comes from Fortnite, particularly in the form of in-game purchases. The game itself provides a valuable feedback loop to designers of Unreal who can then upgrade the engine to improve performance. Since software upgrades are inexpensive the profit generated from Fortnite can be reinvested in other technologies. Lately, Epic has invested in AR/VR optimisations for its engine.

Both Epic and Unity’s business models gear them towards domination in the gaming industry. However, both companies also seek to expand into other areas of entertainment. Their engines have made inroads in Hollywood with Unity being used in Disney’s Lion King to reconstruct the African Savannah, whereas, Unreal engine graphics were implemented in the Star Wars TV spin-off, The Mandalorian.

More recently, the companies have expressed interest in utilising their funds to play a lead role in developing the ‘metaverse’. This refers to a shared virtual world that is persistently online, much like the Oasis in the movie Ready Player One. It would be complete with its own economy, jobs, shopping areas and entertainment experiences. The idea seems farfetched and the lack of adequate computing power available to the masses makes a virtual world some ways away. Yet, the COVID-19 pandemic has underlined its usefulness. Just two months ago, thousands of Fortnite players congregated on a virtual island to watch a virtual concert by Travis Scott.

Should the ‘metaverse’ become a reality, Epic and Unity would be able to grow their addressable market from the global gaming community to the entire global internet-connected population. They could even rival many of the social media juggernauts like Facebook and Twitter.

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