The Crisis at Unity Extends Far Beyond John Riccitiello

The recent consequences of the crisis at Unity are a testament to its severity. The immediate retirement of John Riccitiello is a rare occurrence in the gaming industry, where top management often remains unscathed despite failures and poor judgment. Riccitiello's reputation and name were inextricably linked to the errors that damaged Unity's relationship with many developers. His past experiences, including his tenure at EA and his controversial comments about developers who don't focus on monetization, had created a perception that he was responsible for Unity's disastrous attempt to change its financial terms. The company could not offer a scapegoat from lower down the organizational chart, as the buck stopped at the top. Riccitiello's departure is intended to mark a new beginning, allowing his replacement to rebuild trust with Unity's customers. However, this is an enormous challenge, as the underlying issues that led to the crisis remain unchanged. The company's problems are more profound than any one individual, and the new CEO will face the same challenges. Developers who use Unity's engine are aware that the company's issues persist, despite the reversal of the license changes and the CEO's departure. They are waiting for a new plan to achieve profitability, but this may not be well-received. Riccitiello was the wrong person to lead the company through its problems, and his decisions may have exacerbated the issues. He oversaw numerous acquisitions, which added to the company's bloat and struggled to manage costs. The problems at Unity are separate from Riccitiello and are more fundamental. The company has never been profitable, despite being around for almost 20 years and consistently losing money. This is not due to a lack of revenue, as the company has grown its revenues to almost $1.4 billion last year. However, Unity has failed to drop its venture capital mindset, constantly pursuing growth and market share while putting profitability on the backburner. This approach has created business models and customer expectations that are difficult to reshape when it's time to start generating profits. Perhaps the long-term rivalry with Unreal has driven Unity's management to feel that the company is never big enough, leading to a constant pursuit of growth and expansion. According to last year's filings, Unity employed 7,700 people worldwide, twice as many as Epic Games. The company's game engine is wildly unprofitable, with most of its revenue coming from monetization solutions. In an ideal world, the monetization products would subsidize the engine, but in reality, the balance of power has shifted to the side of the firm that generates the most revenue. Riccitiello's comments about developers who don't focus on monetization were ill-advised, but they reflect the frustration with developers who use Unity's low-revenue engine product without engaging with the company's higher-revenue monetization services. From the developers' perspective, they are loyal customers who use Unity's game engine, which they consider the heart of the company. However, the game engine cannot support a company with 7,700 employees, billion-dollar acquisitions, and executives with eight-digit compensation packages. A sensible option would be to trim the company down to a scale that suits its revenues and growth trajectory, but this is almost impossible for a publicly traded company like Unity. The company's structure, with a focus on growth and profitability, makes it challenging to prioritize the engine development. Consequently, the replacement of Riccitiello will not address the underlying issues, and the company will continue to face the same problems. The pressures to make the game engine business profitable and support the unfocused growth strategy will persist. The broken trust among developers cannot be easily repaired, and they have been forced to take a closer look at what Unity is as a company. Trusting a core part of their livelihood to a product from a company that loses money is a recipe for disaster. If Unity's next CEO is to restore trust among developers, they must first put the company on a stable financial footing to make credible long-term promises, but this will be a painful process. Riccitiello's departure does not mark the end of the crisis; it is only the beginning.