The Unity Crisis Demonstrates Everything Wrong With Web2 Gaming- Can Game-Fi Save The Day?

All around the world, game developers are panicking. Carefully-drawn up plans had to be scrapped, and new strategies put in place to recognise the new reality. For anyone who has ever developed something on Unity’s gaming engine, their announcement on 12 September was a lightning bolt- one that made developers of small indie games to large titles go into crisis management mode.

The adage that ‘no plan survives first contact with the enemy’ comes to mind- but what happens when the friend who had your back for so long suddenly reveals himself to be the enemy?

What’s happening with Unity?

Unity is a gaming engine that operates as a ‘software-as-a-service’ for gaming developers around the world.

It’s one of the most popular gaming engines out there for developers, especially for those who aren’t interested in creating their own engine from scratch.

The engine offers cross-platform capabilities, an extensive asset library, and can support 2D games, 3D games, as well as VR games, among others.

As such, Unity has, over the years, built up a massive following.

With such a portfolio of capabilities, it's no wonder that Unity is one of the most popular engines out there.

61 per cent of game developers use unity, making it the most popular game engine for development, and half of all mobile games use it.

This includes some of the most popular games out there: Among Us, which went viral three years ago; Pokemon Go, released by Niantic around six years ago amid massive hype and still quite popular today with 75 million active players, and Genshin Impact, which has amassed 139.5 million downloads since its release three years ago.

Even some of the most well-known Web3 games are also made using Unity- The Sandbox, Decentraland, and Dogami all use Unity’s software.

But on September 12, Unity made an announcement that would have massive implications for all of them. The company announced a new runtime fee schedule that would be put into effect on January 1 2024.

Under the new policy, games that made at least $200,000 in revenue over the past 12 months and have been installed at least 200,000 times will be subject to the fee, and have to pay a fee every time that their game gets installed.

Needless to say, this policy caused a massive uproar among developers everywhere.

After crunching the numbers, some found that under the new policy, they would owe millions to Unity. Some popular games like Cult of the Lamb have announced that they will be pulling their games from stores rather than paying the fee.

One studio that makes mobile games for children and does not have advertisements because of their audience did the maths, and found that if the policy was put into place, they would owe Unity 109 per cent of their revenue in runtime fees, without even accounting for salaries, taxes, operational costs, and marketing.

Web3 companies aren’t exempt from this fee either, as Affyn’s Chief Product Officer Steve Taylor pointed out.

“The runtime fee affects any developer that is building with Unity, whether it’s in Web2 or Web3. The runtime fee doesn’t discriminate, and may direct developers to distribute their game in formats or channels that provide more revenue certainty. It won’t make all developers switch to pay-to-play, but it’s clearly not going to help make free-to-play more viable.”

Taylor also lamented the new policy as a complete reversal of policy on Unity’s end: “Unity as a company used to rally around ‘Users first’ and ‘democratise game development’, but that seems to have been forgotten.”

And Taylor wasn’t alone in this sentiment. Ivan Yeo, co-founder of Avium, characterised the move as Unity shooting itself in the foot, and cast doubt over Unity’s ability to recover the trust of its user base after this debacle.

Yeo, however, took solace in the fact that the runtime fee’s threshold would automatically exclude most Web3 games from it for now.

What’s behind this dumpster fire of a policy?

Despite the large user base and rather impressive functions of their product, Unity has not exactly performed well when it comes to making profit. The company’s net loss in 2022 was $193 million- and while their revenue streams from ads and subscriptions were growing, it was not enough to cover their costs. Change, therefore, was in order.

This is where Unity’s policy goes from inexplicably strange or poorly thought-out to outrageous or hilarious, depending on how you view the situation.

After announcing the runtime fee, Unity also began quietly reaching out to developers to offer them full waivers of the runtime fees if they would swap from showing ads by AppLovin to showing ads from Unity’s own advertising arm LevelPlay.

As more developers confirmed that they received such offers, public sentiment turned from viewing the policy as a cash grab targeting developers, into one where developers were merely pawns to be sacrificed as collateral damage in Unity’s quest to unseat the industry leader AppLovin.

In other words, it’s a power struggle between Unity and AppLovin, and Unity wants a bigger slice of the ad revenue pie.

Since then, Unity has clarified their policy, raised the revenue threshold for their runtime fee, and are capping the fee as a percentage of revenue.

Game-Fi’s promised land?

These problems, however, should sound familiar to almost anyone in the game-fi space and the promise of game-fi.

After all, a fight over revenue sits at the entire core of the problem, and while Unity has now made another about turn to say that they still value their developers, some customers really have no choice but to trust that Unity won’t try the same policy again in the future.

The crisis at Unity shows that the structure of the Web2 gaming industry is deeply flawed- Unity was able to unilaterally push such a policy out and leave developers scrambling to pick up the pieces precisely because Unity was so huge, and there was no mechanism to stop them from doing it.

Game-Fi promised to change a lot of this- or at least mediate the worst excesses of it. Building on a blockchain and offering services through smart contracts would at least prevent any one party from changing the terms unilaterally and telling everyone else to just suck it up and deal with it.

Additionally, revenue sharing models promised a fairer distribution of wealth throughout the entire ecosystem, from infrastructure providers and developers to gamers.

But Game-Fi also comes with a host of its own problems. Fundraising with NFTs with the promise that these NFTs will become valuable in the future may prove to be difficult during bear markets, just when these funds are sorely needed.

Additionally, the simple addition of stakeholders into an ecosystem does not automatically solve all the issues present, as the case of Axie Infinity shows.

When game developers announced a hike in the in-game marketplace, during a crypto bear market no less, players expressed unhappiness with the move, since it meant that they would have to pay more to trade their Axie NFTs.

And this move was not even seen as an opportunistic cash-grab by Sky Mavis- it was an attempt by developers to reward content creators on Axie who were actively bringing new players onto the game.

It’s difficult to attribute this decision to greed on the part of Sky Mavis, because they weren’t acting as if their community or their audience didn’t matter- they expressly stated that the goal was to expand the community in a sustainable way.

That’s the key difference between Unity’s policy and Sky Mavis’ policy.

There was also almost certainly a significant element of greed present in the crafting of the policy. After all, Unity is led by CEO John Riccitiello, who prior to this, was CEO of Electronic Arts between 2007 to 2014.

For the uninitiated, this is the man who would be responsible for throwing EA’s reputation down the drain, and giving the company a reputation for unethically squeezing every last cent from their customers: releasing unfinished games, locking most of a game’s content behind paywalls even after customers paid full price for it, and microtransactions, and many more practices were common under his leadership.

And, unfortunately, this is not something that Blockchain seems to be able to solve easily as well. The many rugpulls, scams, and forms of organised crime that operate within the Web3 space are testament to that.

Instead, future models for gaming must also take this into account, and consider how to ensure not only fair economic stakes, but also equitable distributions of power within any system.

And in this quest, developers may find that Game-Fi has some interesting things to offer. Blockchain tech is able to decentralise power by preventing any single actor from shutting the system down- the problem lies in how we can prevent actors from amassing the same power offline, and using it to hold the entire system hostage to their interests.

One interesting way forward might be to take a look at how Crowd Control does things. The game is a collectible card game that’s run by a DAO- from designing new cards to rebalancing old cards and creating booster packs. The core idea of why this might be better is that players and audiences are, once again, at the centre of the experience, and have a say in what goes on.

Of course, not every game will be able to take such an approach. Crowd Control’s idea works because it’s a solution optimised for the type of problems that such games face, such as intentional power creep that developers put in for promotional purposes or cash-grabs by game designers (Yes, I’m looking at you, Warstorm).

And putting your player base on a pedestal may sometimes prove to be a bad decision if that means hamstringing your ability to make good business decisions for the game that your player base might not like, as with Axie Infinity. Again, balance is key.

But unless we start, we won’t know what works and what doesn’t- and that will perhaps be the biggest mistake of all.