Item 1. Business
Item 1. Business
General
Unity is the world’s leading platform to provide real-time 3D ("RT3D") development tools and services for creating and growing interactive, 2D, 3D, augmented and virtual reality experiences across all major platforms and device endpoints. Our platform is used by creators of all types - such as developers, artists, and designers to build content for various industries, including gaming, film, retail, automotive, architecture, engineering, and construction.
Unity was originally founded as Over the Edge Entertainment in Denmark in 2004. In 2009, we reorganized as a Delaware corporation and changed our name to Unity Software Inc. Our principal corporate offices are located in San Francisco, California. We completed our initial public offering in September 2020 and our common stock is listed on the New York Stock Exchange under the symbol “U”. In November 2022, we completed the transactions contemplated by the Agreement and Plan of Merger (the "Merger Agreement"), dated July 13, 2022, by and among Unity Software Inc., Ursa Aroma Merger Subsidiary Ltd., a company organized under the laws of the State of Israel and a direct wholly owned subsidiary of Unity, and ironSource Ltd., a company organized under the laws of the State of Israel ("ironSource", and such transactions, the "ironSource Merger").
Following the ironSource Merger, we now focus on two complementary and interconnected solutions: Create Solutions and Grow Solutions, which includes ironSource. See Item 7 of Part II, "Management’s Discussion and Analysis of Financial Condition and Results of Operations" for a discussion of the changes to how we present revenue results following the ironSource Merger and Item 8 of Part II, "Financial Statements and Supplementary Data" – Note 5 – Acquisitions, for a further discussion of the acquisition of ironSource.
Create Solutions
Our Create Solutions are a robust set of tools for the development of high-definition, real-time 2D and 3D content. Designed with creators in mind, the tools are used by artists, designers, and developers across a range of industries ranging from games to aerospace, film to retail, medical to manufacturing, and beyond. Create Solutions includes our custom scripting tools and a high-definition render pipeline; graphics, animation, and audio tools; navigation, networking, user interface tools and more. Delivered as a modular application architecture, creators can leverage our products and extensibility to easily edit, run, and iterate interactive RT3D and 2D experiences that can be created once and deployed to a variety of platforms.
Grow Solutions
Our Grow Solutions offer customers the ability to grow and engage their user base and monetize their content—from 2D puzzle games to multiplayer, multi-platform games, or other 3D interactive content—irrespective of whether the content was created in Unity. Many of our customers create games and applications with the purpose of building a profitable business. This requires both the acquisition of end-users at a reasonable cost and the monetization of these end-users as they engage over time with the content. We help our customers grow their businesses in the mobile app ecosystem, from pre-launch testing to user acquisition, growth and retention. We do so by offering a mediation platform, which enables mobile app developers to monetize their apps through a variety of ad formats and maximize their ad revenue by leveraging multiple ad networks. In addition, we offer robust cross-channel marketing solutions, which enable developers to scale their user base by promoting their apps on our own and external ad networks, mobile devices, and on social media and search channels such as Apple Search Ads. Finally, we offer analytics and optimization tools designed to enable developers to grow their profitability sustainably over the long term. Following the ironSource Merger, ironSource forms part of our Grow Solutions (which we generally referred to prior to the acquisition as Operate Solutions).
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Unity Software Inc.
Our Customers and Creator Community
Our globally diverse customers range from the largest enterprises to mid-market companies, to government and non-profit institutions, to mid-sized, small, and independent businesses and individuals across a variety of industries.
We have a very large, active, and highly engaged global community of RT3D creators. The scale of our creator community provides us with a significant competitive advantage, and by incentivizing third-party platforms to strategically partner and integrate with us, we are able to further expand our community. Third-party platforms partner with Unity to make it easy for our creators to deploy content onto their platforms. These partnerships help us to maximize audience-reach for our customers and retain our platform’s position as the leading hub for RT3D content creation.
Competition
We primarily compete with other content development tools and monetization services. Most of these competitors offer point solutions that represent a subset of the offerings on our platform:
• Create Solutions: We primarily compete against proprietary game engines built in-house by large game studios, as well as Cocos2d-x (Chukong Technologies) and Unreal Engine (Epic Games), which offer game development tools primarily serving the PC games and mobile games sectors, and, in the case of Unreal Engine (Epic Games), industries beyond gaming. Outside of gaming, we also compete with other development platforms that offer 2D and 3D design products.
• Grow Solutions: We operate in a fragmented ecosystem composed of privately held companies up to select divisions of large, well-established companies. The large companies in our ecosystem may play multiple different roles given the breadth of their business. Examples of these large companies are Amazon, Facebook, Google, Microsoft, and Tencent. Most of these companies are also our partners and customers. Examples of other companies we compete against include AppLovin, Voodoo, and Digital Turbine.
We believe that the principal competitive factors in our market are:
• cross-platform deployability;
• the pace and quality of new product innovation;
• product capabilities, including flexibility, scalability, performance, security, and reliability;
• integration with existing platforms;
• high-quality customer support, training, and services;
• brand recognition and reputation;
• return on investment of sales and marketing efforts;
• volume and leverage of user data and analytics;
• price and affordability of our solutions and customer economics;
• ease of use of products; and
• ability to expand to adjacent industries.
We believe we compete favorably with respect to these factors. Refer to "Item 1A. Risk Factors" for a discussion of risks related to competition.
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Unity Software Inc.
Privacy and Data Security
Creative assets, performance and user data are critical to our customers’ businesses. We devote considerable resources to our security program, regularly testing the security of user assets utilized by our services, and developing easy-to-use features that content creators can leverage to enhance the security of their creative products. Our team of security practitioners, working in partnership with peers across our company, works to identify and mitigate risks, assess our security measures against industry standards and best practices, and continue to evaluate ways to improve.
The privacy of developers and application users and the protection of the data in our ecosystem are important to our continued growth and success. We conduct privacy impact assessments and data protection impact assessments, conduct product and feature reviews, maintain records of data processing, and provide support for privacy and data security-related requests. We maintain a dedicated privacy team that leads a group of employees, federated throughout the organization, who serve in roles responsible for data governance and management within product groups and functional areas. Our privacy team reports progress on the program and its functions quarterly to a team of executives charged with data governance oversight, and conducts regular privacy-related training. Additionally, our Data Protection Officer periodically updates the audit committee of our board of directors on changes in laws and Unity’s compliance activities.
We are committed to complying, and helping our customers comply, with privacy and data security laws globally. We monitor guidance from industry and regulatory bodies, meet with regulators and update our product features and contractual commitments when necessary to meet new or evolving privacy legal requirements. We maintain a privacy policy that describes how Unity collects, uses, and discloses information, and what choices organizations and users have.
Because our business involves the collection, use, storage, and transmission of personal information, we are subject to numerous federal, state, local, and foreign laws, regulations, and other obligations relating to privacy and data security. Countries around the world have adopted or are proposing similar laws and regulations relating to privacy and data security, and we may become subject to them as we expand our operations into new geographic markets. Refer to "Item 1A. Risk Factors" for a discussion of risks related to privacy and data security.
Intellectual Property
We rely on a combination of patents, trademarks, copyrights, trade secrets, license agreements, confidentiality procedures, non-disclosure agreements, employee non-disclosure and invention assignment agreements, and other legal and contractual rights to establish and protect our proprietary rights. Refer to "Item 1A. Risk Factors" for a discussion of risks related to our intellectual property.
As of December 31, 2022, we had 193 issued utility patents in the United States that expire between 2031 and 2041, 41 issued utility patents in non-U.S. jurisdictions, and 286 utility patent applications (including 15 provisional applications and 76 active PCT applications) pending in the United States and globally. As of such date, we also had 29 registered design patents in non-U.S. jurisdictions and 13 active design patent applications, four of which are in the United States. While we believe our patents and patent applications in the aggregate are important to our competitive position, no single patent or patent application is material to us as a whole.
We also have trademark rights in our name and other brand indicia and have trademark registrations for select marks in the United States and other jurisdictions around the world, and registered domain names for websites that we use in our business. We control access to and use of our proprietary technology and other confidential information through the use of internal and external controls, including contractual protections with employees, contractors, customers and partners. We intend to pursue additional intellectual property protection to the extent we believe it would be beneficial and cost effective.
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Unity Software Inc.
Human Capital Management
As of December 31, 2022, we had a total of 7,703 full-time employees, across 64 offices and in 21 countries. We also engage contractors and consultants. We had 3,753 employees in technical roles, which accounted for approximately 59% of our total headcount. In addition, our geographic diversification enhances our ability to retain and attract talent, and as of December 31, 2022, approximately 73% of our full-time employees were located outside of the United States.
We believe that the strength of our culture is fueled by our commitment to our values, inclusion, and social impact, making Unity an attractive place for top talent to work and grow.
Our Values and Commitment to Inclusion
The Unity values capture what we represent and form the foundation of our company culture. They have a material impact on how we do our jobs and how we treat each other every day. They also guide us in making the right decisions for our customers, partners and creators. Our values are: Users First, Best Ideas Win, In It Together, and Go Bold.
We live out these values through our global framework for Inclusion, which centers on three principles: Empathy, Respect, and Opportunity. Empathy fuels connection, respect builds trust, and opportunity empowers employees. These principles cascade throughout our company and encourage us all to meet each other where we are and celebrate our differences. We invest in our culture in many ways, including a Unity Leadership Program run by senior leaders, frequent Town Hall meetings, executive roundtables, manager and employee development opportunities, and a global Workplace Experience team dedicated to curating local cultural events. Unity's benefit offerings are designed to meet the varied and evolving needs of a diverse workforce.
Government Regulations
Our worldwide business activities are subject to various laws, rules, and regulations of the United States as well as of foreign governments. Compliance with these laws, rules, and regulations has not had, and is not expected to have, a material effect upon our capital expenditures, results of operations, or competitive position, and we do not currently anticipate material capital expenditures for environmental control facilities. Nevertheless, compliance with existing or future governmental regulations, including, but not limited to, those pertaining to global trade, business acquisitions, consumer and data protection, and taxes, could have a material impact on our business in subsequent periods. Refer to "Item 1A. Risk Factors" for a discussion of these potential impacts.
Available Information
Our investor relations website is https://investors.unity.com/ and we encourage investors to use it as a way of easily finding information about us. Copies of our reports on Forms 10-K, Forms 10-Q, and Forms 8-K, may be obtained, free of charge, electronically on this website as soon as reasonably practicable after we file such material with, or furnish such material to, the SEC.
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Unity Software Inc.