Is Unity Software the Adobe of the real-time 3D world?

May 18, 2021

– Andrew Macken

When we presented our thesis on Montaka’s investment in Unity Software (NYSE: U) recently, we outlined three major long-term opportunities for the business:

Real-time 3D, VR and AR in gaming;
Real-time 3D, VR and AR in non-gaming; and
The democratisation of real-time 3D, VR and AR content creation for millions of endpoints in the metaverse.

With respect to the third opportunity outlined above, we believe that Unity’s engine will become easily-usable by mass consumers over time to generate high-quality 3D/VR/AR content creations. The long-term opportunity here is orders of magnitude larger than Unity’s user base today.

Unity has 1.5M monthly active creators today. Over time, this could grow to “hundreds of millions” according to CEO, John Riccitiello:

“I believe in the fullness of time there will be hundreds of millions of people using Unity on a monthly basis, and a significant complement of them will be consumers. Consumers wanting to express themselves with better videos on TikTok or an Instagram or a Facebook where real-time 3D makes a difference and a positive difference to help them drive more eyeballs and more users. We recognize that opportunity.”

Interestingly, there is a strong precedent for such a consumerization of highly technical content creation software. This transformation has been taking place in 2D content creation over the last eight years with Adobe’s Creative Cloud. As is the case for Unity, there is little competition for Adobe’s Creative Cloud.

Adobe as a case study:

In 2013, Adobe launched its Creative Cloud – a set of best-in-class 2D image and video design applications and services.
Adobe announced at the time that it would discontinue selling its software as perpetual licenses and move to cloud-hosted subscription service.
Based on the installed base approximately 13M owners of perpetual licenses at the time, one might expect this to be the approximate size of the long-term opportunity for Adobe’s Creative Cloud.
And yet today, Creative Cloud has more than 22M paying subscribers.
Furthermore, Adobe sees its creative professionals TAM at 45M with another 4.7B potential communicators and consumers in addition. Today, Adobe has more than 200M Adobe IDs created to access Creative Cloud mobile apps.

Source: Adobe (2019)

The expansion of Adobe’s Creative Cloud TAM has been a key driver of Adobe’s 10x increase in market capitalisation over the last 10 years (see below). And we believe the long-term opportunity for Unity in real-time 3D/AR/VR will be even more significant.