[steven-xu]

I'm glad to see Unity finally choosing to play to its strengths here from an economic standpoint by offering rev share. It's an insurance business model, which a game engine is uniquely able to offer due to its horizontal reach.

There's big financial risk inherent in game development for which studios naturally would "pay" some sum to hedge against, in the format of trading away some upside in the success case for a lower cost in the failure case. In fact, risk aversion, which at least in aggregate often models much real world behavior, dictates that studios would be willing to pay generously, entering into a deal that yields negative EV in exchange for flattening the risk curve. On the other hand, underwriting the risk on Unity's part is basically risk-free because of its horizontal reach across studios. Because of the asymmetrical risk, there's considerable economic surplus to be captured in a way that leaves both parties better off.

Of course all of this only works out if Unity only sufficiently benefits from the big successes. To that end, while generous, the choice to let developers pay the lower of rev share vs. per-install fee seems perplexing to me. When customers can pick after they already know whether their game is successful, Unity fails to set up an effective insurance business and ultimately will lose out on the surplus. The winners will no longer automatically subsidize the losers, Unity may have to raise the costs of both deals to cover its operations, and this all just becomes a more convoluted price increase.