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Good morning,
This week’s Stratechery interview is with Unity CEO Matthew Bromberg. Bromberg took over Unity last year, and previously worked at Zynga, EA, Major League Gaming, and AOL.
In this interview — which ended up being primarily about Bromberg, who I found fascinating — we discuss the lessons learned in a career centered around turnarounds. Bromberg helped rescue AOL’s relationship with EA, which led to him being hired by EA and turning around Star Wars: Knights of the Republic. After that he helped turnaround Zynga, and now his task is to turnaround Unity. We discuss each of these steps in his career, and how he is bringing lessons learned to bear to make Unity into a better business.
As a reminder, all Stratechery content, including interviews, is available as a podcast; click the link at the top of this email to add Stratechery to your podcast player.
On to the Interview:
An Interview with Unity CEO Matthew Bromberg About Turnarounds
This interview is lightly edited for content and clarity.
Topics: Background | Lessons From AOL | Esports | Rescuing Knights of the Republic | Zynga | Taking Over Unity
Background
Matthew Bromberg, welcome to Stratechery.
Matthew Bromberg: Thank you so much. It’s really a pleasure for me.
So I think this might be a first for me wherein I interview the successor of a CEO that I interviewed previously. You are the CEO of Unity, having succeeded John Riccitiello about 18 months ago. I want to get into that transition, of course, but first I want to learn more about you, your background, how’d you get started in technology — and I want to go back, really back to the beginning. So where did you grow up and let’s go from there?
MB: I was born in New York City, I grew up mostly in New Rochelle, which is a suburb of New York City and I suppose my upbringing was pretty straightforward and mainstream, I was really into athletics and other things.
But I also had this sort of other side in which I would kind of play Dungeons & Dragons with a separate set of friends and I’d play these really complex military strategy board games by myself because I couldn’t find anybody else I knew who had any interest in that whatsoever.
Are these the ones where you’re like painting the figurines and stuff like that or…?
MB: No, they were the ones with the little tiny cardboard units. It was like they were Civil War battles and other things and I had to play both sides, which makes it, by the way, particularly uninteresting, I suppose since I always knew what I was up to, but I could not find any other human being who had even occurred to me to ask, by the way, if they’d be interested. Now of course, the Internet’s made that kind of thing much easier now.
It makes you really appreciate the upside of the Internet.
MB: Yeah, exactly, it really is, it’s a big thing. So it’s like my brain is not highly mathematical, but it has always been drawn to complexity and systems thinking. I went to college and majored in literary theory. I was particularly interested in structuralism, which is really about how language is really comprised of systems or signs. In order to figure out what’s being said, you have to figure out how the system works and you have to look for really deep structures and patterns. That kind of thing turns out, by the way, later to be incredibly critical to thinking about how to make video games.
No, this is amazing because I once considered majoring in linguistics for the exact same sort of reason. I don’t think I’ve ever revealed that fact about myself, but I can relate to it to exactly what you’re talking about.
MB: Well, once I revealed that I played board games by myself, I think we were just in that space where anything could be revealed here, Ben.
Well, but it’s interesting though that you mentioned the athletics part, because I talked to a lot of people who played Dungeons & Dragons and “Oh, I got my first computer when I was 12 and started programming XYZ”, in this job I don’t talk to a lot of people who are athletes. Athletics was a big part of my life, I played multiple varsity sports, and I’m curious what perspective you think that has given you. Is that a tie into gaming, which has certainly a competitive aspect to it? Or is it just sort of a happy coincidence and a fun fact about young Matthew?
MB: Yeah, I don’t know. I think that in life, the more broadly you can expose yourself to different kinds of things and different sorts of people and different experiences, the better off you are.
I think for me, I’ve always had this sort of — in a funny way, it’s good training to be a CEO because there is a very kind of a mainstream performative aspect to it. But especially when you’re working in technology, there is also a really kind of a detailed deep scientific element to it and balancing those two things, I think, has ended up being helpful for me.
And by those two things you mean the competitive aspect versus the structural analysis?
MB: Yeah. I think understanding how to work inside, not just competition, but inside the mainstream as opposed to sort of being shut up in your room and being a quiet genius. That was never my instinct, but it was my instinct to sometimes shut myself up in my room. So I think that balance can be helpful.
Yeah, for sure. That’s just another angle that I thought about in the context of Stratechery over time. I always joked that my friend John Gruber, sort of like Daring Fireball has gone along on the ride with Apple, and for Stratechery, it’s kind of been that with Facebook. There’s a bit about Facebook where I feel like I always understood the company more and better by virtue of having a pretty normie background and being in sports, and the people that I grew up with, they just want to hear updates from their friends and family. This whole idea of being on Twitter and following your interests, has not even occurred to them. Meanwhile I was a huge Twitter guy, but I feel like I had that recognition of this whole other world that benefited me hugely over time.
MB: It’s really true. That’s why, especially when you’re running a company, it turns out to be super critical for you to make sure you have a mixture of kinds of folks in the room all the time because otherwise, everyone thinks something stupid and it’s really not stupid, it’s going to actually be the thing that dictates how the whole world’s going to unfold, but nobody in the room has any idea.
So you’re studying literary theory, now you’re the CEO of Unity, there’s been a long stretch in the middle. What happened next?
MB: Well, when I was in college, I wanted to be a college professor — I don’t know, what else do you do when you’re studying literary theory? But my dad passed away suddenly when I was a senior in college and that sort of made me rethink becoming an academic. Maybe it was the idea of not having a backstop or either literally in the form of money or figuratively towards of support. But I decided to gravitate to something more concrete and I worked for a few years and then ended up going to law school.
What sort of stuff did you work on in the intervening period?
MB: I was a magazine editor.
Got it. Literary theory, you got a job.
MB: Yeah. What else could you do? I got a job where — but there were a lot of journals and magazines then that don’t exist anymore.
Yeah, for sure.
MB: So it was easy in fairness in that time. And then I thought, “Well, gee, I really want to go back to school, but what do I do?”, so law school made some sense to me. And at the time, I think I was intimidated by the idea of going to business school, which is what most people were doing. It struck me as this sort of closed, hermetically sealed thing that investment bankers did and I had no real kind of exposure to it. I just decided not to be a college professor so that idea seemed too far, but I thought, “Okay, I could go to law school and I’ll try to get a general education”.
I knew I didn’t want to be a lawyer, so I went to school avoiding any of the classes that were like, Blank Law. I knew I didn’t care, so what I ended up doing, I ended up working a lot on the philosophy of language in the law. Turns out that what a word means and why it means that thing isn’t particularly critical and I actually ended up interestingly, oddly working with a MIT professor, working around some really early rules based AI systems. So you take legal statutes and you try to create these decision trees out of them and see if the computer can help you decide cases and I just was just knocking around looking for things that looked interesting and I worked over summers to pay tuition as a lawyer, and then I didn’t become a lawyer and I did something completely different instead when I left.
So what was that?
MB: Well, it took me a while to get into gaming. I started going around looking for a job and in those days, it was much less common than it is now for lawyers to do other things and people kept looking at me like it was insane. I had gone to Harvard Law School, I could get any legal job I wanted, and they thought there must be something really wrong with me, so everyone kept saying no to everything.
I found an entrepreneur, his name was Steven Brill, he was the creator of Court TV, if you remember, the cable television network that was about the law, and he was a legal entrepreneur. He owned newspapers and businesses around legal media, and it didn’t seem odd to him, and I went to work for him creating one of the first online systems for lawyers, it was called Counsel Connect and we were going to create this marketplace for legal expertise. I’m not even going to tell you what year this was, it was a really long time ago and so I immediately got back into technology and systems. I ended up going from there to work in technology media and then ultimately, I gravitated to America Online where I worked in a whole host of things, but then finally was able to get into gaming that way.
Lessons From AOL
Got it. What did you learn from America Online? It’s interesting, you look backwards, it’s kind of like almost a joke in some respects, but it’s like, you had to be there — it’s one of the companies in that regard.
MB: Oh my God, yes.
You were literally there, so I guess you know what it was like from the inside.
MB: And Barry Schuler who is on the board of Unity, was the CEO of AOL at one time, too. I would just say this for folks who are too young to remember, it’s critical to understand that AOL was the Internet and so imagine operating in a laboratory where you owned, controlled, all of the Internet as a walled garden. It was an extraordinary laboratory to learn anything and everything you could ever want to understand about how that ecosystem would work and how you would bring partners into it, how you draw customers, it was all of it. I have never seen a business model or a structure since then that we either did not do or did not try. So for me, it was an education in this world that was absolutely critical.
Well, it is really a classic of the, speaking of Harvard, Clayton Christensen‘s framework around, the first thing is deeply integrated because the whole experience is not good enough so you have to do it all, and the Internet was way too difficult for most people to figure out, particularly pre-Google. So you get AOL and it’s all there, to your point, but then over time, as all the component pieces become more possible and more viable and stuff gets built to glue it all together, the integrated thing becomes too heavy under its own weight, people start going elsewhere. That’s the AOL story in a nutshell but I’m curious, as you look back, as I asked about AOL, which you weren’t expected to be asked about right now.
MB: (laughing) No, I haven’t talked about it in a long time.
You say, “I learned so much stuff”, what’s the one thing that sticks in your head that you learned from there that you held onto ever since?
MB: I learned a lot about how to structure relationships, content relationships with partners in a way which is mutually beneficial and I’ll give you the perfect example.
The way I got into gaming was I was running the consumer products group at AOL, I was doing something having nothing to do with gaming, and Electronic Arts had a big deal with AOL at the time, it was several hundred million dollars I think. I can’t really recall, but back then we were selling what we called anchor tenancies to third party. So imagine being able to say, “Hey, I’m going to choose one partner in the video game space that I’m going to expose to the Internet and I’m going to charge you for that, and we’re going to have a relationship and we’re going to sell advertising, we’ll send the money back to you and we’ll have commerce and other things, but let’s do a deal like that”.
So we had a deal like that with Electronic Arts, I had nothing to do with it, the deal had gone completely sideways. AOL was coming off the boil a little bit, we no longer had the ability to just shoot advertising dollars to partners who needed it any given quarter. The market was struggling, Electronic Arts was incredibly angry at us, they had made all these big payments, they weren’t getting value back.
The night before, John Riccitiello was the president of EA at the time, I think not the CEO, was coming into New York to have a negotiation about this terrible relationship we were now in and he had told the CEO of AOL, “Listen, if I come back and I have a meeting and you show me the same people from this games group you’ve had, I’m going to just get up and walk out and see you”. So the CEO of AOL called me the night before and said, “Hey, could you go to this meeting, please?”, and it had never occurred to me in a million years that I was going to work in video gaming. I don’t know why I was too dumb to think like, “Oh, you could do this for a living”, and so, here’s where it all came together. It was the night before. I said, “Okay, could you send me the agreement that we have with EA? I don’t know anything about it”. So the lawyer sent me a 300-page agreement with side letters and it was the night before and here was all this training coming to a head, I read the agreement.
In a way only a lawyer can, right?
MB: And by the way, it’s English, anybody could read it. But I think in a way, it’s like I wasn’t intimidated about it. I thought, “Okay, I can read this and figure out what it is”, and I came into the meeting the next day and everybody’s very angry at each other, it was this big room of people and I said, “Listen, I stayed up late last night, I read all 220 pages of this the agreement, and here’s the thing I know for sure, I have no fucking idea what it means, and by the way, I don’t think any of you do either. Now it stands for something, which is that we’re partners and we’re going to be partners, but how about let’s stop arguing about what it says because it’s nonsensical, and just step back for a second and try to recreate a relationship, which clearly is not working”. And everyone kind of grumbled and looked at me and they’re like, “Yeah, we don’t really know what it means either”.
(laughing) So the literary theory guy has a point.
MB: Yeah, I made a point. And then I threw the piece of paper away. With any good relationship, once you pick up the contract, you’re already in trouble.
That’s right, that’s a good point.
MB: And we spent six months negotiating, renegotiating a relationship and that is how I actually met John Riccitiello to begin with.
I later left AOL and started a company with two founders called Major League Gaming. It was the first big esports business in North America, and it was very, very early. And I ended up leaving that business, we sold it later and I was unemployed, and this is years after that meeting with John, and he called me and offered me a job at Electronic Arts and that’s actually how I got into video gaming.
Esports
I actually did have a question about Major League Gaming, you said it was very early. That is sort of a natural tie in between your sports background and gaming, quite literally. Is there a real market for esports? It’s kind of come and gone. It’s been a fad, then it’s gone away. Is it one of those things, just like the barrier to entry is almost like too low, you have issues with cheating, is this ever going to be a thing or is it a thing and I’m just oblivious to it?
MB: Listen, in 2000, which is when we were doing this, there were a couple of things that struck me as completely obvious that most people didn’t see. The first one was that watching video games was going to be something that billions of people did.
I mean, geez, it’s unbelievable. The kids on YouTube and just these streams and all that.
MB: Yeah, and this is now, whatever, 20, 24, 25 years ago, I knew how compelling it was and I knew everyone was going to find it compelling.
By the way, there’s a super obvious way to explain this to people who don’t get it. Everyone in our generation watches sports, and I’m not a sports player anymore, I could promise you that. I tried to make my basketball come back a couple years ago, pulled my groin five minutes in, and I’m like, “That’s it, I’m done” — I still watch a lot of basketball, so.
MB: And as more and more, I was sure that as more and more people played video games and had that first party relationship with the experience, they would then watch it in a very different way, just like with any other sport.
But is it watching it like sports where you’re looking for a competition in a league in championships? Because a lot of streamers, it’s just really, it’s just entertainment. It is something happening in the background a lot of times.
MB: Well, my view at the time was that competition was going to be the key to this. And I did believe that, and I thought that to make it truly compelling to watch, there had to be competition and also to draw the community and the online aspect to it, which we need to build into a real business, you need to create online competition associated with it.
And so what we did was essentially try to create a league, the league for this activity before it really existed at all in North America. We had a players association and we signed pro players and we signed them to exclusive contracts, and we streamed video to millions of people. Even at this time, we had to deal with ESPN where we did SportsCenter updates of these things, and it was all absolutely working. We had multimillion dollar sponsorships with KFC and Hot Pockets and other things, and it was working like a small league.
The challenge was that as it grew, the fissures in the relationships and the business model started to appear, because as the league, we didn’t own the underlying intellectual property. So you’re having a competition, it’s Call of Duty or it’s Halo, or it’s Rainbow Six or whatever it is, you don’t own that. They’re happy to give you rights to do that when it’s not that interesting, when you start streaming and millions of people are watching it and now you’re making tens of millions of dollars of advertising, guess what? They’d like to participate. And by the way, they might even want to own it themselves, which pulls against the idea of having one league.
So we were always saying, “Listen, the best way to create value here is to create it inside the league structure, these things have existed for generations, we already know this to be true”, but you have this problem where all the participants were local maximizing for the activity. And so it’s hard to control players, it’s hard to control the intellectual property, and it balkanizes it and it keeps it from being as big as it otherwise would be.
Right. Now if I wanted to watch competitive gaming, I’m not even sure where to go, to your point, what’s the one place, because everyone’s tried to roll out their own thing. It’s like a tragedy of the commons.
MB: It has been, and it’s become a series of really large and really interesting vertical communities, but folks have struggled to build businesses out of that. You’ve seen this rise where on all this viewership, first people thought they’d invest in teams and that’s how they create equity value, and that didn’t work. And they thought they’d invest in the media and it’s just been a struggle for the industry, which is a shame.
Which you know what happens, this happens again and again when these markets get super fragmented and end up in pieces, and this is the story of the Internet. There is one company that excels in coming up and cleaning up all the pieces and making all the money — and that’s Google. So now basically the winner of video game streaming is YouTube, that’s how it ends up.
MB: If you can’t control it, and it just becomes an enormous part of something even more enormous, and that’s just how it goes.
Rescuing Knights of the Republic
Tell me about EA. What did you do at EA and your experience there?
MB: I had worked in online systems and done all these things, and I was a huge gamer myself, but I had never made a video game and John called one day and said, “Hey, we built this game”, it’s a massively multiplayer online game called Star Wars: The Old Republic. The company had been building it for five or six years, and it was going to be the game that took down World of Warcraft and catapulted EA to the next level.
It was years late by that point, and it had been launched and it went up like a rocket ship and then was screaming down towards the earth and it was dragging all of EA with it and John called and said, “Hey, would you like to move to Austin, Texas to fix this game?”, and I said, “John, I don’t think I can do that, I don’t think I know anything about, I’ve never built a video game before”, and he said, “No, no, you understand online systems, you understand how to execute, we don’t have anyone can do that, you’ve got to come”. So I went down and visited and I went with my family. They refused to move, together, my wife and kids said, “Absolutely not”. They went back.
I ended up moving to Austin, Texas where I lived by myself during the week, I flew home back to New York every weekend and for reasons I still don’t understand, I took this job and I literally thought maybe we wouldn’t even be in business for another — maybe we had another 30 days, maybe 90 days — it was one of the worst things in business I’ve ever seen. But I was so fascinated by the game and the opportunity and the opportunity to turn it around that I had to do it.
Did you succeed?
MB: I did. And it was really, what’s fascinating about it is in a way it made not only my whole career, but it actually gave me a sense of what it is that I do that I did not have before.
Well, what is that? Tell me about that and how you developed it through this process.
MB: Well, it’s like anything else in life. You stumble into these things, and I had been feeling a little bit frustrated in my career up to that point. I’d done a few different things and I was reasonably successful, but I thought, “Gosh, I thought this would be going better”, I feel like I have some unique skills, but I can’t seem to get it going exactly. Then I’ve been in startups and I’ve been in big companies and in startups, I was always frustrated, there’s not enough scale and maybe it’s not interesting enough. Then you get to big companies and they’re slow.
Bureaucracy and all that.
MB: There’s no urgency and you hate it. So you go back to a startup and you’re frustrated, I had gone back and forth, and now I’m put in the middle of this turnaround situation, and I suddenly realized that, “Hey, wait a second, this is the best possible combination of both things”.
You get the scale and you get the urgency all at the same time.
MB: That’s right. Nobody’s suggesting that we don’t need immediate and complete change, so I don’t have to go around convincing people of that fact, which is just mind-numbing and I don’t have the patience for it. But by the same token, there were 700 people there, it was hope that would be this multi-billion dollar business like, “Wow, there’s a lot I could do”, and I was drawn to the chaos and how much of the work was needed and how much difference you could make.
There’s just so much low-hanging fruit. It’s like, “Look, I can keep myself extremely busy forever here”.
MB: So much low hanging fruit. And for whatever reason, my personality is one where high degrees of chaos, high degrees of uncertainty are cool with me. I don’t find the upsetting or stressful, and I actually find it interesting. I find those puzzles interesting, and I don’t have a lot of fear about those sorts of things. Fear is the thing, especially in those circumstances, but it’s really true in any circumstance, which ruins your judgment because you’re trying to protect something, and so you’re afraid to do the thing you know have to do to make it better. I just don’t really have that bone in my body.
But the good thing is in that situation, you don’t have to convince everyone to go along with you.
MB: You don’t need it. That’s right.
They’re just following.
MB: Because by the way, I’ve been fired plenty of times. Lots of times in other jobs where people are like, “Hey, could you just take a breath? We don’t need to move so fast. Why do you have to change everything?” — God, is this really aggravating. It’s like in The Godfather, are you a wartime consigliere or not? In big companies especially, there isn’t a ton of enthusiasm for making change, for relentlessly pursuing improvement and refusing to settle for anything less than great. Nobody’s interested in that in big companies. In fact, it aggravates them, and so finding environments where that wasn’t true, which is critical for me.
Was there a key thing that you did that turned the tide, or other than just picking up all the low hanging fruit?
MB: I started to learn as I went. I think that in this particular game, it was a fascinating thing, there was a social contract that we have the players in which we were going to provide, it was a Bioware game, and we were going to provide fully voiced story, cinematic, massive amounts of story. We worked for five years to make that, and then people stayed up all night and played through it in a month, and that was hundreds of millions of dollars and they wanted more of it, and it’s just not going to work.
A lot of times what happens in these businesses is you’re sideways in the model for one reason or another because the world has changed because you made a mistake. And what people tend to do is they bang their heads against that.
“Do it harder”.
MB: And they do it harder, and they try to solve a problem which is clearly insoluble. So when I got there, and this is particularly true if you have resources, when I got there, it was a subscription business and the obsession was fighting churn. So I said, “Okay, churn is bad because we’re losing all these subscribers, let’s go off and try to identify all the sources of churn that we can and then attack each one of them, and we’ll have hundreds of people do that all at the same time”. The first insight is that in a subscription business, churn is like death for an actuary. It’s not bad, it’s just a thing that happens and you have to manage it.
Speaking of being not afraid, but yes.
MB: Yeah, you can’t. I mean, death is a part of life, you can’t stop it. And when you think about it that way, it prevents you from thinking about it the right way, which is we are not trying to identify every source of churn to mitigate it, we’re trying to ask ourselves, “Are there sources of churn that if we could mitigate them would be impactful enough to keep us from going out of business in 90 days? What’s the answer to that question?”, because that’s different.
So how did you end up with, “Let’s get rid of the subscription”? Because that’s one way to stop churn.
MB: Well, so the first thing is, well, we need to open the size of the funnel, right?
Yep.
MB: That was clear. And the second thing was listen, and by the way, this is always the answer in all online businesses, but particularly in gaming, the only way to move mass numbers of consumers move their engagement is community and social connection. It’s always the only answer. If you want 10 or 20 or 30% more people to do something, you have to connect them to other human beings.
So the voices you needed were not the specially-made voices for the game, it was people talking to each other.
MB: That is absolutely correct. And as much as folks said, “Well, but that’s not the game we built”, I said, “Accept that, but that game’s going to fail. How about we build a game and we won’t keep all the customers, but there is a group of customers who want to play an MMO together, and we’re going to take all our resources, every last one, and just do the things that make more people connect with one another socially. I will not do anything else for the next six months and let’s see what happens, and we’re going to combine that with making it free-to-play and changing the model and let’s do that”. This was May or June, and we leaned into that. We told all the public investors that we were going to do that, and we relaunched that I think by that fall, it was very fast and it worked immediately.
What’s so fascinating is you mentioned Knights of the Old Republic, and I think anyone who knows about that game thinks about it as one of the great successes in gaming, and it’s like that whole first period where it’s a total failure is just totally gone from memory. Has that struck you with some of these turnaround situations? But then also, like you said, you invented a lot of stuff. Of course, World of Warcraft was first, but we’re now all into live action games, or what’s the word for it, where you’re online all the time with other people? People play the same game now for months or years on end, did you see that the industry was going in this direction or was just really a, “Look, there’s a spark here of something that’s happening, we’re going to follow it”, and you ended up there by accident?
MB: For me, it’s all those same threads like competition and social connection and playing together and against other people is the purest, most enjoyable form of entertainment there is. Human beings playing with one another is as foundational to our understanding of ourselves as it can be. It was never a doubt in my mind that that is where we should lean into for this particular game, but that would be the future of entertainment in my mind, that was always really clear to me.
The other thing that I really took away from that experience, to your point, is that even in circumstances where you have a lot of very angry, upset customers and you really feel embattled and you feel like you’ve done the wrong thing and people are super angry, you can turn those sentiments around.
Well, at least they have a sentiment, right?
MB: That’s correct! In my first job with Steven Brill at Court TV, we were doing focus groups and people were angry and thought it was the stupidest thing they’d ever heard. “Why would anybody watch a trial on television?”, they thought it was so stupid, they were angry, and we were doing these focus groups and I was beside myself. I thought, “Oh no, this is terrible”, and he was thrilled, and I looked over and said, “Why are you so happy?”, he’s like, “Look how upset they are, this is going to be huge”. And to your point, it’s a reaction you need that means people are connected to something and they care.
Just a quick question on this. Would you have succeeded, would it have made it over the hump if it wasn’t Star Wars, which of that was why people were upset?
MB: That is a critical question, there’s pluses and minuses to that. Part of the reason I took the job, despite the fact that the game was so troubled, was that I could see that over the prior six years, we had made many, many, many hundreds and hundreds of millions of dollars of investment, and there was all this incredible value sitting there that we hadn’t fully optimized or exposed or connected. There were 300 ideas that were 80% done. I could see that the raw material was there, it just needed to be finished and that’s the other thing that’s fascinating, it’s not like every turnaround is a good idea.
Right. Some stuff deserves to die.
MB: Some things are just bad, and it’s always bad. The things are a good idea is where there’s incredibly smart people, enormous value, but just something’s going wrong. When you turn those things into the wind, they tend to turn much faster than anybody believes because everyone thinks it’s a disaster because they’re lost in all the negativity and noise.
Yeah, but the reason there’s so much noise and negativity is because there’s a latent bit of people who care and something there, which if you align it’s going to explode.
MB: Yes. There’s an expectation and a love, and you must have gotten a good start if all people did — everyone played this game for several months and then they quit and were angry, but they loved it to begin with.
The mistake though that companies make in these moments is that what you have to do at that point is very, very humbly and very authentically and in a really candid way, say to customers, “Hey, I understand where we are, I understand why you’re upset, here’s what I’m going to do about it, and I know you’re not going to be really happy with me right now, because you don’t trust me because you think I’ve done a terrible job, but here’s what I’m going to do, and I’m going to do this next month, and I’m going to do this a month after, I’m going to keep giving you new stuff and I’m going to behave in a different way, and you’re going to see different things in the game. Pretty soon, you’re going to see that we are authentically trying to make this thing better and create something that you can really enjoy to the best of our abilities. I’m not going to wave my arms and I’m not going to use stupid corporate words, I’m going to try to explain to you in a way that you know that I know what the problem is, and then we’re just going to grind it out”.
Every day, every week we’re going to give some people something better than they had the week before and before you know it, to your point about people forgetting, yeah, you lose some of the people, and in gaming communities can be toxic and you always have some people upset, but you can turn everything just by authentic application of effort and a real understanding of the issues.
It is interesting how that this does seem to be the norm now. Games that do become large seem to inevitably go through this first year of just total disappointment and frustration before they figure it out. They’re like, “Destiny went through this”, the name’s escaping me [Cyberpunk 2077], but there’s another game that was really struggling for a year or two, now it’s huge.
MB: It’s very common.
They’re just so complex. I guess, well, you figured it out and now life’s too easy, so you’re like, “Well, I’ve got to find another flaming disaster”.
MB: Well, here, let me just tell you why though, what you’re putting your finger on, why it happens, and then I will tell you about the next step. The thing is, when you are introducing a new video game into the marketplace, by definition, you are competing with behemoths. It’s like introducing a new social network into the market or anything else. There are someone who for the last 5 or 6 or 7 or 8 or 10 or 15 years has been building out in this genre an experience which by definition, hundreds of thousands or millions of consumers find really compelling.
You’re going to come into this marketplace and say, “Hey, I have this new offering”, and sure, people might try it to see what it is and how good is it, but moving them and the social connections they have, the literal experience and the meta digital experience that they’ve built and in the existing game, ripping them out of that into something else is really, really hard.
Launching a game that has not just parity with competitors but is in many respects better than competitors, is nearly impossible. This is why you spend years and years building these systems, and by the way, we can get into this later, this is my hope and expectations for how AI is going to impact gaming. We can talk about that later, but this is the core challenge of video game development in our world, and that’s why folks struggle with.
Zynga
I mentioned you jumped to a new ship, I assume you went with Frank Gibeau he took over as the CEO of Zynga. I think everyone assumes Zynga was pretty much dead at that point, famously started out with Facebook games, did the shift to mobile, and then by 2016 as a public company completely in the gutter. Were you interested in mobile or were you interested in tire fires? What was the motivation here?
MB: Both. Both combined my two passions again, and it’s funny, isn’t it, to think that you could make a life out of helping revive broken video game businesses? That could be enough of a thing that it could make your life. In a million years you’d never, who would think of it?
That’s the answer to the, “AI is removing all the jobs” — can you imagine describing this job to even you when you were in law school?
MB: No. It’s like, “What are you even talking about?”. But yes, Frank and I had worked together really closely at Electronic Arts, as did Bernard Kim, who is our head of marketing and publishing, and the CFO from Electronic Arts. We all came together, and you’re right, at the time, I think Zynga effectively had no equity value. It was valued at the cash on the balance sheet, and we owned a building at the time, and my view of it was the following. If someone says to you, “Hey, here’s a billion and a half dollars and 2,000 people and some really great, but maybe dinged up, but really great gaming properties”, and you don’t think you can build a great video game company out of that raw material, you are doing the wrong thing for a living. What else could you need? People, money, an institution, some great brands, like good people to work with? Like let’s go, of course we can do this.
Is this thing that customer acquisition is actually much harder than cultural change, so you’d rather do the latter than the former?
MB: Well, listen, it is. I think the thing that folks often don’t value as much as they should, and this is what we’ve been gesturing at several different times, is the incredible magic that has to happen to build an online property of any kind, whether it be entertainment or otherwise that has millions of players engaging with it. That is not something to sneeze at.
People said to me at time, “That’s the worst company I’ve ever, why would you go there?”, I thought to myself, “You have no idea what you’re talking about”. There are millions and millions of players who love these games, that can’t be recreated. Can we do a better job? Of course we can, that’s just the work.
We were able to again, really, really quickly to turn that business around and then ultimately, if it was worth a billion and a half at the time, we ultimately sold it for 12 and a half, maybe four-ish years later. But more important than the money, it was just we started out with a company full of people who felt that they were failing, the business was shrinking, it was getting smaller, and we ended up creating the best mobile game developer in the West.
If you learned about the importance of the social layer when you were turning around Knights of the Republic, what did you learn from Zynga that has stuck with you?
MB: What I really learned at Zynga was that it was all about cultural change to your point, because Zynga was a freestanding company. It had been public, it had been up and been down, and the culture when we arrived was quite difficult and quite toxic, and the company was failing, and that means often that a lot of the great people have left.
Sometimes what you can have is you’ve got some true believers who are great, and then you have some folks who just thrive on toxicity and misdirection who are just miserable. Then you got some people who maybe don’t think they can get another job or it just seems like a lot of work to look, so it’s like, “This is not a great recipe for success”. What you really need to start attacking is like, “Hey, what is our approach going to be like? What are we going to be as a company? I know who we were, what we going to be going forward?”. Not to make coffee mugs and t-shirts about that — it’s like, be bold. Here’s a t-shirt, it says, “Be bold”. It’s not like that, but to relentlessly communicate a clear series of values and then to have people watch you walk those values, that is the key to turning any company around.
Was it important that you had that whole team come in at the top? Wholesale changes into the C-suite, you’re all a group coming in together. Does that just give you more freedom of movement and you get a throw the old regime under the bus start afresh?
MB: Yeah. I think what was incredibly important for us was that we didn’t need to negotiate one another. We all knew each other, and we knew our strengths and weaknesses and we knew how we were going to work together and we had trust so we could go out together as a group and go out and fix this thing and build it. Skipping over the like, “What did he mean by that?”, we had worked together for years, so we had a real shorthand and there’s no question that helped speed the process.
Taking Over Unity
Where did Unity fit in this spectrum of Knights of the Republic to Zynga, to Court TV or whatever else it might be?
MB: It had some things were similar and some things were different. I think the most important similarity they had was that I thought Unity was a generational business, that the opportunity was beyond my ability to articulate. I thought it was really — there was that much upside in it and I could see that the company had lost its way and was not succeeding. But I could equally see the 20 years of investment in unique and uniquely important tools and platform and an ecosystem and a community of millions of passionate developers, and a broader community that really wanted this company to survive and wanted it to thrive because the gaming ecosystem works better when Unity is doing a good job.
Now, when you’ve got a company that has lost its way and off its customers and has been failing, by the way, a lot of times customers say, “You know what? I’m just done with this. There’s other alternatives. I’ll just go”.
But isn’t it the fact it’s basically impossible to leave, almost make it, that’s a good thing on one hand, but it makes it way more toxic on the other. It’s like your employee problem at Zynga but 100 times worse.
MB: Well, exactly. When people rely on you for something and it’s critically important to their livelihoods and you don’t deliver, it makes them very angry and upset. By the way, that’s understandable. You have to recognize the importance and the criticality of the role you play and treat your work and treat that community with reverence and a real sense of the privilege you have to be in that position, but really understand what’s required of you.
You’re right, it makes it a lot harder, but it also meant that as we, again, just going back to the conversation we were having, as we got clear on what we wanted to do and how we wanted to be and how we would be different and promising we’d be different, and then beginning to deliver, that emotional bond and how important we are in the ecosystem, allows people to come back really fast, and to thank you for it.
You use some interesting language there, which is “deliver”. And if anything, the most well-known issue is that Unity did deliver — they delivered a new runtime fee. I want to get more into the specifics later, but when you’re using that word “deliver”, they were failing to “deliver”. Was there a bit, as you look back on where Unity ended up where they were, was the runtime fee a culmination of a deteriorating relationship with developers? Or was it something that was out of left field and was so disruptive to their business models that it sent everything south right away?
MB: Yeah. Actually somebody told me someone was writing a case study about it, actually, although nobody asked me about it. I would say this, I think the runtime fee idea, the idea itself was an outgrowth of a deep company-wide insecurity about its ability to deliver excellent product. What I mean by that is the following — we were looking to business models and bundling and tricks to fundamentally change the nature of the economics of the business we were in because we didn’t like it, it wasn’t working.
Isn’t there a point there though? The problem is that — so Unity, I’ve written about this multiple times — we’ll have links over here where people can get background, but you have this SaaS business where the developers are paying for their seats, and ideally they incorporate Unity ads who make money there. But the problem you have is if the developer base is shrinking, it’s exploding during mobile, that’s no problem, but if the developer base is shrinking or not growing, you are not growing. You have this simultaneous thing where you have all these games where people are playing the same game for months or years, there’s just getting those hits in the first place is a challenge anyways. Isn’t there a bit where actually the core business model was in fact broken?
MB: Well, here’s what I’d say. You said, wouldn’t it be great to get a piece of every transaction and mobile? Sure. That sounds great. But customers have to be willing to give it to you. Yeah, it sounds like a great idea, but as it turns out, it created a revolt. Our customers, they were literally boycotting us.
To your point earlier, you need to find a business model which is acceptable to your customers and which feels commensurate with the value you’re delivering. It doesn’t really matter what you want, and to your point about the business model, it was all very inward looking. It’s like, “Well, gee, here’s our business model and here’s how this works, and we’d like more money, so we’re going to come up with this new thing”, it’s like, “Okay, great”, but the best way to get out of a box you don’t like is to get out of the box, not find a more profitable way to live in the box.
What is that? How do you get out of the box?
MB: We were and it was my view, and I think we feel comfortable now having operated on this for a while, that we could deliver fundamentally more value than we were delivering. We could deliver better, more impactful products that helped our developer customers in different ways, and that we can have a much bigger business doing that without needing to make everybody angry. So, we took it in stages. The first piece was to repeal the runtime fee, because it was so antithetical to how people imagined the way they’d be charged.
It was one of those things where if you zoom out and you’re weighing out the logic of it, it makes sense. If the developers succeed, you succeed. That’s sort of like the core idea of this piece here, but we don’t live in theory.
MB: We don’t, you don’t.
You live in a twenty-year history of how you monetize up to date and people built entire companies, and livelihoods around one model, and it’s hard to change.
MB: And by the way, you know how you figure this out? You just pick up the phone. What I did when I got there was I called all of our customers, all of our big customers, this is not rocket science. And I said, “Hey, help me understand this”, I could tell from the Internet — before I was thinking about beginning, I could tell that this is a bad idea, help me understand. And understanding from their perspective how they were thinking about it, why it made them angry, that is the most important thing you can do. Because by the way, in those conversations, what our customers said to me was and when I picked up the phone, I was a little scared, I knew a lot of these folks before.
I thought you were never scared.
MB: Well quiet, I keep my tiny voice, I’m a human being, it was my tiny scared voice. And inside I thought, I didn’t know if I was going to get yelled at, and almost to a person they said, “Look, we are happy to pay you more money, we understand that you are delivering more value than we as a community are paying you, but I will not pay you this way” — that’s a solution, they’re giving you a solution.
How often do you show up to customers and they let you know that it’s okay if you have to raise prices substantially? Not 5%, not 10%, substantially, like model-changing, but with us in partnership in a way that’s predictable for us and doesn’t feel like you’re reaching into our pockets. Because if you write a movie in Microsoft Word, Microsoft doesn’t get a piece of the gross. Now, whether we could pick that analogy apart on where it’s not accurate, but here’s some power in it and that’s how people felt. And so, we went in a different direction.
So, as part of the runtime fee, you raised prices right off the bat. So, you gave them what they wanted right away.
MB: Yes.
But as you think about the business going forward, I mentioned before the fundamental tension does still exist. We don’t have smartphones growing at the rate they were, where you’re basically surfing this secular wave. You are delivering ongoing value, every time these games are run, 80% of games or whatever it is, they’re running on a Unity Runtime, which you’re not benefiting from. At the same time, it is zero marginal cost software, it’s not like it’s costing you for it to run. That’s running on the phone, on someone else’s power and whatever it might be. So what’s the solution going forward? What was the confidence that Unity was lacking that you think they can deliver, that they weren’t previously?
MB: It is my view and I think it’s now really the whole company’s view, that there are other areas of massive upside in our business, and I’ll give you a few examples.
The first and most important one is our advertising business. So, the real challenge coming into Unity, by the way, coming in, and this also goes back to the runtime fee, is nobody can figure out how the advertising business and the game creation business were connected to one another.
Beyond the fact that you had the customer like, “Hey, click this button over here and sign up for ads”.
MB: Yeah, but there were often different people inside the same customers. So, there’s the developer and then the person buying an ad, maybe they’re not even the same person. And by the way, we had done an acquisition and so we had two different groups of people doing this and when I first started, the investors would always ask me, “Shouldn’t you just split these things up? What do they even have to do with one another?”, and in many ways that core question was also one of the drivers of the runtime idea, because the idea was no, no, no, the connection is going to be in the business model, not in the product. So because what we’re going to do is we’re going to raise prices so substantially, but we’re going to say, “Hey, you don’t have to pay that if you buy advertising from us”.
Yep, that’s right.
MB: So, actually we’re like, “Hey, we’re going to make sense of this acquisition we’ve done”, we’re going to make sense of these business units that aren’t integrated, by creating a business model which unites them. But also, sadly flies in the face of what customers want and articulates no additional product value so that’s just a bundling, which just feels like you’re jamming something down my throat that I don’t want. If our advertising product was more effective and more efficient, people would use it on their own.
What did AppLovin get right? Because this is sort of the period ATT comes along, Unity laughs at it, “Not a big deal, doesn’t impact our business” — turns out it did impact your business. Meanwhile, AppLovin comes along, acquires MoPub, just starts really crushing it, obliterating you in particular. What did they figure out that you didn’t? And how are you going to compete with them going forward?
MB: Yeah, we missed a cycle of technology investment. While we were integrating acquisitions, while we were thinking about business models and ways of getting folks to buy more advertising by bundling products, they were building a completely new machine learning stack that was fundamentally more effective and efficient than the one we were operating on. We were on a old style algorithmic ML, really not even a deeply ML stack.
Much more deterministic.
MB: Yeah, they were moving to neural nets and into the future.
Which was the way you had to deal with ATT, was you were losing that deterministic signal, so you had to be in a probabilistic world.
MB: That’s correct. And so, that’s the thing you should be up all day and night thinking about.
Not movie effects.
MB: Yeah, exactly. Or, “Hey, my ad business is fundamentally uncompetitive, how can I strong arm customers into buying more of it?”, the answer is the product’s uncompetitive. How do I make the product competitive? Once the product is competitive, we have all sorts of opportunities and that’s what I mean about getting out of the box. And so, what we did was we built a modern self-learning neural net system from scratch, with some of the best engineers in the world, called Vector AI, and we launched it and it had an immediate, and market positive, impact in our business.
You’ve talked about using Vector AI to basically incorporate gameplay into understanding the target. How does that work?
MB: Yeah. So, the part one of this was, “Hey, let’s be fundamentally more competitive on our ad business”. Part two is, how do you think through, as you mentioned, those real connections between advertising, game creation, and the runtime? What actually connects those things? And what connects those things is the need to have a really deep and clear understanding of the gaming consumer, because that sits inside how you succeed in all phases of the game business. Whether you’re prototyping a new game, and want to understand how people are behaving in that game, and what’s engaging them, and what’s causing them to transact, and what’s causing them to quit, and what’s causing them to make friends, all that is a data challenge. How do I interpret data which we can have access to through the runtime, as a way of better understanding how to build a game? And then when I’m operating in live service, how do I use that same connection to consumer understanding to optimize my live service? Last two weeks ago, we announced the commerce product—
I was going to ask you for that. It’s been so fascinating, we’ve gone a little bit long, but I mean I’m actually quite interested in this. You launch this new commerce product in partnership with Stripe, people can do transactions outside of the App Store. But you’ve talked about solipsism and focus on your own problem. Aren’t developers doing this a little bit? Isn’t actually the App Store pretty great for consumers? Are we going to get a situation where they spend a lot of time building alternatives and the drop-off in conversion is so high because it’s not fully integrated, that they’re just going to end up back where we started?
MB: I think we’re going to end up over time in a more open environment in which there are more choices. And yeah, do I think the app stores are going to go away? Do I think they should go away? I don’t. I really don’t, but I do think that more choice is a good idea.
And to your point, the mechanics of, “Okay, maybe I’m recapturing 30%, but I’ve also got to move customers off of the App Store” — so, I’ve got to incentivize them, and then I’ve got to operate a web store, and then I’ve got to figure out how to do these transactions myself. It’s not simple, but it’s that very complexity that gave us an opportunity to deliver for our customers, because this is precisely the kind of thing Unity should be doing. You’re already building the game in Unity, we should provide you a native simple way to operate stores across any device, across any platform.
And then by the way, over time, we can build machine learning driven products to help you optimize and personalize the experience of your gamers inside the game, based on a really greater native understanding of how and why people are transacting and that is the piece in general that connects game creation, game operation, and then new player acquisition. It’s all built around this need to understand the consumer and the future vision of interactive entertainment as being personalized on a literal basis, which is to say all of us should have a somewhat different path through a video game based on who we are and how we play games.
That optimization is very possible and AI in particular is making that possible and all that is going to sit on top of the Unity platform. Those opportunities, by the way, especially as interactive entertainment explodes, and more and more people make games, that opportunity is going to dwarf any opportunity we had to raise prices in a funky way on the game developer. It’s like, you’ll look back on that and go, who cares?
That’s pretty exciting, this idea of anyone can make a game and they can just use Unity to do it. Is that though the real growth opportunity? Or is there a bit where we’ve been in stasis, the smartphone’s been dominant, you’ve had the three consoles, you’ve had PC, but maybe we’re on the verge of a re-explosion of new hardware form factors of different things? And you just need to get the company right and tight, so that when that comes along, we’re back in a world that plays the Unity’s write once, run anywhere strengths?
MB: Listen, I think it’s both and either. And I think that’s exactly right, by the way. When you’re running any company, especially in the technology business, you need to keep both those things in mind at the same time, which is, I have a vision, it’s really clear but also, we have to be super attentive to the facts on the ground and the execution at any given moment in time.
That’s the original Unity story, they’re riding this almost by accident. They started on the Mac of all things, writing this engine and mobile comes along and they just ride it. It’s not like it was brilliant strategy, it was the right place, right time.
MB: That is our DNA, democratization of video games is literally our founding mission. We had an environment which we want to give any developer, any software developer, the ability to make a video game and that didn’t exist, and that has been achieved.
The next version of that vision is to enable any content developer to make an interactive experience and we can work both at the same time, by which I mean we’ll offer AI tools to help our professional developers build more effectively and efficiently, so that they don’t have to spend three or four years making the table stake systems and can get to innovation faster, as we talked about earlier.
But we can also open the top of the funnel to all those content creators who, by the way, are obsessed with engagement, are going to discover that linear video cannot engage anywhere near the way interaction can and so every creator is going to be looking to figure out ways to make their creations more interactive. If we can provide those tools as well, and we can come at it from the top-down and the bottom-up, there’s an enormous opportunity I think that we have.
All right. Matthew Bromberg, it’s great to talk to you, I could go another hour, this is super interesting.
MB: Me too.
I hope we talk again soon sometime.
MB: I really appreciate you taking the time and I really enjoyed it. I’m an enormous fan of your work, so I really appreciate it.
Thank you.
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