Well, thank you everyone, and welcome to this call to discuss our Q3 Earnings Results and the acquisition of certain assets of Wētā Digital. With me today are John Riccitiello, President and Chief Executive Officer and Executive Chairman, Luis Visoso, Senior Vice President and Chief Financial Officer, and a new participant to our calls, Marc Whitten, Senior Vice President of Create Solutions. As you've seen from the press releases, we have a lot of good news today, and we will go through our updates and then straight into Q&A after that. Before we start, I'll run through our safe harbor statement.
I'd like to remind participants that during this conference call, we will be making forward-looking statements, including statements about goals, business outlook, industry trends, market opportunities, expectations for future financial performance and similar items, all of which are subject to risks, uncertainties and assumptions. Now, you can find more information about these risks and uncertainties in the Risk Factors section in our filings at sec.gov.
We remind everyone that our actual results may differ, and we undertake no obligation to revise or update any forward-looking statements. Now, we will also be discussing non-GAAP financial measures today. Reconciliations between our GAAP and non-GAAP financial results and a discussion of the limitations of our non-GAAP financial measures can be found in our earnings press release, which was issued earlier today and is available on our website under the Investor Relations tab.
Now, with that, let me turn the call over to John.
Thanks, Richard, and thank you all for joining. We are really happy with our Q3 results, and we have great news to share. We reported another strong quarter with results well above our expectations. We delivered 43% revenue growth as revenue hit a record $286 million in the quarter.
We continue to invest to drive future growth, resulting in a non-GAAP operating margin of -4%, flat to the same quarter last year. Since we went public in September last year, our revenue growth has averaged 45%. We're encouraged by the execution across all of our business lines and geographies. As you'll hear later from Luis, we are raising our revenue guidance again this quarter. We have even more exciting news.
We've entered into a definitive agreement to acquire Wētā Digital, specifically its award-winning engineering talent, artist pipeline tools and technologies. Wētā Digital will become part of Unity Create Solutions, led by Marc Whitten, and will focus on bringing dozens of artist tools inside of Wētā to a much broader world of VFX artists across many companies, to the gaming industry, and to users across many industries.
The Academy Award-winning VFX teams of Wētā Digital will continue as a standalone entity called Wētā FX and is expected to become Unity's largest customer in the media and entertainment space. We are thrilled to democratize Wētā's industry-leading tools and bring the genius of Peter Jackson and Wētā's amazing engineering talent to life for artists everywhere.
By combining the power of Unity and Wētā Digital, the tools and technologies that built characters and scenes from the world's most iconic films such as Avatar, Lord of the Rings, and Wonder Woman, we will be able to enable an entirely new generation of creators to build, transform, and distribute stunning real-time 3D content.
Now, until now, Wētā's tools were used exclusively in-house at Wētā FX. We plan to take these tools to artists and creators across the film industry, the gaming industry, from indies to triple A games, and to other industries such as automotive, architecture and e-commerce. We plan to offer a cloud-based version of Wētā for the millions of consumers who generate content every day on social and gaming platforms and on the web, or to use the current vernacular, the metaverse.
In addition, Wētā has built thousands of digital assets, such as fully formed characters, skins, trees, houses, automobiles, fire trucks, many things. We plan to offer these objects as a content library where creators can import these digital assets into our editor and apply physics, volumetric lighting and sound to them.
In summary, we plan to do what we do best, create and develop amazing technology and tools, make them easy to use and available to a wide spectrum of users, from technical experts to consumer hobbyists. You've heard me say this many times before, we believe the world is a better place with more creators in it. Now, Luis and Mark will provide additional details. Here, I'll provide a summary highlight picture. We expect the purchase price of $1.625 billion to be immediately accretive, and we will be even more.
It will even be more so as we bring these tools to new customers. Our acquisition of Wētā is expected to open new markets and accelerate our product roadmap for artists by years. Based on internal models, we estimate that this transaction expands our total addressable market by over $10 billion while meaningfully increasing the percentage of the addressable market that Unity can service.
I would like to welcome everyone at Wētā Digital on behalf of everyone at Unity. I believe you'll feel at home at Unity. I also wanna thank the Wētā VFX team for the partnership to get this deal done. We at Unity will be honored to have Wētā FX, Peter Jackson, Prem Akkaraju, Joe Letteri, and the entire organization as a key customer. We love your work. I look forward to many years of strong partnership.
With that, let me turn the call over to Luis.
Thank you, John. Definitely an amazing quarter. I will start with our earnings results and then share additional perspective on the Wētā acquisition. The Unity team delivered another strong quarter in which we exceeded guidance and Street expectations. Here are some of the key financial highlights for the quarter. Total revenue of $286 million increased by 43% as compared to the Q3 of 2020.
Operate delivered another very strong quarter with 54% year-over-year growth. Create accelerated in the Q3 and delivered 34% year-over-year growth. We delivered another strong non-GAAP gross margin of 81%, up from 79% last year. We generated a non-GAAP operating loss of $12 million compared to $8.4 million the prior year.
Free cash flow was $34 million for the quarter, bringing our year-to-date free cash flow to -$100 million, which includes approximately $50 million in charges from a lease dispute which we reported last quarter. We continue to expect to break even on a free cash flow basis within fiscal 2023. We're encouraged by the strong continued customer success this quarter.
Our dollar-based net expansion rate for the quarter was 142%, and customers generating more than $100,000 annually expanded from 739 a year ago to 973. Here are some of the key highlights for the quarter. Operate's performance was very strong across monetization and multiplayer services, which includes hosting, service, voice, and community tools. This quarter, Unity Ads supported partners like Warner Bros.
Games, Jam City, and Miniclip, and games such as CrazyLabs' Super Stylist and Dream Games' Royal Match, where we deliver outstanding results at scale while navigating the challenges from iOS 14. In multiplayer, we supported the launch of some exciting new games such as Team17: Worms Rumble and Amazon Game Studios' New World. In addition, we announced some important additions to make our Operate platform even more compelling.
We launched Unity Game Services, or UGS, this quarter, with some more than 5,000 sign-ups in the first 10 days. This is a new platform experience for developers that unifies Unity's existing operating solutions for games and introduces new tools and services that are designed to simplify developers' ability to launch cross-platform multiplayer games. We also launched Unity Mediation, which includes Waterfall and Bidding within Unity Ads.
These mediation offerings are designed to help developers build additional strong revenue streams by easily optimizing demand for their best-performing ad formats and network partners within the same editor and interface they build and manage their games experience. Create delivered 34% revenue growth for the quarter as we accelerated from the prior quarter. Our games business continues to perform strongly with growth across geographies and customers as we continue to add seats.
We won several deals in the industry machinery space. A good example is a deal we closed with a manufacturer of commercial-grade farming equipment, where our more immersive and interactive real-time 3D capabilities enabled us to win their product configurator business. There is much more to come. We're working on several digital twin projects that range from large objects, think cities and buildings, to small objects, think shoes, watches, and other consumer goods.
We'll keep you posted as we make progress. Finally, we officially announced that we're going live with Metacast. This is Unity's first real-time 3D sports platform for creating and delivering interactive content directly to the consumer, launched in partnership with the UFC, the leading mixed martial arts organization. Together, Unity and UFC will collaborate on research and development of potential applications for Unity Metacast within UFC. We are encouraged by this partnership and long-term potential.
We do not expect meaningful revenue in the short term from this partnership. Now, onto guidance. We're entering the Q4 with very good momentum. We're guiding revenue of $285 to 290 million, which represents 29% to 32% year-on-year growth. For the full year, we're again raising our guidance, this time to $1.08 to 1.085 billion or 40% year-over-year growth.
This represents an increase of $25 million on the high side of the range from our previous guide. We expect non-GAAP operating loss from operations of $20 to 25 million for Q4 and $59 to 64 million for the full year. We're forecasting 329 million fully diluted shares. I will turn the call to Marc Whitten to go into the Wētā acquisition in more detail.
Marc runs Create Solutions at Unity. As you know, Create Solutions includes the Unity Engine and Editor, the tools and services we use to deliver digital twins for other industries, and our worldwide sales and professional services. Create is also our home for artist tools, including ArtEngine, Pixyz, and SpeedTree, now foundationally anchored by Wētā Digital.
Marc joined us nearly a year ago from Amazon, where he oversaw product execution and the delivery of entertainment to over 100 million active users on Fire TV, Fire Tablet, Kindle, Luna, and Amazon Appstore. Prior to that, Marc was one of the creators of Xbox and Xbox Live, ultimately serving as the chief product officer for Xbox and leading Xbox Live for many years. Marc, over to you.
All right. Thanks, Luis. Thank you, everyone. It's a pleasure to be with you on this call. Before I start, I wanna welcome everyone that's listening from the Wētā Digital team. Welcome to the Unity family. To everyone from Wētā FX, it's an honor to partner with you.
It's an exciting time for Unity, and it's even more so today with new markets that Wētā opens for creators. I'll walk you through some of the things that make us the most excited about bringing on board the Wētā team and the amazing technology they've built. As the saying goes, a picture, or in this case, a brief video, is worth a thousand words.
The new era of creativity is really, you know, something bigger than it's ever been before.
Unity's really been focused on this mission that the world's a better place with more creators in it. What we see now is that there's a new generation of creators that are gonna wanna, you know, imagine even more in rich 3D experiences.
Avatar or Lord of the Rings or Wonder Woman wouldn't have been possible without Wētā's tools and the great artists behind them.
We knew that digital effects offered so much possibility for us to be able to create the worlds and the creatures that we were imagining.
Now we're taking those tools that we have created and handing them over to Unity to market them for the entire world.
Well, together, Unity and Wētā Digital can create a pathway for any artist in any industry who will now be able to leverage these incredible creative tools.
Now those tools will escape the Wētā world, and they'll be available everywhere.
We see that being used in just about every industry you can imagine, from retail to medicine to film and TV and gaming, of course.
I think for a generation to come, Wētā is gonna be one of Unity's most important partners and probably our greatest source of inspiration.
Offering new and aspiring creatives access to Wētā Digital's technology will be game-changing.
We're incredibly excited to continue that deep partnership where we work with them as they are working on their next movies, as they continue to sort of create. The real magic here is what both of us are each also independently great at. What we do the best is where we make incredible VFX shots and animation clips for film and TV. We are going to be great at taking all of that innovation and make it accessible to a much broader set of creators around the world.
All right. The Unity Editor, which is the core of our Create business, is historically focused on two broad categories of users, developers who code and artists who can code. One of our key strategies is to bring more artists to our platform by making our editor easier to use, integrating machine learning-based productivity tools like Artomatix and offering specialized artistry tools like SpeedTree.
We're entering a period of what we believe will be unprecedented growth and demand for great 3D content. This starts with movies, TV, and short-form video. Thanks to the rise in streaming, we are in a golden age of content. With content comes the need for deep VFX capabilities. Take Marvel and their growth from a couple of movies a year to the addition of dozens of hours of amazing quality television. We see no end to this hunger for great content.
In games, 3D's been the standard for years, but on every platform, the capabilities to deliver higher and higher quality content are only increasing. Of course, there's the need for 3D content in every industry, in AR and VR, in virtual worlds, and much more. Whatever the word metaverse means, it's going to be built by millions of content creators, and we're on a mission to give them the easy-to-use and high-performance tools that will bring their visions to life.
Wētā Digital accelerates this mission by years, bringing an incredible team to join ours. This is an incredible, cohesive pipeline powered by dozens of amazing tools. Each of these tools is impressive on its own, but as a consistent pipeline, they represent the most complete tool chain for 3D visualization ever created. As we spent time working with Wētā Digital, we were consistently blown away by these tools.
Manuka is a revolutionary physically-based renderer that delivers unsurpassed visual fidelity. Lumberjack and Totara enable building unprecedented environments that feel lived in, all through intuitive artist controls. With Barbershop, artists can groom hair and fur with the ease of a hairstylist, all the while creating powerful hierarchies of guide hairs scaled out to hundreds of thousands of individual hairs, resulting in the most artist-directable grooms.
Loki is a simulation engine par excellence, able to perform huge, stable, controllable, and predictable simulations with outstanding complexity and results, whether you wanna create intense explosions, turbulent oceans, flexing muscles, or anything else that you can dream up.
Koru is a super high-performance rigging evaluation engine that automatically optimize deformations for faster artist feedback. For every type of content creation need, Wētā Digital has created tools that help artists be productive quickly. Hair, Barbershop. Feathers, Apteryx. Cities and environments, CityBuilder and Scenic Designer.
Vegetation, Lumberjack and Totara, on and on. Even when we looked at their production management tools, HiDef and ShotSub, for instance, we found them to be filled with capabilities beyond other tools that were available. This is an incredible collection of tools in which Wētā's top engineers invested more than 500 person years of engineering time to develop.
They're amazing, and they're unreplicable in any reasonable timeframe. Again, each of these tools is part of an integrated pipeline, and that's the key for us as we work to productize the collection as a cloud service. By being deeply integrated, an artist can move from tool to tool and get consistent, coherent results. More importantly, groups of artists can collaborate together in different tools, all with one source of truth.
These tools have been pressure tested by hundreds of productions and are able to produce great results predictably, no matter the complexity. This is the approach that has powered Wētā Digital's success and why we're so excited to welcome them to Unity and enable millions of other creators through this pipeline. Going forward, we'll continue to provide these tools to Peter's creative teams at Wētā FX as a customer.
At Unity, we will learn and benefit from the years of experience that these close to 300 Wētā Digital engineers bring with them. We believe this deal is a massive win-win because Unity will be able to bring to bear the expertise to package and bring these tools to artists around the world, and that means not just the VFX industry, but gains in real-time 3D verticals, and over time, consumer creators.
We don't have enough time on this call to give you the full sense of the power, sophistication, and forward-thinking that Wētā's engineers put into building this suite of tools. I wanna double-click on just one tool, Citybuilder, because it's a template for what we plan to do with several other Wētā tools. Cities require scale, an immense amount of details, yet humans have evolved to quickly sense patterns.
To create an interesting and believable cityscape, that means you can't just repeat the same object every fourth house. Real cities also have an organic life. They evolve. They are how they are because of the unique circumstances, the geology, the time, and much more that have driven their growth. That's where Citybuilder comes in. Citybuilder procedurally generates worlds and provides artist-directable, easy-to-use controls that let them shape the resulting cityscapes.
An artist can drag a river through or along the city and immediately see how that river would impact the layout of markets or buildings and whole sections of the daily life. Any change an artist make changes how the rest of the city behaves, and this, in turn, makes environment artists, modelers, layout artists much more productive in their work.
Many of Wētā Digital's design tools, Citybuilder included, require cross-disciplinary models that span light, sound, heat, and motion physics, but also embed advanced algorithms from computational fluid dynamics, finite element analysis, and machine learning. That's a compelling value proposition for anyone creating this kind of content.
Whether you're a creator for the highest-end massive worlds or an indie who just wants to create a street or a room, our vision is that tools like Citybuilder, delivered through the cloud, help anyone get to the next level of productivity and creativity. Of course, Wētā operates in an ecosystem of other tools and vendors.
We're excited to continue to work with companies like Autodesk, Adobe, and SideFX, and more. We plan to launch a suite of our tools as plugins directly into the creation suites that artists use every day, making it easy for them to get the full power from these amazing tools. We'll also be populating our content library with some of the content created from the masters at Wētā FX.
use the canvas you already know and love, get access to incredibly powerful tools used in movies like Avatar and Avengers, and get incredible content from our content library to fulfill your vision. In parallel with those efforts, we will work to make Wētā Digital's technology more applicable to a broad customer base.
That means upgrading the user interface, the workflows, and evolving Wētā Digital's tools into the Wētā Cloud and bringing them to real-time use cases like games, including leveraging Parsec's incredible streaming capabilities to derive low-latency, high-fidelity, rich input on any device anywhere. We believe that these enhancements will open new markets for us, not just to thousands of artists, but when we expand into the prosumer market, millions of creators.
With the great teams already at Unity, the great teams from Parsec, SpeedTree, and Artomatix, and now with Team Wētā Digital, we plan to win with artists at scale, high and low, VFX games, industrial use cases, and more. Let me turn the call over to Luis, who will provide the financial details of the Wētā transaction.
Before I do, I can't help myself. Here's one more quick video speaking to the power of Wētā tools and how they enable the incredible VFX we have come to expect. I'm thrilled to welcome the incredibly talented engineers, scientists, and graphics experts of Wētā Digital to Unity, and I'm honored to work closely with the amazing artists of Wētā FX.
When you're making a film, every piece has to work. The thing that you know about visual effects is if a shot fails, you lose your audience.
The world-class team at Wētā have created stunning visuals using state-of-the-art suite of artist tools, and they have won six Academy Awards. Each Wētā tool has been created to make the best way to create content for each specific need. These tools surprise every time with their power, their flexibility, their sophistication.
We've got years and years of visual effects experience that has been dedicated really towards creating films, you know, like Lord of the Rings, like King Kong, like The Hobbit, like Avatar. Now, we're hoping to see what other artists can do with this as we release these tools into the wider world.
Together, Unity and Wētā Digital will bring these tools to not just VFX artists, but to game developers and artists across industries, and over time, to millions of consumer creators. By putting this new pipeline into the cloud, we will be connecting every real-time 3D device available, creating a unified ecosystem, not just for gaming and movies, but the Metaverse and beyond.
Wow. Thank you, Marc. That was amazing. As you have heard, Wētā is a very strategic acquisition for Unity. Bringing artists to the Unity platform is fundamental to Unity's vision. We plan to provide professional users a collection of tools and link them deeply into the Unity platform and also bring to market a set of extremely easy-to-use tools for the growing prosumer audience. By doing so, we estimate that we will expand our addressable market by over $10 billion.
Specifically, with this transaction, Unity will acquire the technologies and tools and the 275 engineers that create and maintain those technologies and tools. The purchase price is $1.625 billion. Wētā FX will operate independent from Unity and will continue to develop some of the world's best movies and shows. Wētā FX will be our first customer.
Wētā FX will license back the technologies and tools that we're acquiring from them. We have signed a 40-year license agreement worth $50 million per year. We expect this relationship between both companies will last much longer than this initial term. In addition, Wētā FX will contract with Unity for commercial services that we will provide through the engineering organization that is joining Unity as a result of this transaction.
The value from this contract is expected to exceed $20 million next year. We also expect this relationship between both companies will last much longer than this initial term. We expect this acquisition to close in the Q4 of 2020. As we work through customary closing conditions, the business will be reported under Create Solutions going forward. We do not expect any material revenue or operating impact in 2021.
We will include this transaction in our 2022 guide, which we will share with you with our Q4 earnings. For now, I will say that we expect the transaction to add over $70 million in revenue next year and have no material impact on our non-GAAP operating income in 2022. This transaction does not change our goal to break even on a non-GAAP operating income and free cash flow basis within fiscal 2023.
We will fund the transaction with $1 billion in cash and $625 million in equity issued to Wētā shareholders. As of 30 September we had $1.28 billion in cash equivalents, and marketable securities on our balance sheet, and we have ample access to capital markets. To close, let me reinforce our stand on M&A.
We do not see M&A as a strategy per se, but as a way to execute our business strategies. At Unity, we constantly evaluate build versus buy alternatives and make decisions based on the impact to creators and customers, the time to market and cost.
While we expect our acquisitions to become significant contributors to our business, we have not acquired businesses with significant revenue at the time of closing. Instead, we have acquired technologies with great potential.
For perspective, in our Q3, less than 0.5% of our revenue came from acquisitions completed over the last 12 months. With that, let me turn the call over to Richard, who will get us organized and take your questions.
Great. Thanks very much, Luis. As with past calls, I see some of you have already done that, but you know, raise your virtual hand, and I will call on you as time permits. Please turn on your video when you're called on, and then you can turn it off afterwards. Thank you very much. We'll start with Kash. If you can pop in there, we'd love to hear your questions. Hey.
Sure. Thank you so much, Richard. John, Luis, and Marc, congratulations on a spectacular quarter, and what an acquisition. John, I'm curious to get your thoughts on the total available market that is available to Unity as a result of this transaction. Can you talk a little bit more about the target market? What are the new opportunities that are afforded to Unity that you could not pursue before?
A follow-up for Luis. Luis, I know that you've not given guidance beyond the $50 million or $70 million obligated revenue, but can you give us some historical perspective on what was the revenue generation? I know that was a movie studio, but how should we expect the synergies in this transaction to materialize?
If John's gonna give us the answer on how you expect to reach new target markets, I would assume that it's gonna transmit to revenues above and beyond the contractually obligated $70 million. If you can talk about that conceptually, that'll be great, and I'll wrap it up with that. Thank you so much.
John, you're on mute. You're on mute, John.
As you know, thanks, Kash, and I appreciate a nine-part question. We'll do our best to navigate through that. And I'm gonna ask Marc to bring up a couple of examples because I think examples actually, in like a picture, are worth a thousand words. We estimate that what Wētā brings to us or what Wētā Digital brings to us is about $10 billion in incremental TAM and increases the portion of our total TAM that's available to us in a more addressable, instantly addressable form.
The reason for that sort of more instantly addressable form is that artists typically make up, on most game teams, you know, seven, eight, you know, nine out of 10 people, if you follow me, so 60% to 70% of the teams.
In film, it's even more, and in many, many industries, they're dominated by artists. They need tools like this. It's easier to draw them across to the Unity platform when we offer something that is essentially the hidden treasure of the artist world, is what we have with Wētā Digital.
I believe we can, you know, pick up a lot of users inside of the VFX industry beyond Wētā or beyond Wētā FX. Many others in that industry, there's a huge demand for film these days. It's directly applicable today to the gaming industry, and it's also directly applicable to a number of our verticals outside of gaming. I'll let Marc pick up on that.
Yeah. Thanks, John. Imagine that you're building a helicopter crashing in a snowy forest after it's been shot down by some armed monkeys. The complexity of the simulations involved in making that happen are enormous, and it's what is enabled by these tools. You could imagine Lumberjack and Totara can build the trees and simulate the biome.
Loki can simulate the snowdrifts, covering everything ready to be knocked off. Its massively parallel finite element simulations, like, literally have you covered. It can even do the flowing water in the creek, the smoking flame that came down as part of the helicopter. Then you have to think about the characters. They're covered in wet hair. They're built from skeletons out.
You've got Koru from Fast Multi-Character Performance. You've got Tissue for the muscles. You've got Barbershop for the hair, again, using Loki for the simulation of how they work. Then you've got to composite that. You've got to be able to sort of coordinate it. All of those come through a set of tools.
The interesting thing is that same scenario with that helicopter, also you can imagine that being used in a game. The same tools being used to create both the simulation, the effects, and the ability to use it. In the past, what that's meant is two different pipelines, two different sets of tools, targeting two different, you know, levels of detail, and you'd actually rebuild assets.
Through what we're gonna be able to do with Wētā Digital, we'll be able to build that into a consistent pipeline that allows you to output at the highest fidelity, you know, for both offline or print or movies, as well as sort of multiple levels of detail that lets you target the highest-end gaming rigs all the way into the highest-scale mobile devices, all with one set.
It goes much farther than that. Imagine that you want to check whether the HVAC system that you're installing in the digital twin of a high-rise building is going to work. Well, it turns out that Loki is tailor-made to do that level of simulation, and tools like Eddy can actually be used to visualize airflow and simulate it throughout that space.
It's even when we think about artists and content creators, it's actually a very, very broad set of people who have never had access to these tools. They've been in the domain of experts or in very special sort of, you know, tool suites. Suddenly, we're gonna make those accessible across all of those different types of industries.
Luis?
Kash, to the other side of your question, it's a little bit difficult to give you historical revenues because they are not as relevant, so let me just repeat a little bit of what I said. We're gonna operate as two independent companies, right? Wētā FX, as you know, is a private company. They are the best in the market.
They are actually having an amazing year with new films, but we're not disclosing their historical revenues. The revenue that we will get comes from two parts, right? One is we license the tools back to them for, as I mentioned, $50 million per year for these 4 years, which we expect that will continue after that.
We'll provide them engineering support worth $20 million per year, which again, we expect to continue to expand. How should you model this $70 million? I would expect that that number will continue to grow. Now, as Marc mentioned, we see huge opportunities for us in media and entertainment, in games, you know, adding more seats in with artists.
We believe there is an opportunity in architecture. We believe there is opportunities in automotive. So many, many different industries where we'll continue to see growth. The historical revenue growth of Wētā is less relevant to answer that question.
Just one additional thing. One additional thought to toss into the mix. For those of you that have been listening to me from, you know, before we went public or if you're listening to our roadshow, one of the points I made was we believe that we can increase potentially our revenue inside of gaming by, you know, on the order of magnitude of 10X.
How is that possible when half the world's games or 70% of the world's mobile games are already built in Unity? The answer to that question has always been, in large part, the fact that we don't have all the artists on our platform. The artist is the largest audience of creators in the world.
As 3D becomes the norm for consumer creators, it's going to be a staggeringly large marketplace for users. Now, we don't count all that on our new TAM because we have to, you know, bring those consumer creators into the world. That is happening now, and this is the first really important step in that direction. Now, SpeedTree helped us. Artomatix helps us. Parsec helps us. This is another step in that direction.
Thanks.
Thank you so much. Dylan Becker, are you available?
Yeah. Hey, guys. Thanks for taking the question. I guess first, I think you kinda touched on it maybe, John, too, but thinking about this kind of more holistically, there's obviously been a lot of talk about what the metaverse could look like, and this really seems like kind of a key enabling technology at least of kind of the development of those kind of type of environments. Maybe you could guys kind of expand upon the thought process and kind of investment around that opportunity?
Sure. I'll start with that, and my colleagues can add if they have additional perspective. First off, I want to point out that, you know, I read Snow Crash when it came out. I guess some of you can see the gray hair. I've been fascinated about a metaverse for a very long time. The point I would want to make here is that it's only been about nine months or so that people have been memeing about the metaverse.
Go back and read our S-1. What we said was a relatively small percentage of content in the world is truly real-time, truly 3D, and truly interactive. What we've said is the majority of content by the end of this decade will be. My definition of the metaverse is pretty straightforward. We've gone from Web 1.0 to Web 2.0.
Web 1.0 tech stuff. I had Mosaic in a box. Web 2.0, you know, enables an Uber, if you will. You know, satellite data, cell data, tracking information, an app on your phone. It's magic. The car shows up. Web 3.0 is as these experiences become real-time, they become 3D, they become interactive and often spatially aware.
At Facebook, they call that presence, the sense that you're there or what's there is in your living room. We've been showing lately to folks how you can put through Metacast, we can put a sports event on your dining room table. It's breathtaking. The answer to your question is essentially this.
Unity expects to be as industry after industry after industry wants to move into the metaverse or become real-time 3D interactive with their presentation, whether it's a car configurator or a shopping experience. We wanna make sure that, you know, 60, 70, 80% of the time, that content built by all of those industries and all of those customers is built in Unity.
T he second thing we wanna do is ensure that more often than not, it's operating in Unity around analytics, monetization, hosting, voice, toxicity issues, what we offer on the Operate side. What we've said, I'd say if there's been a weakness in our armor, Dylan, is that the lion's share of the people creating the metaverse are going to be artists.
While you could use Unity to do a lot of things, it's not the best tool to make a mustache or, you know, get somebody's hair right or get the environment right. There are other tools for that. The very most important collection of tools on this planet was, in my industry, a little bit like that treasure that we fantasize about that we follow a map to all the way in New Zealand inside of a private company used just for their purposes.
I'm frankly stunned we were able to come to an agreement around something as complex as severing a company in two and acquiring the tools. We were able to do that. We welcome them to us, and it's that that's gonna really help us extract and help build the metaverse around the notion that the world's a better place with more creators in it.
Now the very many millions of creators in the world that think of themselves as artists, they're welcome on our platform, and we got something that's gonna delight them. This really puts under our platform something that is, at least from an artist perspective, truly magic. They're the largest tappable audience we have in our universe.
That's fantastic. Thanks for the detail, John.
I'll just add one quick point on top of that. The magic, the power that they go after is getting you as far towards the vision that's in your head before you have to pick up a paintbrush. It's not about, you know, when you think about the millions of people who are gonna have these amazing visions of what they wanna create in the metaverse, it's about, you know, starting not from a blank canvas, but from something so that they can express the type of intent that they want. I want this city. It has a river. I can see it in my head. Watch that grow and evolve, and then they already have where they're trying to go and then can go further.
That accessibility that brings that power, that procedural artificial intelligence power to a broad set of people will drive up an extraordinary amount of creativity. I have a strong belief that the metaverse is just going to be made from lots of creative people sort of imagining the future forward, and these tools are gonna be foundational for that.
Great. Thank you, guys. Appreciate it.
Thanks. Stephen Ju ?
All right. Great. Thank you so much. You talked about the build versus buy decision for Unity, but, you know, do you think the buy versus build decision that Wētā presents to creators in the movie industry will be fairly similar to what the video game industry faces, or are there other nuances that we should be aware of? You know, do you think also that this acquisition will help to skew the decision toward Unity for the games industry, you know, particularly for those who might have made a decision against you?
I guess more of a product integration question, and John, maybe it's too early, but you know, there is an explicit link between Create and Operate for the mobile games industry, but what do you think that link between what Wētā brings to the table and Operate could be outside the games industry if there is one? Do you think you can help creators monetize their content? Thanks.
First off, Steven, thanks for the question. It sounds like you've now had a microphone in the room where Luis and Marc and I have been talking for the last nine months because it's the nexus of what you're getting at there is what we're getting at.
You know, first off, I think not only will we bring the artist onto our platform, this is gonna serve as a way to, if you will, build our net expansion rate because when the artists come to our platform, they're gonna bring their friends, and they're gonna start using the rest of the Unity pipeline, the rest of the Unity platform, including our tools for analytics and monetization and hosting and the rest of it. We've always been really explicit.
I think it was on the last call that I explained that we build Netcode, and the Netcode's free. But it's a checkbox to Multiplay for hosting your game, and that can be a multimillion-dollar, you know, proposition that goes multimillion dollars per quarter literally forever if it's the right title. We do a lot of things that are sort of long-term greedy and short-term generous with our user base.
I don't think there's anything that's better in that regard than investing $1.6 billion or bringing these tools to a hungry collection of millions of artists on the platform that wanna be part of building in the metaverse. The tools were trapped inside of one amazing company. Now, Wētā. That's by far the leading light in the world of video effects.
They've got great artists, incredible artists. They have great vision. They've got Joe Letteri, who's one of the greatest visual effects editors in the history of time and the most decorated in the history of time. They've also done something that I find almost stunning.
They've invested well north of 500 person years in building a tool set to do that. I mean, in any other world, that would've been considered completely crazy. Peter could afford to do it because he had such a resounding historic precedent-setting success with Lord of the Rings that allowed him to build what he thought was the right way to do it.
No one, to my knowledge, has ever tried to do something as gargantuan as putting together dozens of tools with a common database infrastructure, with common workflows that resolve to the same scene and the same image. I mean, when our team looked at it, I mean, all the expressions and emojis were mind-blown.
That we were able to negotiate this transaction, thanks to Luis and the team and Marc, I'm just thrilled. For them, interestingly enough, they've made this incredible collection of tools, a jewel in the entire world of artists, and I think they want it to be seen. It's like this is like one of those once-in-a-lifetime, you know, outcomes, and it's hidden in a small town in New Zealand. The output from it is there.
There's a lot of win-win here. Now, honestly, you know, we're very, you know, I don't think we would've been the world's best company to be a VFX specialist, you know, Digital Domain competitor, et cetera. They're great at that, so they're gonna keep that. We're gonna do good, you know, do what we do best, which is to build on these tools, bring them into the cloud, integrate them deeply with Unity.
You don't always have to use, you know, or be creating a real-time 3D game to use these. As Marc had mentioned, it's gonna be used in virtual twins or digital twins. It's gonna be used in the game industry. It's gonna be used in the movie industry. It'll be used in many, many different ways. Sometimes it'll invoke the Unity engine, probably most times, but not all.
Marc, do you wanna add to that?
No, I think that, you know, the key there I think is we're gonna make artists superheroes by supercharging their productivity. They'll use those in a lot of different ways, sometimes with the Unity Engine and sometimes without. At the same time, we'll be also integrating this more deeply into the Unity Engine, sort of providing really cross, deep cross services.
I do believe we're going to make Unity itself just a more and more attractive opportunity for people to build great art, whether that's a game, or something they're doing in digital twins and certainly in movies and entertainment. I do believe that that adds to expansion as well.
There's wonderful financial math behind it. You are right. There are so many explicit linkages between our create and operate tool set, and there are gonna be very many explicit connections between this collection of tools, the core Unity Engine, what we have in SpeedTree, what we have in Parsec, what we have. What we've been trying to build is a platform, and it's largely there now, where we can hook them with Parsec on a communication service that works like that.
We can hook them with Vivox when they need voice. We can hook them on Multiplay when they're running a game. We can hook them on the Engine when they're trying to develop a game. We can hook them at the artist level when they're just building out their first visual representation of what they wanna do.
We can hook them lots of different ways. At Unity, it almost always seems the same. They start as a, you know, some sort of a experimental customer doing not a lot, and then we get inside, and they do a lot more, and then they do a lot more. They write our big, bigger contracts.
They start moving more of our services. I mean, it sounds, I would hate to say this to our customers, although they know it, land and expand is like endemic to Unity. It's exactly what we're doing. There's so much efficiency here around common data formats, and that may not sound like a big deal. It's a gigantic deal to our customers.
Thank you.
Okay. Yeah, we'll go to Matt Cost.
Great. Thanks everyone for taking the questions. I guess just thinking about Wētā's tools, like what is the level of investment in time and in R&D that's necessary to get the tools ready to license out, and also to kind of work on real-time and interactive applications since those are so core to kind of what Unity brings to the table? Just on the operate side, obviously kind of a tumultuous time in the ad markets, just anything you can add about, you know, puts and takes and what drove kind of the slight uptick in growth, sequentially in Q3. Thanks.
Marc, why don't you take the first part of that question, and I'll take the second?
There are two things there. First off, obviously, it's the intent to acquire. We're getting through closing, getting the teams together, and doing a lot of planning. We'll have a lot more to talk about on our future roadmap upcoming. But one of the most fundamental, 'cause we have talked a lot about this strategy internally around the future of art and art creation, is this fact that it's a pipeline.
There's a lot of different things that are needed. You know, artist is a very overloaded word because there are different types of artists. There are different, whether in terms of their sophistication or their type of specialty, or the domain that they're going after.
Individual tools, if they don't work together, if they don't have one common data model, can be very complicated and sort of not really support getting to the right end result. The big win that we get from starting with something like the foundational technology that Wētā Digital has is all of these tools already are well integrated with a common data model, this data river of all of the content flowing through, which makes it tailor-made to move towards the cloud, and we've spent a lot of time understanding what it takes to move that to the cloud, to think about how do you move some of those tools towards real time. Some of them are already there, by the way.
Real time is used quite a lot in previsualization and sort of the ability to sort of imagine shots before they're pushed forward. We're very clear on the work that needs to happen to ensure the right level of detail management and decimation and some of the other technical ways that drive the same assets to be able to go towards something that's gonna be used on a mobile phone or pre-rendered over time. More to come in the future as we talk about our plans. An incredible foundation to start with a consistent pipeline that's been built for such a long period of time.
On the operate side, in particular monetization, I'd be remiss if I didn't point out that outside of monetization, the rest of our operate stack is working extremely well. It's across the board inside of our operate portfolio.
We're gaining scale everywhere. We feel really good about our business there. Specifically to operate, I think topical right now and challenging for investors is you see a lot of, you know, quarterly results, and some companies pop up as a winner, and some companies haven't popped up as a winner, post the roll-through of the IDFA changes introduced by Apple.
Something I've been saying for a very long time is that Unity benefits from a very unique data set driven by over three billion people, MAUs, in our analytics platform and hundreds of millions on our IAP platform. I'm gonna introduce something that I think probably most of you think is pretty obvious, but I'm gonna emphasize it again.
Most ad networks, their business is based on the identity, the specific identity of the user interacting with the application. Ours is not. Ours is based on understanding contextually where they are and what they're doing and what they've done before and what they're gonna do next using predictive models based on AI on the 50 billion-plus data events we ingest per day.
As we intimated in the call, nearly a year ago when we were talking about the early innings of IDFA, we felt that that would lead to a relative competitive advantage for us as, you know, one advantage for the alternative way of driving monetization became weaker, relatively weaker.
That's exactly what's happened. I would argue that the puts and takes, it comes down to a really simple thesis. Ours is a better way to monetize even absent the changes that were introduced by Apple with IDFA and choice around privacy. On a relative basis, we gained advantage over all those who use identity, individual identity. They know you and your brother and, you know, whose birthday it is.
That became relatively weaker, and we became relatively stronger, and we have the single largest data insight based on the largest MAU count for anybody in our world. More or less, it played out to a script, almost exactly as we'd hoped, but better than we were willing to forecast given how cloudy it was a year ago.
Great. Thank you.
We have a few more minutes left. Brent Bracelin.
Thanks, Dave. The question here, I guess, John wanted to go back to the discussion we've had in the past a little bit around the technical product and thinking about addressing a larger consumer opportunity, a prosumer opportunity.
I guess my question here is SpeedTree, Parsec, now Wētā get you closer to the artist and directly get you closer to kind of the consumer. Maybe is there an opportunity to democratize some of the Wētā functionality into kind of the consumer space, or should we think of Wētā more really as that more technical up market solution?
All right. Other people have had microphones in the private room we've been talking. Yours is on my headboard when I'm muttering at night when I go to sleep. Yes, you've spoken to my id, my inner secret mind there with that question. Thank you for that, and I'll do my best to answer it straight away. Yes, there's a massive opportunity there.
While we're not gonna disclose everything we have planned today, we have a lot of plans here. We are a giant believer that there's a future for Unity with 100 times more users than we have today. We are working step by step, inch by inch to getting ourselves ready. Think about for a minute what Unity Reflect is or Unity Forma is.
One is a construction application or architectural construction application, and the other's for shopping and for configurators and such. If you wanna make a car configurator with Unity, you need to find a team of people who spent several years learning Unity and our pull-down menus and our nested inside of another nest, inside of another nest complexity, which is a level of fidelity that is absolutely brilliant if you went to Carnegie Mellon and studied this stuff.
We really do a good job of owning that market, if you think about it. I mean, 90% market share in some of the AR/VR platforms and 70% of mobile games, I mean, that's insane. They make that choice for us for that reason, that level of fidelity.
These, what we call runtime applications, have five buttons, and with five buttons you get most of what you would otherwise get if you were that high-fidelity programmer. Our future is in taming the perfect balance of simplicity and performance. Think about simplicity and performance. That's my fortune cookie. That's what's written on the other side of my pillow.
That's what we're focused on. We are gonna continue to drive that relentlessly. Now, the gap in our portfolio, one we knew a long time ago, we didn't have an answer for it. We looked at everything, we just didn't find anything. It was artists. We now have that answer. The other one was the world changed and, you know, the end of February 2020, we've gone through the biggest change in how we work, you know, literally since the 1950s. We all went home.
Look at all of you with your beds behind you. We went home, and the world changed in terms of how work is gonna get done in the future. What Parsec brings us is the extreme high-fidelity capability to allow people to work literally from everywhere and achieve what they need to from everywhere with the simplicity of a tool that was designed for the consumer to begin with. Watch this space.
Unity, power, simplicity, and a much larger user base stitching together that platform that drives NER on the basis of an incredibly large number of on-ramps, and the land and expand behind it. I could rewrite our S-1 around that. It might be simpler than when we sent you way back when, but that's what we're doing.
Sorry to get John going there, Rich. It's just, obviously an interesting kind of idea and, obviously it sounds like, you have some stuff here to talk to about us in the future, but, great to hear that, Wētā is part of that, you know, consumerization opportunity as well longer term. Thank you.
Great. Thanks. We probably have time for one more. Tom.
Okay. Well, perfect. Happy to have the last question. Thank you for taking it. I guess I'll give you all a gold medal in controlling the narrative. It took 51 minutes to even talk about IDFA. So I applaud the big picture here. But I think that also sort of speaks to the interest in the big picture from investors and from everybody on this call, right? It's not about what happens next quarter or even 2022. It's really what's happening beyond that.
John, if I kind of take a step back and think of some of the big, you know, the big statements you've made that only 2% of the world's content is made in real-time 3D today, that 50% of all of that's built on your platform, that, you know, that 2% can go to a 50% number within 10 years in terms of content. I'd love to hear your big-picture thoughts for what creates that accelerator.
It doesn't seem like it's just a linear function. You know, maybe Wētā is a big part of that by, you know, compiling more tools in your platform. But perhaps it's a forcing function with VR, AR, next iteration of what those tools look like.
Perhaps it's really just, you know, consolidating more tools in your platform that creates this adoption factor that suddenly takes things vertical. Can you give us your sense just-
Sure
When do we get to this point of critical mass, and what's the big picture forcing function?
The more tools on our platform doesn't change the trajectory of 2% to 3% becoming 50%. What that does, it changes Unity's take rate. We've doubled our revenue in 24 months. We haven't doubled our market share in 24 months. We're increasing our take rate as we go along.
That's gonna go for a very long time, because there's so much take rate in front of us, it's crazy. I can walk you through that another time. Maybe with a post call, we can address that. Your question of what's gonna be the catalyst for moving us from that 2% to 3% to 50%.
While I tend to roll my eyes with the crazy, sometimes fantastical definitions of the metaverse and think that, like, can somebody not say that for at least an hour, and give me a little bit of relief. On the other hand, I think that the reality is that it took two things, and we got them both now. The first thing it's gonna take to get there was the hardware infrastructure on this planet.
The available compute, the available transport was it needed to be in the arena of 5G, and it needed to have people like Jensen and NVIDIA to be successful. We needed to see that plant rise. I mean, I am so happy with the power behind the new M1 chipset at Apple as an example.
It needed that because absent that, you can't really power high-fidelity real-time 3D at scale. The hardware requirement to do it now between cloud compute, transport, CPUs and GPUs, networks, it's all there. The precondition for success in this space was already there. Interestingly enough, only a year ago, we were like the only voice hyping this notion of the world becoming real-time, 3D interactive, et cetera.
Now, I mean, who doesn't talk about the metaverse? Who isn't allocating $10 billion a year to it if you're a mega cap? The second thing we needed is like the movie we powered, The Lion King, we need all those wildebeest to run down the canyon and do so in this magnificent herd. Guess what? Somehow in the last two to three or four or five months, it's become a herd.
It's become a herd of companies. You've just listened to announcements in the last week and a half of companies that have $10 trillion in market cap talking about this. Not bad. It's our parade. I couldn't be more thrilled they're all gonna join it. As we have always been, they're building vertical stovepipes, and we build horizontal to cross-cut them.
The taller they go, they take us with them. I think we manage to wedge ourselves. I've never had more fun at work, and I've never been more excited about the prospects for anything I've ever worked on because it seems to me like the tailwinds are coming faster than I'd anticipated them to be. Thank you for the question. It's a fun one to answer.
If you see the world from my vantage point, the wind's coming from back there, our sails are up, and we're picking up the things to both drive increased take rate out of a rising sea that we can lead in. It doesn't get better than that.
Fantastic. Thank you.
Thanks, Tom.
Oh, well, thank you everyone very much. Sorry we couldn't get to everyone. I think we're calling all of you back later on tonight, so you'll be able to chat with us directly. We tried to get through many, but we had so much good news to talk about it, used up a lot of time. We'll see you on our next earnings call. Thank you very much and have a good rest of your week and next few months. Thanks.
Thanks all.