Why Unity bought ironSource: Chatting with CEO John Riccitiello

There’s been a $4.4 billion disturbance in the adtech force as Unity bought ironSource (officially: merged with) in an all-stock deal accompanied by a fresh infusion of cash into Unity from investors and a $2.5 billion stock buyback aimed at pumping up the newly merged company’s share price.

There’s a lot of speculation about why Unity pulled the trigger on the deal.

More data is always better for ad targeting, and Unity Ads needs it at least as badly as any other ad network. Tech stocks are depressed right now and, hammered by ATT and a worsening economy, ad networks are being hit harder than most. So any boost from a merger is helpful. Plus, of course, ironSource has extremely valuable technologies, scale, and customers that will help Unity build a more complete monetization solution.

I chatted with Unity CEO John Riccitiello about why Unity bought ironSource.

Watch our conversation here:

Here’s a lightly edited excerpt of some of Riccitiello’s answers:

Why the Unity – ironSource merger?

Unity CEO John Riccitiello:

“Most of the world’s game content is built on Unity. We’ve also got a really strong monetization network and what we’re trying to get to over the course of many years is a platform where a creator can make the best content and monetize their best content.

And sometimes monetization is harder than it is to build a great game. And if you don’t have a great business to go with a great game, you don’t have a great game because you don’t have the resources to make it. And so what this is about is: they have some tools that are pretty amazing that if you add to our stack, we can get to a place where a creator can get user feedback on pieces of the game along the way … they get feedback on user engagement and what’s working and not working, and also simultaneously get feedback on what it takes to acquire a user. 

So the outgrowth of a unified creation and growth platform that we can put together is really better content and a better business in a way that we think is really magical for creators.”

The stock market has not been kind to tech in general and to Unity and iS in particular over the past months. How will this change the narrative and the results?

Unity CEO John Riccitiello:

“Changing the narrative is always important, but what’s really important is changing the outcome.

Now, on its own, I believe that Unity was on its way to being one of the great companies in Silicon Valley or around the world in tech. Our Create solutions and our monetization solutions — in light of the reality that most of the world’s content is becoming real-time 3D — that’s a huge wind in our sails. So we think we’ve got a lot of opportunity as a standalone. And I think ironSource thought similarly about themselves.

Here’s the long-term vision: we’re gonna deliver a run rate of $800 million in EBITA by the end of 2024. And we’re gonna do it by driving synergies around three really big ideas.

Those synergies are around more data is better. 

And a diversity of data means we’re not dependent on any one data source. They’ve got a lot of different data sources, and so do we; it’s a large number, I could list them if you want. The second is they’ve got a leading mediation tool, which is an important part of a full stack monetization platform. We will bring more data, more demand to that platform and that’s helpful to both companies.

Again, when customers win, we win. 

And third, they’ve got a set of publishing tools that they call Supersonic. And it’s a great solution for the long tail. Virtually everybody in the long tail makes their games on Unity. This is one of those peanut butter and chocolate mixes where we’ve got the customer that they need. They’ve got the solution we need and we see strong synergy in that. 

So three strong synergies driving a really strong trajectory on what makes the company valuable to Wall Street, which is profits.

Lastly, the resulting company will be very balanced. We outlined for investors today that we expect about half of our revenues to come from activities associated with creation and about half of our revenues to come from revenues that one might associate with growth [monetization]. 

So we think there’s a good narrative.

But it’s not a sound bite. It’s not a fortune cookie. And you know of course the markets are pretty tough right now. But my job is not to worry so much about popularity, but about building a great business. We’ve got our eye on it. And as we do that I’m sure we’ll attract more and more fans as we always have.”

What specifically about ironSource is most attractive to Unity?

Unity CEO John Riccitiello:

“Their LevelPlay mediation platform is very attractive. I also believe their Supersonic publishing tools are attractive. I would also highlight the tools that they use to support mobile carriers around the world … [they] are really, really positive.

But if I had to pick something that I think might go without notice and is not usually mentioned, they have an awesome team. 

I’m so proud of the Unity team, but when I meet these folks they’re aggressive, they’re ambitious, they’re competitive. They don’t have any of the arrogance, that sometimes can seep into some Silicon Valley companies and organizations. I mean, they’re just humble and ambitious and they mix so well with my organization.”

How much did ATT on iOS impact this merger?

Unity CEO John Riccitiello:

“I’d say virtually not at all.

Just to remember: when you’re thinking about ATT or iOS privacy changes around the rules that Apple’s put out …. one thing to think about is that’s a very specific slice of data. It doesn’t really affect Unity Analytics in the same kind of way as the SDK for ads where people are seeking permission. It doesn’t affect, for example, a publishing business and publishing tools that [ironSource] have, or some of their tools on carrier installs and such. And so there’s a lot of ways data comes in. 

Look, I’ll tell you a story. 

As you can see, I have gray hair. One of the things I find really frustrating is that I get a lot of advertising targeted for people over 60. AndI look at that stuff and I’m a skier, I’m a tennis player, I’m a mountain biker … and then I get a Depends ad and it just doesn’t really work for me. And that’s bad targeting, not good targeting.

And the other issue is when people think about data … all we’re looking for is we’re helping a gamer find other games that are appropriate for their interest profile. And we’re really good at that. And we get even better at that in combination with ironSource, and consequently can help publishers be more successful, developers be more successful, and frankly, gamers be happier. 

We’re not trying to figure out the name of your brother, whether your mother’s birthday is the week after next, or what you’re looking for on the internet. That’s just not interesting to us at all. We’re trying to find people for whom we can find a profile for the game industry, but also for some brand advertising. But we’re not reliant on personal identifiable information either. Ours is mostly contextual. We have the context of what you’re playing and how you’re playing it.

The only media I’m aware of that the audience, the player, the user actually thinks ads are positive, is gaming. And we can prove it by showing you that engagement is greater when there’s ads. And that’s because of the way they’re integrated in the game, and because performance means you’re getting ads that are relevant to you.

If there’s a recession, performance advertising that the user or the viewer or the player likes, enjoys, and leads to increased engagement, and ROI for the advertiser — our advertisers don’t necessarily want to spend more, but they definitely want more ROI —- and so that’s what we deliver. 

And I don’t think we’re going to come under the same pressure in this sector as others that don’t have those same features and characteristics.”

How long do you anticipate merging tech stacks will take?

Unity CEO John Riccitiello:

“I’m not sure if there’s all that much to merge. 

One thing that merges almost instantly is the most valuable asset here, and that is data. So they’ve got an algorithm for their network, we’ve got one for our network. Whenever we add new data, our network performs better for customers. Now we can do that at a larger scale. That’s a positive, it doesn’t involve a technology, stack integration. 

Another piece in this is they’ve got a large mediation tool: we’re not planning to merge our tool into their tool. They’ve got the Supersonic publishing tool set. We don’t make that tool set at all. They’ve got the tool set that I talked to you about that supports carriers; we don’t have that technology. 

When we presented to investors, we gave them the requisite sort of Lego pieces: they do this, we do this, they do this, we do this. And what was really interesting is how much of the tech stack that they do that we don’t do. And of course they don’t do any of the Create side really … so what we do that they don’t do. So I don’t think there’s this vexing tech sack challenge.”

You seem to be driving further synergies between Create and Operate … how close do you intend to bring these capabilities?

Unity CEO John Riccitiello:

“Very.

Now, that doesn’t mean that I’m gonna surface return on ad spend tools for, uh, a C# coder. If it’s working in the development side of a game, it means when that developer, together with the artist and the level designer to put that together, and they’re trying to get information over how engaging this is for the user … but they don’t know necessarily fully what to do with that and how to map that to the LTV is greater than cost to acquire equation … but there’s a business person that probably works on that full time: they have the same set of data. 

They’ve got the same understanding. They’re learning the same things in real-time. So it’s surfacing data like that. That will enable them to be very close, but not cumbersome. 

The key here really is bringing these things together to yield the benefits of both. So through a very iterative process, the game gets better. The digital twin application gets better. The user acquisition gets better and better in terms of targeting and success rate and pulling them with ads that can be tuned and changed based on pulling data out of the game to automatically create ads.

And it creates a virtuous circle.

These days virtually all these applications, whether they’re car configurators or digital try-ons in your home for a luxury brand, or a video game, they’re all live experiences. They’re up there. And these products themselves are changing in time.

And so this process never needs to end. It just needs to be smarter. And that’s what we bring to it. And we have a profound view and I think it’s correct, that we are able to add value to the full team that’s making and trying to make a living out of this stuff and in doing so, we’ll make them more successful and they’ll choose us more often.

It’s a pretty simple equation. If you’re really focused on making your customer successful, I think you have every opportunity in the world to be successful yourself.”

In the adtech space there are giants like Facebook/Meta and Google, a set of large competitors that both Unity Ads and ironSource fit into, and then thousands of others. Where does the combination of Unity/ironSource position you now vis-a-vis adtech competitors?

Unity CEO John Riccitiello:

“I don’t necessarily think of Meta and Google as competitors really, or Amazon or others that have big adtech businesses. Why? Because they’re all business partners. We do an enormous amount of work with all of these companies … both them working through our network on the monetization side, or they’re using our tools to create content, or them facilitating us on the cloud with some of their backend tool sets and their hosting capabilities.

Think of thinking of all these guys as sort of lethal competitors would not be the way I see it. Of course, everyone’s skirmishing to grow their business  world’s has gotten a lot more complicated than Coke versus Pepsi. You’re not gonna drink both at the same time, but when you’re using Unity hosting, you’re often using GCP or Amazon at the same time.

So it’s not quite the same.

But if you think about a single dimension, say if you’re looking at the modernization or the business growth side, what I think people have come to believe, and I believe is true is data is what separates the strong from the weak.

And I would argue maybe one of the lesser appreciated points is diversity of data is another vector along which to think of what’s defensible and important.

And think about all the data sets I’d mentioned earlier, and … realize that they’re reaching north of 2 billion people in a month; we’re reaching north of 3.”

How does this make Unity stronger/better going forward?

Unity CEO John Riccitiello:

“It all starts with getting a better outcome for our customers: either making better content, helping them make a better business, or both.

And we think we are in the business of helping our customers make better content and get a better business outcome through better targeting. And if they’re on the supply side, higher CPMs, and if they’re on the demand side, a better return on ad spend.

We think those are measurable. We think this combination improves all of that on behalf of our customers.

And sometimes we don’t always know exactly how we’re gonna win when our customer wins, but time and again, we’ve won when our customer wins.”

Subscribe to Growth Masterminds

We talk to industry leaders about key changes happening in the mobile adtech industry.

Tune in by subscribing to our YouTube channel here, or by subscribing to our audio podcast on pretty much every platform podcasts are available on. You can find more details on Growth Masterminds here.