Google and Apple have historically enjoyed a duopoly of the app ecosystem. For developers, all roads to creating a successful app that achieves any traction lead to Google Play Store and the Apple App Store. Both companies take a healthy 30 percent cut of all transactions processed, known as in-app purchases. But the duopoly is getting challenged, with financial consequences. Google has agreed to pay $700 million and revamp its Google Play Store policies as part of an antitrust settlement with U.S. states and consumers. This decision stems from allegations that Google engaged in anti-competitive practices with Google Play Store, as part of an ongoing lawsuit filed by Epic Games against Google. The settlement includes a payment of $630 million into a fund for the benefit of consumers and $70 million to a fund used by the states.
What the Lawsuit Was All About
The core allegation was that Google had anti-competitive contracts with original equipment manufacturers (OEMs) and mobile service providers, preventing other app stores from being preloaded on Android devices. This forced consumers to use the Google Play Store, allowing Google to extract substantial revenues through a 30 percent cut from every purchase, as noted above.
Besides the monetary payment, the settlement requires policy changes from Google. It mandates the appointment of an Independent Compliance Professional to monitor Google’s activities for five years. The settlement requires Google to allow developers more freedom to inform users about alternative payment options outside of the Play Store’s billing system. Developers will also be able to direct users to their own websites for subscriptions and purchases. The settlement doesn’t force Google to break up its app store, but it restricts some of its control over app distribution and monetization.
Why the Lawsuit Really Happened
This lawsuit was a long time coming. Consider this:
- It is very difficult for developers (like Epic Games, which brought its own lawsuit against Google and Apple) to create an app and then have users download it directly from its site. This has more to do with the Google/Apple terms and conditions..
- Both the Google and Apple app stores have onerous terms and conditions for apps that outline everything from content moderation to payment processing
- The payment processing is one of the key elements to the lawsuit. As noted, the payment processing includes upwards of a 30 percent purchase fee that is paid to Apple or Google. That number varies based on the total revenue driven by app purchases. I’ve seen up to $1 million in total app sales constitutes 30 percent and anything over $1 million incurs 15 percent, but those numbers vary,
Bottom line: the lawsuit happened because Google controls where a user can download the app, which is only through its app stores; and Google takes a large commission on every purchase with the commission issue being that developers don’t have the option to use a different payment processing method.
Why the Settlement Matters
So, why does this settlement matter? I can think of a few very big reasons:
- Implications for Apple: this settlement could trigger antitrust scrutiny of other dominant app stores — like Apple’s App Store — and potentially lead to similar changes in their policies.
- Increased competition: by allowing developers more freedom, the settlement could open doors for greater competition in the app market. This could benefit consumers through lower prices, more diverse app choices, and potentially, increased innovation.
- Implications for Google: the changes to the Play Store could affect Google’s dominance and revenue generated from app distribution and in-app purchases.
That first point – potential implications for Apple’s App Store – really intrigues me. And should concern Apple.
The Epic Games Lawsuits against Google and Apple
The lawsuit settled by Google with U.S. states and consumers over its Play Store practices could have impacts on Epic Games lawsuits filed separately against Google and Apple.
Epic Games Lawsuit against Google
The Epic Games lawsuit against Google concerns Google’s policies and practices in managing the Play Store, specifically the mandatory use of Google’s payment systems for in-app purchases and the aforementioned 30 percent commission. Epic Games argues that these policies are monopolistic and anti-competitive, limiting the choices for app developers and consumers.
The settlement with U.S. states and consumers may influence the ongoing legal battle between Google and Epic Games. The terms of the settlement, particularly those related to allowing sideloading of apps and support for third-party app stores, might be seen as an admission of some level of anti-competitive behavior by Google. This could strengthen Epic Games’s position in its lawsuit. This lawsuit is still ongoing, and a decision is expected sometime in 2024.
Epic Games Lawsuit against Apple
Google is not the only company in Epic’s crosshairs. In a lawsuit initiated in 2020, Epic made similar claims against Apple. Epic also contended that Apple’s 30 percent commission on in-app purchases is anticompetitive and harms consumers by inflating prices. In addition, Epic demanded the ability to offer its own payment system within its app, bypassing Apple’s system and the commission.
The court didn’t find Apple’s practices constituted an overall monopoly in the mobile gaming market. However, the court ruled that Apple’s anti-steering provisions violated California’s unfair competition laws.
Both sides appealed the decision, and Epic even went as far as asking the Supreme Court to review the case. As of this writing, the legal battle continues with the Supreme Court yet to make a decision on Epic’s request. The outcome has significant implications for app developers, consumers, and the future of the App Store, influencing competition and pricing within the iOS ecosystem.
Both lawsuits are part of a broader trend of increasing scrutiny and legal challenges facing major technology companies over their market practices. They highlight concerns about how these companies manage their digital marketplaces and the impact on competition and consumer choice.
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