Google’s latest attempts to squeeze app developers in the face of regulation: When principles and coherence no longer matter

As the readers of this blog know, app developers selling digital content have been unhappy for many years with Apple’s App Store policies, which force them to use its in-app payment solution (“IAP) and charges them a 30% commission, which is reduced to 15% in limited circumstances. These policies led Apple into trouble in the Netherlands, the UK and South Korea.

Until recently, Google took a softer stance by allowing many app developers to use their own in-app payment system. However, in September 2020, Google decided to adopt a more aggressive approach to the enforcement of the obligation imposed on app developers offering in-app purchases of digital goods on Google Play to use Google Play Billing (“GPB”) and pay the associated 30% commission (see our blog post on this development here). Google announced that new apps submitted after 20 January 2021 would need to comply, whereas the deadline for compliance for existing apps that needed to be updated was extended to 30 September 2021. In July 2021, Google however announced that it was giving developers an option to request a 6-month extension, thus giving them until 31 March 2022 to comply with its payment policy.

This policy shift by Google came at the same moment the EU institutions were seeking for finalize the formal adoption of the Digital Markets Act (“DMA”), which comprises a provision that would ban gatekeeper app stores from imposing their own in-app payment solution on app developers. It also came at a time where Apple had been found by the Dutch Competition Authority (“ACM”) in breach of Article 102 TFEU for imposing its in-app payment solution (“IAP”) on dating app developers, and where the obligation imposed by major app stores on app developers to use their in-app payment solution was declared illegal in South Korea. Google’s policy change regarding GPB was thus a poke in the eye of regulators.

As announced in the press, it therefore did not take much time for DG COMP to initiate a preliminary investigation into Google’s conduct based on Article 102 TFEU. The CMA also announced that it was “investigating Google’s conduct in relation to Google’s distribution of apps on Android devices in the UK, in particular Google’s Play Store rules which oblige certain app developers to use Google’s own payment system (Google Play Billing) for in-app purchases.”

Threatened by these investigations, Google suddenly decided to amend its new GPB policies although as we explain below this is nothing more than a PR stunt to seek to appease regulators.

First, in a blog post of 19 July 2022, Google stated that as part of its efforts to comply with the EU Digital Markets Act (although it is not yet entered into force), it was

announcing a new program to support billing alternatives for EEA users. This will mean developers of non-gaming apps can offer their users in the EEA an alternative to Google Play’s billing system when they are paying for digital content and services.

Developers who choose to use an alternative billing system will need to meet appropriate user protection requirements, and service fees and conditions will continue to apply in order to support our investments in Android and Play. When a consumer uses an alternative billing system, the service fee the developer pays will be reduced by 3%.”

By contrast “Google Play’s billing system will continue to be required for apps and games distributed via Play to users outside the EEA, and for games distributed to users within the EEA.”

According to Google’s support center, alternative billing systems would have to comply with various requirements, some of which were still to be defined. Additionally:

For participants in this program, service fees, which support our investments in Play and Android, will continue to apply. Developers must pay Google the applicable service fees. When a consumer uses an alternative billing system, the service fee the developer pays will be reduced by 3%.”

More recently, Google indicated that starting 1 September 2022, app developers who meet the certain eligibility and requirements may join a pilot schemedesigned to test offering an alternative billing option next to Google Play’s billing system and to help us explore offering this choice to users.” Calling this a “pilot” is of course misleading since before Google’s recent GPB policy changes some app developers were already allowed to use their own in-app payment solution alongside GPB. There is therefore no need for a pilot scheme. Google has been able to assess the impact of “user choice billing” for years.

Now, if one looks at the conditions of eligibility, one finds a series of oddities.

First, to be eligible for the pilot, the app must be a non-gaming app. No explanation as to why this is the case is given. Now, the only plausible reason why gaming apps are treated differently is because they represent the bulk of Google’s Play Store revenues. Google rewards its best customers by discriminating against them!

Second, developers participating in the pilot can only offer user choice billing to mobile and/or tablet users in announced pilot countries, currently: European Economic Area (EEA) countries, Australia, India, Indonesia, and Japan. I am not sure about Indonesia, but the jurisdictions where the pilot scheme is allowed include those where Google is under regulatory pressure. This should incentivize app developers to maintain or even increase the pressure. Now, would I be a UK or US regulator, I would not be impressed by Google’s selective approach.

Third, app developers participating in the pilot will be subject to various (technical) requirements that are not entirely clear yet. As the devil is in the detail, it is hard to tell at this stage whether these requirements will be reasonable or designed to frustrate the process. Apple’s efforts to frustrate the implementation of the order of the ACM forcing it to allow dating app developers to use their own in-app payment solution is a reminder that regulators need to pay attention to details as even a small amount of friction can disincentivize users to select an alternative payment option.

Finally, “for participants in this pilot, service fees, which support our investments in Play and Android, will continue to apply. Developers must pay Google the applicable service fees. When a consumer chooses to use an alternative billing system, the service fee the developer pays will be reduced by 4%.” This last condition is both interesting and important.

It is interesting for the following reasons. First, Google seems to have now increased the fee reduction granted to app developers from 3% (which was the amount announced in July for app developers operating in the EEA) to 4% (as was already the case in South Korea). Second, the Q&A that accompanies the Google announcement provides an explanation to as to the reason why it intends to charge a 26% commission to app developers using an alternative payment solution. This commission is said to reflect “the value provided by Android and Play and supports our continued investments across Android and Google Play, allowing for the user and developer features that people count on.” This observation fails to convince. For instance, why should Uber, which provides a match-making service that is no different than a dating app, pay no commission while it benefits from Android and Google Play in the same manner as a dating app? And why do super profitable apps like Instagram pay nothing, while some small app developers are loaded with a massive commission?

The payment of a 26% commission is also important because it shows that Google’s recent announcements regarding GPB are nothing but a PR stunt. The reason is that a fee reduction of a mere 4% will not be sufficient to allow app developers to use the in-app payment solution of their choice. Payment processing represents a material cost for app developers (with – although this may vary among countries – credit card operators such as AMEX and payment processors such as PayPal and Stripe charging fees between 3 and 4%). To this, one needs to add the cost of engineering (as developing your own in-app payment solution requires work) and customer care. For most operators, the cost of using alternative payment solutions may thus exceed 4%.

In sum, Google’s GPB policy is now totally fragmented:

  • while all apps benefit from the same app store services, most apps do not pay any commission, and a limited number of apps are hammered with a 30%/15% fee;
  • whether or not an app developer can take part in the so-called pilot depends not only on the type of apps it operates (e.g., gaming apps are excluded), but also on where its app operates (as the benefit of the pilot only applies in a limited number of countries).

This illustrates that this policy is totally unprincipled. There is no logic or coherence. Google seeks to maintain its privileges as a monopolist wherever it can and as far as it can.

With the entry into force of the DMA, Google’s strategy will however be short lived as the DMA mandates gatekeeper app stores to allow app developers to use the in-app payment of their choice (and there will be no scope to make an exception for “gaming apps”). Moreover, it seems very unlikely that Google’s 30/15% commission will survive Article 6(12) of the DMA, which requires the gatekeeper to “apply fair, reasonable, and non-discriminatory general conditions of access for business users to its software application stores.” I will come back to this topic in a later post.

Disclosure: I advise a variety of app developers over competition and regulatory issues. I am also the outside EU competition counsel of the Coalition for App Fairness.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s