Introduction
On 19 April 2023, the Competition and Markets Authority (“CMA”) issued a consultation over the commitments proposed by Google (the “Proposed Commitments”) to bring the CMA’s investigation into its conduct in relation to Google’s distribution of apps on Android devices in the UK to an end. The consultation period ended on Friday 19 May 2023.
The CMA is deeply involved in mobile ecosystems. In parallel with its excellent market study on mobile ecosystems, the CMA opened proceedings against both Apple and Google regarding their app store practices. In the case of Google, the CMA has now indicated that it is provisionally of the view that the Proposed Commitments addressed the competition concerns identified in its investigation. Formal acceptance of the Proposed Commitments would result in the CMA terminating its investigation with no finding that Google had infringed competition law and therefore no fine.
Having looked at the matter carefully, I consider that the CMA should not accept the Proposed Commitments as these commitments fail to solve the key issues raised by Google’s Play Store practices, and will not even properly address the narrow issue that they intend to solve (i.e., the mandatory requirement for app developers that sell digital content to use Google’s in app payment solution – Google Play Billing (“GPB”)).
The Proposed Commitments
In order for the CMA to bring its investigation to an end, Google commits to allow developers of apps selling digital content (“Digital Content Apps”) listing their apps on the UK Play Store to offer User Choice Billing (“UCB”) or Developer-Only Billing (“DOB”), instead of using GPB exclusively, provided inter alia that developers: allow an Information Screen to be shown to users before a user makes an In-App Purchase; allow the Billing Choice Screen to be displayed to users; implement consumer protection safeguards; provide customer support for users of the Alternative Billing System; and report transactions carried out through the Alternative Billing System to Google using a manual reporting process that Google would use its best endeavours to convert into an automated process by next year.
For developers using UCB, whereby developers are allowed to offer an alternative billing system next to GPB, the 30% commission will be reduced by 4%. For developers using DOB, whereby developers are allowed to offer an Alternative Billing System in place of GPB, the commission will be reduced by 3%. The Proposed Commitments explicitly give Google the ability to raise its commission provided that it does not “substantially undermine” the purpose of the commitments.
The problems raised by Google’s Play Store policies
App developers have been concerned about a variety of issues arising from Google’s Play Store policies, including for instance:
- The arbitrary and discriminatory distinction between developers of Digital content Apps and those developers whose apps do not sell such digital content (e.g., ecommerce apps, ride sharing apps, and indeed any apps with an ad-funded model) with Digital Content Apps apps having to use GPB and pay a 30% commission, while apps not selling content do not have to pay any commission (or any fee) while they use the same app store services.
- The disintermediation of Digital Content Apps developers from their users (including the notorious anti-steering provisions which prevent direct communication with users), which are addressed to a limited extent in the Proposed Commitments, but not fully.
- The unpredictable app review processes, whereby Google has unique power over app developers wishing to reach mobile users because they can delay or reject their apps, sometimes for spurious reasons.
- The collection of app developers’ commercially sensitive information and using it when competing against them (the Proposed Commitments cover the use of some billing data in clause 10, but not the use of other data, and it is not clear how this could be policed).
- The self-preferencing practices whereby Google’s vertical integration, pre-installation and choice architecture enables them to give their own downstream Play Store and apps an unfair advantage and effectively excludes the ability of alternative app stores or sideloading to gain traction.
These issues are largely connected. For instance, the mandatory use of GPB is not only the tool to collect the 30% commission, but also a means to disintermediate app developers from their users and collect sensitive commercial data. The app review process is also the tool that allows Google to force app developers to accept its arbitrary and discriminatory Play Store policies. They must thus all be addressed at once.
Because the scope of the investigation is too narrow, the Proposed Commitments will not address Google’s arbitrary and discriminatory policies vis-à-vis Digital Content Apps
By focusing its investigation on the obligation imposed by Google on Digital Content Apps to use GPB, the CMA fails to address most of the key issues described above and, in particular, the fundamental discrimination that is at the root of Google Play Store’s policies whereby a small subset of apps (Digital Content Apps) not only have to use GPB, but also pay a commission of 30%.
The CMA indicates that its investigation “does not cover other potential concerns that third parties have raised about aspects of Google Play’s rules, for example, Google’s right to charge a service fee for in-app purchases of access to digital content or services on Google Play in and of itself, the precise level of that service fee, or which transactions are subject to such a fee”. I disagree. The Proposed Commitments unavoidably endorse Google’s overall scheme, for example designing a new process through which Google can collect a 26-27% commission without providing any direct service in return, and even allowing it to raise that commission. The CMA states that these issues would be better addressed by the Digital Markets Unit (“DMU”) when it has been empowered by the Digital Markets, Competition and Consumers (“DMCC”) Bill. The fact, however, is that this Bill has not been adopted yet and that it will at least take two years before the DMU is able to address these issues. It is not a relevant consideration when settling an antitrust case this summer. In the meantime, UK app developers will continue to suffer harm and UK consumers will overpay for their in-app purchases.
In any event, the Proposed Commitments will fail to properly solve the narrow issue the CMA seeks to address
The CMA is concerned that Google may be abusing its dominant position by requiring the exclusive use of GPB by developers of Digital Content Apps, therefore precluding any competition from third parties in relation to the cost or quality of billing services for transactions in Digital Content Apps, which would otherwise have the potential to deliver benefits for developers and users in terms of prices, increased choice and/or innovation.
The trouble is that the Proposed Commitments will not allow meaningful competition from alternative payment providers. They are similar to the schemes that have been designed by Google and Apple in other jurisdictions such as Korea and the Netherlands to subvert the policy objectives of legislators and the outcomes of enforcement proceedings. These schemes have allowed Apple and Google to continue to – in practice – oblige developers of Digital Content Apps to use their in-app payment solutions.
The Proposed Commitments will similarly fail in the UK for the following reasons:
First, the 4% discount in the case of UCB and 3% discount in the case of DOB will be insufficient to incentivize, or even make it financially sensible for, developers of Digital Content Apps to use an alternative payment solution. Google’s figures underestimate the fees charged by some alternative payment providers and for some payment options. Moreover, they exclude any margin for the development costs of setting up DOB or UCB, merely making a comment that “some” developers “may already be covering the setup and fixed costs” for their websites. Customer support services may be significant and are in any case difficult to estimate at this stage because they depend in part on whether the process is made difficult for customers by Google. A more detailed analysis of these costs would be required before accepting the Proposed Commitments, including an analysis of how they would vary between different types and sizes of developers.
Second, pursuant to the Commitments, app developers electing to use an alternative payment solution will have to show interstitial screens that have no other purpose than scaring away users. As a result, conversion will suffer as users fail to complete the payment process, resulting in significant losses for app developers. For instance, a developer of Digital Apps Content deciding to use UCB would have to a screen containing the following language to its users: “Only purchases through Google Play are secured by Google. Play features such as Play gift cards, Play Points, purchase controls, and subscription management are only available when you choose Google Play at checkout.” This language is not only confusing as it suggests that transactions realized through other in-app payment solutions may not be secure, but it also lays out all the disadvantages of using an alternative payment solution, while saying nothing about the advantages of the alternative solution (which may be better tailored to the need of the users of the service in question that the one-size-fits-all GPB solution).
In these conditions, there is no question that few developers of Digital Content Apps will elect to offer an alternative payment solution. They will have no financial incentive to do so, and the friction introduced by Google will confuse their users, hence triggering losses in revenues. If anything, the Proposed Commitments will perpetuate the developers of Digital Content Apps’ obligation to use GPB. Worse, it will legitimize the ability of Google to charge a 30% commission on these developers.
What is the way forward?
On substance, the Proposed Commitments fail to address the core problems associated with the Google Play Store. It would be a significant victory for Google which would have disposed of a major investigation by a leading competition authority without an infringement decision against it. Google would have given up nothing in practice while receiving approval for its ability to charge high and discriminatory fees to subset of developers in return for very little service, and retaining its paternalistic control over developers’ communications with their own customers. The Proposed Commitments would not reduce the effective exclusion of alternative app stores and sideloading. Moreover, the Proposed Commitments do nothing to prevent Google from maintaining its anti-steering provision preventing app developers from communicating with their users to offer them better terms and conditions. The CMA should extract stronger commitments from Google that comprehensively address the core issues discussed above in return for ending its investigation, and if that is not possible they should pursue an infringement decision and impose a fine. It is not too late for the CMA to decide that the narrow scoping of the investigation (and more importantly, the remedy) does not work because it is just one part of an interconnected scheme.
Above all, the CMA’s investigation into Google’s Play Store practices show the need for the quick adoption and entry into force of a strong DMCC regime, which will allow the CMA to take a holistic view of such practices and adopt broader remedies.
Note: I advise a variety of app developers. The views shared in this blog post are entirely mine.
****
