To comply with a South Korean law passed in August, Google last week announced that it will give developers selling in-app digital goods and services the option to add an alternative billing system alongside Google Play’s billing system for their users in South Korea.
While South Korea set the precedent with a law that forces Google and Apple to open their app stores to alternative payment systems, developers and regulators in many other countries, including India, are demanding the same, and Google’s move in South Korea might be a sign of what is to come to the rest of the world.
The company did not indicate a timeline for when this new policy will go active but said that it will share implementation details such as security and user experience guidelines for developers in the coming weeks and months.
Developers still have to pay commission to Google, but at a reduced rate
The primary reason developers want to use a different billing system is to avoid the high commissions charged by Google, which is anywhere between 10 to 30 percent depending on the type of app and developer. But Google is not letting this happen.
“Service fees for distributing apps via Android and Google Play will continue to be based on digital sales on the platform. We recognize, however, that developers will incur costs to support their billing system, so when a user selects alternative billing, we will reduce the developer’s service fee by 4%,” the company said.
This means developers who were earlier paying 15 percent, which is what the majority of developers pay, will now pay 11 percent for all transactions done through the alternate billing system. Google last month reduced commissions for apps in certain categories to as low as 10 percent. These developers will pay a 6 percent commission for sales occurring through the alternative billing system.
The Play Store is a significant revenue source for Google and the company has ensured minimum damage to this source while at the same time complying with the new law. Although Google does not reveal specific figures, in the last financial year, revenue under “Google other,” which includes Google Play store sales accounted for $21.7 billion of Google’s total revenue of $182.5 billion.
Alternative billing systems may not offer the same protections and features: Google
Google’s reluctance in making this policy change is evident: “We work hard to keep users safe and maintain the experience they have come to expect from apps and games downloaded from Google Play. Alternative billing systems may not offer the same protections or payment options and features of Google Play’s billing system—such as parental controls, family payment methods, subscription management, Google Play gift cards, and Play Points,” the company said.
Google also pointed out that many South Koreans use Play Store gift cards and over 12 million users have enrolled in Play Points, both of which cannot be used on the alternative billing systems. “South Korean consumers value these features of Google Play’s billing ecosystem, and we believe it’s critical to continue to offer them the choice to use Google Play billing if they desire,” the company said.
Service fee covers more than payment processing: Google
Like any business, we need to have a sustainable model to continue to improve our products while maintaining important user protections. Just as it costs developers money to build an app, it costs us money to build and maintain an operating system and app store that makes those apps easily and safely accessible by consumers. – Google
Google once again reiterated that the commission it charges is more than a payment processing fee and it contributes to other aspects like:
- Android and the Google Play Store: Google highlighted that it does not charge licensing fees for its Android operating system, allowing “hardware manufacturers to build a wide range of devices at different price points that give users unprecedented choice.” The company shared that “Android is used on tens of thousands of device models from smartphone companies around the world [and] more than two million developers use Google Play to reach 2.5 billion users in 190 countries.”
- New Android platforms: The service fee helps cover Google’s cost of development for building “platforms for new form factors such as Auto and TV to help developers increase their reach in new ways,” the company said.
- Security: The commissions contribute to maintaining the security of Google Play and Android through app reviews and “automated security of Google Play Protect that scans over 100 billion apps per day,” the company said.
- App distribution: The fee allows Google to maintain app distribution channels that allow developers to reach over three billion users “with the ability to optimize delivery by device and functionality and provide ongoing updates,” the company said.
- Developer tools: Google provides developers with tools to “run experiments, beta test, optimize store listings, analyze performance, and more,” the company said.
- Billing system: Google gives users a safe transaction platform and developers the convenience to reach users using locally relevant forms of payments, the company said.
Google’s commissions in the spotlight in India
In September 2020, Google notified that it will enforce its billing system on all apps downloaded from the Play Store for in-app purchases. Although not a new policy per se, certain apps were able to get away with not paying commission to Google by using their own billing system. Google’s policy update indicated that this will no longer be tolerated.
Google’s announcement kicked up a storm in India as many start-ups and developers objected to the high rate of commission. Bowing to pressure, Google deferred the enforcement of its billing system policy to March 2022. Notwithstanding this, start-ups approached the Competition Commission of India (CCI), which ordered a detailed investigation into the Play Store last November.
In launching its investigation, the CCI said that there was prima facie evidence that Google may be abusing its dominant position in India, with regards to Play Store’s exclusivity and Google Pay services. It ordered an investigation into the following aspects of Google’s practices:
- High commissions
- Exclusivity regarding the choice of payment systems for app purchases
- Preference to Google Pay for payments
- The advantage gained from data collection
Earlier in October, the Alliance of Digital India Foundation (ADIF), filed a petition with CCI seeking interim relief from Google’s billing system mandate until the antitrust watchdog’s investigation is complete.
Separately, CCI is also reviewing an antitrust complaint filed against Apple App Store in September.
Apple, Google face challenges around the world
- Epic lawsuit: Epic Games, maker of the popular Fortnite game, filed lawsuits against both Apple and Google in August 2020 after both platforms terminated Epic’s developer account for implementing an alternative payment system on the Fortnite app. While a verdict has been reached in the Epic vs Apple case, both the companies have appealed it. Meanwhile, the hearing is yet to begin in the Epic vs Google case, but Google recently filed a counterlawsuit.
- Japan: Earlier in September Apple made a concession to settle an investigation by Japan’s Fair Trade Commission into the Apple App Store. The concession allows developers of “reader apps” like Netflix and Spotify to include an in-app link to their website for users to set up or manage an account.
- Netherlands: The Dutch antitrust authority has found that Apple’s rules requiring app developers to use its own payment system are anti-competitive. While the Netherlands’ Authority for Consumers and Markets has not fined Apple, it has demanded changes in the company’s in-app payment policies.
- China: China’s Supreme Court in September dismissed Apple’s plea and ruled that an antitrust lawsuit filed by a consumer against the company’s China entity can proceed. In its plea, Apple had argued that the lawsuit should not be allowed because its China entity does not deal with App Store operations. The court, however, said that Apple had potentially abused its market position and undermined competition, and hence the case can be heard.
- US proposed bill: On August 11, US lawmakers introduced a new bill titled Open App Markets Act that proposes:
- Operating systems must allow third-party app stores
- Developers must be allowed to choose their choice of in-app payment system
- Pricing for various app stores or in-app payment systems can be determined by developers
- Developers can freely communicate pricing offers with users
- Google and Apple cannot use non-public data to build competing apps
- No self-preferencing in app stores
- Third-party developers must be provided with the same access to developer tools
- EU and UK: The European Union has launched an investigation into Apple App Store following a complaint from Spotify and the United Kingdom has launched a broad investigation into Google’s and Apple’s effective duopoly over the supply of operating systems (iOS and Android), app stores (App Store and Play Store), and web browsers (Safari and Chrome). Both investigations are ongoing.
- Russia: Russia’s Federal Antimonopoly Service (FAS) on October 27 launched an antitrust investigation into Apple’s App Store for not allowing developers to link to third-party payment systems.
- Google Slashes Play Store Commissions For Apps In Certain Categories
- Google Will Soon Start Showing Privacy Practices Of Apps On Play Store, Here’s What Users Can See
- Google Play Store’s Policy Update In India Could Be ‘Disastrous’, Alleges Petition By ADIF
- Taking Cue From The Apple Verdict, Google Countersues Epic Games Arguing Breach Of Contract
- Exclusive: A Deep Dive Into The Antitrust Complaint Against Apple In India
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