by Google, a subsidiary of Alphabet Inc., considered implementing changes to its app store pricing model but ultimately abandoned the proposal due to potential revenue losses, according to recently released documents. The documents, disclosed as part of an ongoing antitrust lawsuit filed by Epic Games Inc., shed light on Google’s internal discussions regarding the Play Store’s billing structure. The tech giant’s loss in the lawsuit filed by Fortnite’s developer underscores the scrutiny faced by Google Play’s 30% commission, prompting the company to explore alternative options.
In an attempt to address mounting pressure from regulators and developers, Google initiated Project Everest in 2021 to reevaluate its Play Store billing model. The presentation revealed Google’s concerns over potential regulatory overreach and its desire to maintain the status quo temporarily while considering reasonable legislation. The company was wary of more drastic measures being imposed and aimed to position itself as a leader in advocating for change.
Project Everest examined the possibility of charging developers service fees for app placement in the Play Store, alongside additional charges for user downloads, updates, and referrals. However, Google estimated that this model could result in significant losses ranging from $1 billion to $2 billion for apps and $6 billion to $9 billion for games. Consequently, employees recommended an alternative approach: allowing developers to process payments themselves while paying a lower fee to Google.
The recommended change would have app developers handle payments independently while Google collected a reduced fee. The estimated impact on the Play Store’s annual revenue would have varied between $250 million and $1.3 billion, depending on how many users chose this alternative payment method. The proposed solution closely resembles the $700 million settlement recently reached between Google and a group of state attorneys general and consumers.
Epic Games’ victory in its lawsuit against Google poses a significant threat to the app store duopoly dominated by Google and Apple, generating nearly $200 billion annually and shaping the mobile experience for billions of users. Epic has long criticized the practice of charging commissions as high as 30% and has campaigned for change, forcing regulators and lawmakers worldwide to question the app store rules.
Developers have consistently raised concerns over Google’s high commissions, arguing that they are passed on to consumers in the form of higher prices. This led to the implementation of new regulations, such as those in South Korea, requiring app stores to open up to alternative payment systems. Additionally, the European Union will introduce rules in March that demand Google and Apple provide access to other payment options.
In 2021, Google faced a lawsuit from dozens of state attorneys general, who accused the company of employing anticompetitive tactics to stifle competition and enforce the Play Store as the only viable option for developers. The recent settlement of $700 million, along with the allowance for developers to use their own payment systems, resolves the litigation. However, Google’s internal documents suggest that the company was already considering this shift towards greater flexibility.
Google spokesperson Dan Jackson defended the fees, stressing their necessity for investment in Android and the Play Store. Google has already implemented fee reductions for subscriptions and the first $1 million of developers’ earnings. In 2022, the company introduced User Choice Billing, which enables developers to process payments independently and pay Google a lower fee of either 26% or 11% for subscriptions.
The User Choice Billing program aims to provide developers with more options, according to Purnima Kochikar, a Google employee involved in its development. As of May 2023, around 80 developers have chosen to transition to User Choice Billing, signaling a growing interest in the alternative payment model.
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1. Source: Coherent Market Insights, Public sources, Desk research
2. We have leveraged AI tools to mine information and compile it
