Google Play Store Deal Frustrates Critics, Will Leave Intact Heavily-Criticized Commissions

Alphabet Inc.’s agreement to pay $700 million to consumers and states and open the Google Play Store to competition will leave intact the heavily-criticized commissions the technology giant charges mobile app developers.

The settlement announced in a court filing and lauded by elected attorneys general who helped negotiate it will make it easier for developers to offer apps to consumers outside Google Play and use their own payment systems. But there’s a catch: the developers will still have to pay Google a service fee of as much as 26%.

Sharp differences of opinion emerged Tuesday as to how much the accord will reshape Google Play’s business model and benefit consumers. While some state officials heralded the deal as an end to Google’s abuse of its market power, an executive at Epic Games Inc. — the maker of Fortnite that has waged a three-year court battle with Google and Apple Inc. over their separate app stores — said the settlement will provide “no true relief for consumers or developers.”

Why 30% App Store Fees Are Under Threat Worldwide: QuickTake

Google and Apple have for years faced complaints that their digital stores, the dominant marketplaces in the $200 billion-a-year mobile app industry, collect exorbitant commissions from developers who typically have few other options — resulting in higher costs for consumers. Those grievances have spurred app makers and regulators to rein in the two smartphone giants so that rival payment and distribution platforms have more space to compete.  

For all the incremental changes that the Google settlement offers, it won’t dismantle the fee structure. Google will still rake in profits because the settlement extends to all developers a program that calls for a service fee of as much as 26% — not much less than the current 30% commission rate charged to developers that make more than $1 million in sales each year.

Google maintains that such fees help support the company’s investment in its app store and Android operating system platform.

‘Meaningful Changes’

“There probably wouldn’t have been a settlement if it was one that brought meaningful changes to the Play Store,” said Bloomberg Intelligence antitrust litigation senior analyst Jennifer Rie. 

It will be up to US District Judge James Donato to decide whether to approve the settlement based on a finding that it’s fair and reasonable.

Donato also presided over the jury trial that Epic won against Google this month over claims that the Play Store’s app distribution, payment and fee policies are a monopoly. In the Epic case, Donato will have to fashion a remedy to cure the violations the jury found that Google committed.

The settlement with the states covers 102 million consumers who will each receive at least $2, with additional payments based on the amount they spent in the Play Store from August 2016 to September of this year.

‘Huge Value’

Wilson White, Google’s vice president for government affairs and public policy, said “developers find huge value in Play as an attractive and secure distribution, discovery and engagement platform.”

“We provide a broad array of training, tools and services to help developers grow their businesses and acquire, engage and keep users — and like any other business, we charge for those services,” he said in a statement.

California Attorney General Rob Bonta said that while the $700 million payout “is not nothing,” the settlement’s “punch line” is the policy changes Google Play will be required to make.

“Harming consumers and gouging developers” will no longer be allowed, he said, adding that Google will have to “allow competition into the marketplace with app stores and direct billing.”

‘Unjustly Collected Fees’

But Corie Wright, Epic’s vice president of public policy, said Google’s “unjustly collected fees” will remain in place and “consumers will continue to overpay for digital goods.”

Wright’s criticism of the settlement was echoed by Gene Burrus, former head of global competition policy at Spotify, the music streaming service.

The absence of any requirement to pare back service fees is the “single biggest piece” of why the deal is weak, said Burrus, who expressed disappointment that the states didn’t get more concessions from Google in light of the company’s defeat in the jury trial with Epic.

The case is In Re Google Play Store Antitrust Litigation, 21-md-02981, US District Court, Northern District of California (San Francisco).

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