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Google’s App Payment Overhaul Will Change The Marketplace

Google has folded to mounting antitrust pressure and will begin letting some apps bypass its billing system in favour of their own.

This is a huge move, given the 18-month-long battle Apple is currently in with Epic Games, who challenged the legality of the current state of play.

An app developer selling on Apple’s App Store or through Google Play is unable to bypass either Google or Apple’s payment system. Apple currently takes a 30 per cent bite of all in-app purchases and subscriptions.

Last October, Google lowered its cut to 15 per cent “for 99 per cent of creators” as the practice quickly moved from a savvy money-maker to a PR nightmare with legal challenges coming from every angle.

Now, Google has moved further still, but is treading carefully, referring to its new practice as an “exciting pilot program”.

“This pilot will allow a small number of participating developers to offer an additional billing option next to Google Play’s billing system and is designed to help us explore ways to offer this choice to users, while maintaining our ability to invest in the ecosystem,” Sameer Samat, a Google vice president, wrote in a blog post.

“This is a significant milestone and the first on any major app store — whether on mobile, desktop, or game consoles.”

So far, the company is only allowing Spotify to offer alternative payment systems, with more ‘partnerships’ coming in the following months.

Regulatory action in South Korea passed in November forced Google to allow an alternative payment system, which they did, but not without warning users that “alternative billing systems may not offer the same protections or payment options and features of Google Play’s billing system.”

Once Spotify is responsible for its own billing, it will be hard for Google to unring that particular bell.

Apple, however, will clearly require legislation to follow suit. The company famously said it does not strike individual deals with developers, no matter the size. It intends to take the full 30 per cent from any app on its marketplace, until forced to do otherwise.

They have good reason for wanting the status quo to continue. Last year, consumers spent A$177.4 billion on apps, with 66 per cent of this spending happening within Apple’s ecosystem.

In 2017, prior to any legal stoush, Epic co-founder Tim Sweeney pointed out that an app store could “still make a significant profit” by taking a seven to eight per cent cut.

“We have to acknowledge this as a market failure,” he explained at a keynote address as part of Gamescom’s Devcom 2017.

“Most of the money made goes to middlemen: app stores, social networks. This is broken. I don’t know how we can solve this.

“We should not accept this as a status quo,” Sweeney continued. “We should constantly be on lookout for better solutions. We should look for ways to cut past the middle men.”

Sweeney put his money where his mouth is in 2020, first attempting to bypass Apple and Google’s payment systems in favour of its own for the popular game Fortnite.

When both companies removed the game from their stores, claiming a breach of agreement, Sweeney filed suit against Apple, bringing this controversial practice into the light.

Australia could follow closely behind South Korea in successfully enforcing legislation to stop these practices.

The ACCC has been bullish about curbing the anticompetitive behaviour of Google and Apple. Its second Digital Platform Services Inquiry interim report, released last April was firm on this.

“Apple and Google’s stores are the gateways between consumers and app developers, and it’s true that they provide considerable benefits to both groups. But there are significant issues with how this market is operating,” then-Chair Rod Sims said.

In August he again addressed the terms relating to the use of Apple and Google’s in-app payment systems, questioning the practice of “preventing developers from informing consumers that other, possibly cheaper, payment options exist if they pay outside the app.”

The ACCC is also targeting Apple and Google’s other app-related practices, such as favouring certain apps in the stores, pre-installing and highlighting its own apps, and making these the default apps of their own devices.

Apple’s near-field communication chip which allows ‘tap-and-go’ payments, has been kept from third-party companies wishing to implement their own systems, despite this being used in Apple’s own Apple Pay app, is also under scrutiny.

In a perfect world, the money developers will save will allow them to offer lower subscription costs to consumers, pay artists higher royalty rates, and lessen the twin monopoly Google and Apple have over the app world.

The successful curbing of Google’s in-app payment cut in South Korea could prove a valuable precedent. But it’s likely that Google’s deal with Spotify will mark the real tipping point, when developers say enough is enough, and start favouring whoever gives them the better payment terms.

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