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Google Is Stoking Antitrust Criticisms at the Worst Possible Time

By Evan Niu, CFA – Sep 30, 2020 at 9:00AM

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The search giant is demanding its cut from a small number of high-profile developers.

Major tech corporations have been under intensifying antitrust scrutiny in recent years over various business practices. For Apple (AAPL -4.91%), the primary concerns relate to the iOS App Store and the company's 30% cut of digital sales and subscriptions. For Alphabet (GOOG -2.63%) (GOOGL -2.63%) subsidiary Google, critics argue that Google's dominant position in search allows it to funnel users into its own online services.

In a bizarrely timed move, Google is about to further stoke antitrust concerns.

Googleplex exterior

Image source: Google.

Google wants its cut

The search tech giant this week provided an update on its Android developer blog saying that developers will soon be required to integrate the Google Play billing system -- entitling Google to the same 30% cut that has caused massive headaches for Apple, such as the iPhone maker's current thermonuclear war with Fortnite maker Epic Games. Google is giving developers about a year (until Sept. 30, 2021) before it starts enforcing the changes in Android 12, which will be next year's major Android release.

"We've always required developers who distribute their apps on Play to use Google Play's billing system if they offer in-app purchases of digital goods, and pay a service fee from a percentage of the purchase," Google product exec Sameer Samat wrote. However, Google has never strictly enforced this policy, and a couple of rather prominent developers have historically circumvented Google Play billing and allowed users to make direct payments in apps via credit card: Netflix (NFLX -2.24%) and Spotify (SPOT -6.50%).

Samat notes that only 3% of developers have sold digital stuff through apps, suggesting that the policy change will not impact the vast majority of developers. Of that 3%, an overwhelming 97% of developers already integrate Google Play billing. In other words, only 3% of 3% of developers (0.09%) will be affected by the change. But simply looking at the number of developers impacted risks downplaying the potential economic fallout when that includes two large tech companies offering wildly popular services.

A smaller number of developers can still represent a ton of money

For example, when Netflix removed in-app subscriptions from its iOS app in order to stop paying the Apple tax in 2018, Apple's services segment almost immediately saw revenue growth in the entertainment category decelerate. Mobile analytics specialist Sensor Tower had estimated that Netflix grossed $853 million in 2018, forking over somewhere between $128 million to $256 million to Apple, depending on the age of those subscriptions, in the process. Technically, that all came from "just" one developer.

Spotify iOS app

Image source: Spotify.

Meanwhile, Spotify has filed formal antitrust complaints against Apple over the commission, since Apple and Spotify directly compete in the market for paid music streaming services. Much like Netflix, Spotify discontinued in-app subscriptions.

A possible saving grace

There is an important distinction between iOS and Android that may offer Google a potential saving grace. Unlike iOS, Android users have greater choice in app stores. While Apple's App Store is the only way for an average consumer to download apps, Google Play is just one of numerous alternatives available on Android. (Users can also manually install, or "sideload," apps from just about anywhere.)

That somewhat helps alleviate anti-competitive concerns since competition between app stores using different models should theoretically result in more choices and lower prices for consumers. For example, Epic is still planning to launch the Epic Games Store on Android this year with just a 12% cut of sales, undercutting the standard 30%.

For these reasons, criticisms levied against Google won't be as intense as Apple, but it still seems as if Google is asking for trouble at the worst possible time, particularly as regulators are reportedly preparing to file an antitrust complaint against the company.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Evan Niu, CFA owns shares of Apple, Netflix, and Spotify Technology. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Apple, Netflix, and Spotify Technology. The Motley Fool has a disclosure policy.

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