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The REQUIRES less than four hours for nine jurors to reach a verdict. On December 11th in a San Francisco courthouse they unanimously agreed that Google’s app store was a monopoly and that the company had engaged in unfair competition. The decision delivers a significant setback to the search giant, which is currently entangled in other legal disputes. This ruling has the potential to reshape the app-store economy significantly.
Most smartphones operate on one of two operating systems. Apple’s software is a secluded environment featuring only one app store—its own. Other device manufacturers generally adopt Google’s Android, which theoretically permits entry to app stores other than the Google Play store. The case revolved around whether this was true in practice. In 2020, a game studio called Epic Games encouraged players to utilize its payment system for transactions within “Fortnite”, its highly successful shooter game. The aim was to bypass the 30% share claimed by Apple and Google on most in-app purchases in their app stores. Subsequently, “Fortnite” was briefly banned from both platforms.
Epic filed a lawsuit, asserting that Google was stifling competition through agreements with smartphone manufacturers like Samsung and LG, arranging for the Play store to be prominently placed on their devices in exchange for a share of revenues. The jurors dismissed Google’s argument that it competes vigorously with Apple, as well as other app stores on Android devices.
Thus far, the scenario seems clear-cut. What makes the situation peculiar is that this ruling contradicts the outcome of Epic’s nearly identical case against Apple. The Apple case concluded in 2021 with the company prevailing on nine out of ten counts (losing only the tenth, which pertained to the use of alternative billing systems).
One explanation for the disparity could be that Google’s destiny was determined by a jury, as opposed to a judge. Public sentiment is wary of big tech, with two-thirds of Americans perceiving it as wielding excessive power. Jurors may also struggle to comprehend the intricacies of antitrust laws. Ironically, another explanation could be that Google has strived to make its mobile software excessively accessible. Android’s open-source code can be freely used by anyone to develop their own OS. Conversely, Apple’s customers and developers are aware that the company controls all aspects of the iPhone. The notion of being confined within Apple’s enclosed ecosystem may be more acceptable if consumers are fully aware of the circumstances. Conversely, limitations imposed solely by the operating system creator, which claims to be open, may be less palatable.
The verdict may influence two other lawsuits against Google brought by the US Department of Justice. The first case commenced in September and centers on Google’s agreements to secure its position as the default search engine on various devices, including Apple’s, and web browsers. These arrangements resulted in a $26 billion cost for the company in 2021. The second case is likely to commence next summer and scrutinizes Google’s advertising business.
The judge presiding over the Epic case will determine a remedy early next year. One option could be to liberate app developers from Google’s billing infrastructure. South Korea mandated Apple and Google to facilitate alternative payments last year. The EU’s new digital regulation contains similar provisions. This could augment competition in the app-store sector—particularly in the realm of gaming. Microsoft, following its $69 billion acquisition of Activision-Blizzard, a major game developer, is devising its own game app store. Epic has already established one for PCs. Competitor Riot Games may also introduce its own app store.
The tech giants are vehemently opposed to these adjustments. According to research firm Sensor Tower, global app spending is projected to reach approximately $160 billion this year. Google and Apple’s commissions account for about 5% of each company’s total revenue. Testimony in the two court cases indicated that the operating margins for both app stores are estimated to exceed 70% (Google contended in court that this figure does not encompass certain app-store expenditures, such as research and development). This is substantially higher than Google’s overall margin of 26% and Apple’s 30% from last year.
Sensor Tower suggests that Google is already witnessing a decline in its Play store revenues (see the graph). Thus, neither company will relinquish their positions without a fight. Google is contesting the jury’s decision at an appeals court, where a panel of judges will review the case. Apple is appealing the payment ruling in the Epic case. Both are devising ways to circumvent regulations like those in South Korea, where they allow alternative billing methods and promptly impose a commission of up to 26% on any transaction conducted using them. ■
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