Alphabet Inc.’s Google explored altering its app store pricing model to navigate regulatory challenges but discarded a proposal involving a fixed fee per app when it became evident that such a change could incur significant financial losses, according to documents released on Thursday.
In 2021, Google initiated Project Everest to reassess the Play Store billing model, as disclosed in documents released as part of an antitrust suit filed by Epic Games Inc. Google recently lost the lawsuit brought by the Fortnite creator when a federal jury concluded that the tech giant had abused its monopoly power over the app store.
Prompted by increasing pressure from regulators and developers regarding the Play Store’s 30% commission, the presentation revealed Google’s concerns about potential regulatory overreach.
The presentation stated, “We can defend the status quo for a few months,” emphasizing the desire to support reasonable legislation, position Google as a leader, and prevent more stringent regulations.
Project Everest explored the possibility of charging developers incremental service fees for placing their apps or games in the Play Store, including fees for user downloads, updates, and referrals. However, the company estimated that this model had the “potential for significant loss,” ranging from $1 billion to $2 billion for apps and $6 billion to $9 billion for games.
Instead, employees suggested allowing app developers to handle payments independently, in exchange for paying Google a reduced fee. The company estimated that this change would decrease the store’s annual revenue by $250 million to $1.3 billion, depending on user adoption of the alternative payment option. This approach closely mirrors the $700 million settlement Google announced last week with a group of state attorneys general and consumers.
Google’s loss to Epic threatens the app store duopoly it shares with Apple Inc., generating nearly $200 billion annually and influencing the mobile device usage patterns of billions of consumers. Epic has long criticized the 30% commissions imposed by both Apple and Google, and Google’s loss may expedite the relaxation of app store rules already under global scrutiny from regulators and lawmakers.
Mobile app developers have consistently raised concerns about Google’s high commissions, leading countries like Korea to mandate the opening of app stores to alternative payment systems. New European Union rules, effective in March, will also require Google and Apple to open up their stores.
In 2021, dozens of state attorneys general sued Google, alleging the company used unlawful tactics to block competition and force developers to go through the Play Store. On Monday, the states announced that Google would pay $700 million and allow developers to use their own payment systems to resolve the suit, a move consistent with indications from Google’s internal documents.
Google spokesperson Dan Jackson justified the fees, emphasizing their role in supporting Android and the Play Store. He also noted that Google has reduced fees on subscriptions and the first $1 million earned by developers in the store. VC, VC, VC, VC, VC, VC, VC, VC
Introduced in 2022 under the title “User Choice Billing,” the program allows app developers to process payments independently, giving Google a slightly lower fee of 26% or 11% on subscriptions. Purnima Kochikar, a Google employee involved in designing the program, testified during Epic’s trial that about 80 developers had opted for User Choice Billing as of May 2023.