Google’s legal defeat threatens $200 billion app-store industry
Google’s legal defeat at the hands of Fortnite maker Epic Games threatens to roil the Google-Apple app-store duopoly, which generates close to $200 billion a year and dictates how billions of consumers use mobile devices.
The loss — handed down by a San Francisco jury on Monday — is a blow to the two companies’ business model in apps, where they charge commissions of as much as 30% to software developers who typically have few other options.
Epic has spent years railing against the practice and got a federal jury to agree that Alphabet Inc.’s Google unit had acted unfairly as a monopoly. The case is likely to accelerate the weakening of app-store rules, which have already come under fire from regulators and lawmakers around the world.
“The dominoes are going to start falling here,” Tim Sweeney, chief executive officer of Epic, said in an interview after the verdict. “The end of 30% is in sight.”
Though Apple won a similar case against Epic in 2021, that ruling was made by a single judge. The nature of the Google suit — in which a jury sided unanimously with Epic — let actual consumers weigh in on the world of smartphone apps. In under four hours of deliberations, they found that Google had engaged in anticompetitive conduct, harmed Epic and illegally forced its own billing system on developers.
The battle began in 2020, when Fortnite was kicked off the Apple and Google Play app stores because the game developer had secretly installed its own payment system. The idea was to bypass the up-to-30% revenue share that the two tech giants take from in-app purchases and subscriptions on their platforms. In response,
Epic sued both companies.
Google also has drawn criticism for making side deals offering lower commissions with big developers such as Spotify Technology SA. In Monday’s decision, the jury found that Google shouldn’t require Android app developers to use its billing system for software sold through its store — and that it shouldn’t offer custom agreements to certain developers.
“The immediate aftereffect is we will see a shift in the marketplace where big tech companies will have to make accommodations — whether it is more access, better terms, more options for developers — to stave off legal exposure,” said Paul Swanson, who is a partner at Holland &
Hart and specializes in technology and antitrust law.
The case also underscores a consumer sentiment that major technology companies have gained too much power. Google also faced scrutiny from a judge this fall over its power in search, though the outcome of that trial won’t be clear for months.
Epic’s Sweeney predicted that — as Google starts making changes to its operations and public pressure mounts — its app-store peer will be forced to act as well. “The same thing will start happening with Apple,” he said.
And that will ultimately help consumers, Sweeney said. “The economics is real,” he said. “When you remove a 30% tax from an ecosystem, consumer prices will get better. Or quality will get better and selection will increase.”
But there were significant differences between the two trials. During the current case, Epic highlighted agreements that Google reached with top game developers, including Activision Blizzard Inc. and Nintendo Co., for smaller fees.
“Revenue sharing deals among Google, smartphone makers and game developers came to light during the trial,” Justin Patterson and other analysts at KeyBanc Capital Markets wrote in a note to clients. “We believe this was a key difference between the cases that contributed to Apple’s victory and Google’s loss.”
There’s a fortune at stake for both Apple and Google. In-app spending is forecast to reach $182 billion next year and $207 billion in 2025, according to research firm Sensor Tower. Google will get about $10.3 billion in revenue from app sales and in-app purchases from the Play Store in 2023, according to analysts at Wells Fargo. For every 5 points that the Play Store fee rate decreases, Google loses about $1.3 billion in operating income or 9 cents of earnings per share, the analysts wrote.
Google, which plans to appeal its verdict, said it “will continue to defend the Android business model and remain deeply committed to our users, partners and the broader Android ecosystem.” Apple didn’t respond to a request for comments.