Google to Cut Commission It Charges App Developers

Bill Mount

Google is reducing the cut it takes from app sales in its Play store, joining rival Apple Inc. AAPL 1.27% in shrinking commissions as the power the tech giants wield through their digital marketplaces has drawn the ire of developers and scrutiny of regulators. The company behind the world’s largest […]

Google is reducing the cut it takes from app sales in its Play store, joining rival

Apple Inc.

AAPL 1.27%

in shrinking commissions as the power the tech giants wield through their digital marketplaces has drawn the ire of developers and scrutiny of regulators.

The company behind the world’s largest mobile operating system, Android, said Tuesday that it would reduce service fee it collects from 30% to 15% on the first $1 million developers earn from its app store. The reduction, which begins in July, is a slight departure from

Apple Inc.

AAPL 1.27%

’s decision late last year to reduce its rate to 15% for software makers who generate less than $1 million in annual sales.

Google, the main business of

Alphabet Inc.,

and Apple have built multibillion-dollar digital empires over the past decade by becoming the primary gatekeepers for apps that are downloaded to smartphones and other mobile devices world-wide. Their position of power has drawn criticism from developers large and small over the amount of money that tech companies are able to siphon from them. Those complaints have triggered lawsuits as well as regulatory probes in multiple countries.

By reducing its take of app sales, Google estimates that 99% of developers would see their fees cut in half. It said that every developer, regardless of size, is eligible to benefit, adding in a blog post that it considered the reduction to be “a fair approach that aligns our success with that of our developer ecosystem.”

Apple and Google have one of Silicon Valley’s most famous rivalries, but behind the scenes they maintain a deal worth $8 billion to $12 billion a year according to a U.S. Department of Justice lawsuit. Here’s how they came to depend on each other. Photo illustration: Jaden Urbi

Some software makers panned Google’s decision.

Tim Sweeney,

an outspoken critic of app-marketplace operators as chief executive of “Fortnite” maker Epic Games Inc., described the move as a “self-serving gambit.”

Were the reduction implemented last year, it would have lowered Google’s take of Play store sales of $11.6 billion by an estimated $585 million, according to Sensor Tower, an app-industry research firm. Its parent company Alphabet reported $182.53 billion in revenue last year, mostly from advertising.

The concession to developers is the latest in a series of changes the search company has made as it faces regulatory pressure in the U.S. Google recently enabled hotels and travel companies that aren’t paid advertisers to appear in travel-booking links through its platform after making similar adjustments for airlines on its flight-booking engine and online-retail listings in its Shopping tab.

The changes coincided with a Justice Department investigation into the company’s business practices, culminating with an antitrust lawsuit filed last year. Separate suits have been brought by Texas and Colorado. Google has said that the Justice Department’s suit is deeply flawed because consumers aren’t forced to use its services, which are largely available at little or no cost.

The debate over app-store fees intensified last year after Epic Games launched a public campaign against Google and Apple by adding a payment system inside “Fortnite” that circumvented the typical 30% cut due for digital purchases. Google and Apple retaliated by kicking the combat game out of their stores, an action that led Epic to file an antitrust lawsuit.

Apple declined to comment on Google’s change.

A spokeswoman for Epic said Google’s move doesn’t address the root of its beef with the company. “Whether it’s 15% or 30%, for apps obtained through the Google Play store, developers are forced to use Google’s in-app payment services,” she said. “Android needs to be fully open to competition, with a genuinely level playing field among platform companies, app creators and service providers.”

Last year Epic and several other companies formed a nonprofit to pressure the major app-store operators to make changes to their marketplace rules. Founding members of the Coalition for App Fairness also include

Spotify Technology SA

and Tinder owner

Match Group Inc.

A Google spokesman declined to comment further on the timing of the change. “As a platform, we do not succeed unless our partners succeed,” the company said in its blog post.

Both Google and Apple have defended their app-store fees, saying they help cover expenses related to user privacy, security and other services.

Google’s decision to apply the lower fees as developers book sales on the Play store contrasts with Apple’s approach. To secure the lower 15% rate, the iPhone maker requested developers apply to a program to show their earnings in 2020, a process that will give it insight into annual business growth of the apps in its store. Had Apple implemented that change last year, it would have reduced its $21.7 billion take of app sales by about $595 million, Sensor Tower estimates.

The companies also have different approaches for app distribution: Apple requires iPhone and iPad users to download apps exclusively from its App Store, while Android device users can access the Google Play store in addition to other app marketplaces.

Apple has said it prohibited third-party app stores so it can vet apps and protect iPhone users from malware and other software issues.

Roughly $38.6 billion was spent in the Play store last year, while the App Store generated $72.3 billion, according to Sensor Tower. Their combined revenue increased by 30% during a year when people around the world were spending more time at home due to restrictions related to the pandemic. Being able to collect a portion of sales through the growing app marketplaces has been lucrative for the companies in recent years.

A trial date for Epic’s lawsuit against Google in the U.S. hasn’t been set. Apple and Epic go to trial in early May over the “Fortnite” maker’s anticompetitive claims.

A similar complaint filed by Epic against Apple in the U.K. was dismissed last month. However, the U.K.’s competition authorities gave Epic permission to pursue a case against Google over how “Fortnite” was pulled from the Play store.

Epic last week also launched legal proceedings against Google in Australia over its app-store policies.

Google has shown a willingness to adjust its business practices in its home market in ways that it chose not to do during a decade of regulatory challenges in Europe.

Between 2017 and 2018, the European Union imposed $9 billion in fines and orders to change its business practices, but the efforts largely failed to dent its power and influence. Those orders followed findings that Google favored its own product ads at the top of users’ search results and that Google required smartphone makers to place its search engine and Chrome web browser on their devices to have access to its Play store.

Write to Tripp Mickle at [email protected] and Sarah E. Needleman at [email protected]

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