Epic's legal victory over Google isn't a clear win for payment companies

Andrew Harrer/Bloomberg

Epic Games has finally won a major victory in its long multifront legal battle against app store payment policies from big technology companies. That may lead to a plethora of easier payment alternatives, but it will take much longer than a fortnight. 

A jury in the U.S. District Court in San Francisco said Monday that the Google Play store and Google Play billing system are violating anti-monopoly competition rules due to their policy of requiring third-party developers to use Google's internal payment system. Epic Games, the developer of Fortnite and other content, has been engaged in legal battles with Google and Apple dating back three years, contending that the companies' app stores eliminate payment choice and extract unfair fees.

This week's ruling against Google potentially opens the door to more competition for both Apple and Google, though the technology companies will retain advantages by virtue of running the smartphone platforms that incorporate payment enrollment, app downloads and other functions that competitors would have to build independently and convince users to adopt.  

"Both Apple and Google have been reaping supracompetitive fees on their mobile-app platforms, which enjoy powerful network effects," said Eric Grover, a principal at Intrepid Ventures. "If app developers can use any payment processor, total acceptance fees paid on the platforms will fall dramatically."

The latest Google verdict arrived after less than four hours of deliberation and was unanimous. Google unfairly controls Android app distribution, according to the jury, and that policy injured Epic. But the case isn't entirely over; a judge will determine how Google must respond, or what penalties it may face, in another hearing scheduled for January. And Google is expected to appeal. 

"There is room for other payment companies to offer a good user experience, but it won't happen on day one," said Daniel Keyes, a senior analyst at Javelin Strategy & Research. "Apple and Google still have control over the user experience." 

Planet of the apps

If Monday's verdict withstands Google's appeal, a reasonable expectation would be that Google would have to be more open about how developers on Google Play can collect fees using non-Google payment providers, and Apple would face similar pressure by extension due to Google's cuts. 

That would reduce Google and Apple's ability to charge interchange-style fees of up to 30% per transaction. 

In court cases against Google and Apple, Epic has contended that these fees are unfair and discourage choice. Epic has also objected to individual deals that Google has inked with firms such as Spotify that bypass app store payment fees. Apple and Google have countered that the fees provide for security and other forms of risk management. 

Payments

How Apple's battle with Epic cracks a door for payment facilitators

April 26, 2023 2:56 PM

Apple and Google will be the principal losers due to Monday's decision, Grover said. But Apple's and Google's acquirers will lose transactions and therefore revenue as well. 

"However, the net fees paid to payment processors writ large will increase. App developers using their own payment processors will pay far less than 30%, but on average more than Apple and Google share with their acquirers," Grover said. 

In a statement on its website, Epic said: "Today's verdict is a win for all app developers and consumers around the world. It proves that Google's app store practices are illegal and they abuse their monopoly to extract exorbitant fees, stifle competition and reduce innovation. "

In an email, Wilson White, vice president of government affairs and public policy at Google, said: "We plan to challenge the verdict. Android and Google Play provide more choice and openness than any other major mobile platform. The trial made clear that we compete fiercely with Apple and its App Store, as well as app stores on Android devices and gaming consoles. We will continue to defend the Android business model and remain deeply committed to our users, partners, and the broader Android ecosystem."

Apple did not provide comment by deadline. 

Taking another bite at Apple?

Monday's court decision follows a verdict in April in a similar suit from Epic against Apple. Epic was not as successful in that case. The judge ruled Apple was not violating antitrust rules, but nevertheless ordered Apple to direct consumers to payment options outside of its app store. 

Epic's cases against Apple and Google accompany a trend of politicians and regulators that are pushing back against the control that large technology companies exert against consumers and developers that access app stores and other services.

The concept is referred to as a "walled garden" that keeps people inside Apple and Google's ecosystems for development, shopping, accessing content and moving money. Regulators and legislators in South Korea, the European Union, the United Kingdom and some U.S. states have tried to require Apple and Google to allow third-party payment options. U.S. state legislative efforts to create a "Durbin Amendment"-style requirement that Apple and Google allow competing payment options have largely stalled. 

There have been some concessions from the big technology firms. Apple has cut App Store fees for certain users, such as media companies. Google and Apple both cut the 30% payment fee to 15% for certain subscriptions and classes of developers. 

The Google/Epic decision underlines the danger of imposing the requirement that transactions are done exclusively with the payment vendor you impose, said Nicholas Economides, a professor at the Stern School of Business at NYU. 

"The decision will increase competition in payment systems since app purchases can now be routed through a number of different competing payment systems, not just the exclusive one imposed by Google," Economides said. "This is likely to reduce the cost to users of app purchases from the Google Play store."

Monday's court victory for Epic has led to a further round of speculation that the app store "duopoly" is threatened, as more payment companies chase app store share. Processors like Adyen, FIS and Fiserv; fintechs like Stripe, Block and PayPal; and bank-led systems wallets Paze could all step in to offer payments on the app stores.

The challenges for payment rivals stem from existing in-app checkout systems from Apple and Google. Apple, for example, executes payments in less than ten seconds using Apple's own authentication and users' stored payment credentials. Developers would have to address the friction that comes with navigating to another payment system. 

This week's development does not change that competitive environment, Keyes said. 

"There is an opening for other payment firms but there won't be a deluge of offerings that are as smooth as what Apple and Google have," Keyes said.