This week, Epic Games won a high-profile lawsuit against Google. A U.S. jury ruled that the Google Play Store monopoly had harmed Epic and has to be addressed. The decision could have a major impact on the Android ecosystem, while Apple’s dominance over the App Store is once again under a microscope. Will both Google and Apple have to open up their app stores?
It all started with Fortnite, Epic Games’ immensely popular multiplayer game available on a variety of platforms. Within the game, the game developer offers so-called V-Bucks, a currency for virtual purchases of numerous items to make your in-game character look different. Initially, Epic chose to run such transactions through Google and Apple’s ecosystems, as is customary. Those who purchased V-Bucks on Android and iOS devices did so in the form of a Play Store or App Store purchase, respectively. For each payment, both parties charge hefty fees, which many refer to as either the “Google tax” or “Apple tax.” The percentages vary, but both companies typically snatch up to 30 percent from the amount collected from the consumer. This practice spurred Epic to circumvent this course of action. It updated its app to allow purchases directly, bypassing the payment systems from both app stores in the process. After that, Fortnite was summarily thrown off both platforms. Two lawsuits immediately followed.
Epic lost its lawsuit against Apple in September 2021, but won this week from Google. The big difference: in the first case the judge rendered a verdict, this time it was a jury that made the final call.
What next?
Neither case has run its course. While both Epic and Apple have gone to the U.S. Supreme Court, Google will also appeal this week’s jury verdict. However, jubilation does reverberate through Epic CEO Tim Sweeney’s timeline on social media platform X. The question, however, is: what next?
Work on a solution to Google’s monopolistic stance is set to begin in February 2024, as the judicial verdict states. However, a ruling on Google’s upcoming appeal is not expected until mid-2025, according to analysts consulted by Reuters. In short: real change won’t happen overnight. However, several legal specialists have told GamesBeat that the decision will have a significant impact, especially for Google. Because that company has had to make separate deals with smartphone manufacturers and app makers within the Android ecosystem, an anti-competitive stance is easily traceable and arguable. At each turn, it has tried to wheel and deal with third parties, avoiding legal challenges to its might. However, a precedent has now been set, legal expert Matt Stoller argues, making it easier for the usually cautious judges in America to rule against Google from now on. It’ll make other companies more eager to take on the Google juggernaut, knowing that they can, in fact, win out.
As far as Google is concerned then, the verdict is a clear sign that it will have to fear for its own dominance over the Android ecosystem. It tried to derail all lawsuits with special deals, but failed to do so with Epic. Regardless, the story regarding Apple seems a lot more complex. First of all, that company won out in the lawsuit from Epic Games. Also, in addition to being an app store owner, it is the only hardware manufacturer within its own walled garden in the form of its OS. That means it never had to cut deals like Google did, leaving it harder to pin down exactly how the company has maintained its dominance.
What does an open app store mean?
Stoller argued to GamesBeat that the jury decision is the “beginning of the Google break-up”. For example, he suggests it’s now possible that the requirement for apps to use the Google Play payment system could disappear. Michael Pachter, analyst at Wedbush Securities, argues that Apple should also lose on appeal. All this sounds like big changes are coming. Either way, the dynamics surrounding Apple and Google’s dominance are different from, say, takeovers of tech companies. Competition authorities have repeatedly put up blockades against Broadcom’s acquisition of VMware and Microsoft’s deal to acquire Activision-Blizzard, for example. Eventually, these were all won over with fairly minor concessions. In rare cases, like with Nvidia’s attempt to snag Arm, regulatory bodies have in fact prevented mergers and acquisitions over concerns about its effect on competition.
In the case of Apple and Google, we’re talking about a dominant market position already in place, and the question is whether and how action is needed to curtail it. Existing pieces of legislation will already point us to how the two app stores may have to be altered, too. Within the European Union, the Digital Markets Act (DMA) has designated major tech players as so-called “gatekeepers”, which play a key role in connecting customers with companies. Specifically, this means that Alphabet (Google), Amazon, Apple, ByteDance, Meta and Microsoft cannot use their platforms to counter its competitors or to significantly control how they do business.
An important aspect of the DMA is that companies on these platforms can offer contracts that are valid outside the platform in question. This raises the question of whether agreements through external payment services should be allowed as a result, no strings attached. Apple has argued for years that it simply has to take a significant cut of app revenue to afford the App Store’s pricey maintenance costs. This includes the few third-party payment systems it has allowed in South Korea since 2022: there it collects 26 percent per transaction instead of the usual 30 percent if a developer chooses an external payment option within an app.
In short: we’re still a long way from fundamental change. Google, according to experts, is about to feel the pain and already struggling with the burdens of the loose nature of the Android ecosystem. Separate deals can be more easily detected as anti-competitive behavior and shot down. As for Apple, the court decision will be worrisome, but it has used all means to secure its own dominance for years.
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