Google’s Play Store dominance under challenge by new U.S. lawsuit
The U.S. States of Utah, New York, North Carolina, and Tennessee are leading a lawsuit signed on by 32 other U.S. states alleging that Google is engaging in monopolistic practices to maintain dominance in Android app distribution and payment processing for digital content purchased through the Google Play Store.
The lawsuit, which was filed today in the United States District Court for the Northern District of California, alleges that Google is violating Sections 1 and 2 of the Sherman Act. Plaintiff States are seeking to prevent Google from imposing “technological obstacles or inaccurate warnings” when users attempt to sideload an app, from using contracts to prohibit OEMs from preloading a competing app store, from prohibiting developers from using Google Play to distribute apps or app stores that facilitate distributing apps outside of the Google Play Store, from conditioning access to Google App Campaigns on placement of an app on Google Play, from paying Samsung or other OEMs to abandon their relationships with app developers or scale back building up competing app stores, from paying app developers to deter them from offering apps outside of Google Play, and more. The full lawsuit can be read here, but we’ve summarized the arguments and evidence presented below so you don’t have to read all 144 pages (though I still recommend you do.)
Does Google have a monopoly over app distribution and payment processing?
Whether or not Google has a monopoly over Android app distribution is up for debate given that Android lets users sideload apps and OEMs are able to preload their own app stores. However, the lawsuit points to (sadly redacted) internal Google figures showing that the number of users who have enabled sideloading and the market reach of alternate app stores is very, very limited. The Google Play Store in the U.S., for instance, distributes “over 90% of all Android apps in the United States. No competing Android app store has more than 5% of the market.” Thus, apps that don’t partake in the Google Play Store lose access to the approximately 130 million Android devices in the U.S. And as for sideloading, the lawsuit states that Google imposes annoying barriers and warning messages scaring users away from taking advantage of the feature.
Furthermore, the lawsuit makes the argument that there is effectively no market for Android devices without the Google Play Store. As Android is “the only viable operating system available to license by mobile device manufacturers that market and sell their devices to U.S. consumers”, Google “has durable monopoly power in the market and considerable leverage over mobile device manufacturers and Android app developers.” The suit mentions that “even highly resourced entrants, such as Microsoft and Amazon, have failed” to create a “licensable mobile operating system.” Android is “‘open source’ in name only” as the Google-certified Android OS powers nearly all current Android devices. In fact, as of July 2020, “over 99%” of phones running a licensed mobile OS were powered by Google’s Android.
Thus, the lawsuit alleges that Google meets the criteria to be considered a monopoly subject to U.S. antitrust regulation.
How does Google’s alleged monopoly harm users?
Next, the lawsuit points out several ways that consumers and app developers in the 36 U.S. states are harmed by Google’s alleged Play Store monopoly.
According to the lawsuit, consumers are harmed because they have to pay more for apps and content (Google’s “supracompetitive commission”, as the complaint calls it). They’re also harmed by the “loss of competition among payment processors, which may offer substantially lower commissions, as well as enhanced payment features, customer service, and data security.” The suit points out how alternative payment processors like PayPal and Braintree charge significantly lower than Google Play Billing, ie. 2.9% of the transaction plus a fixed 30 cents.
App developers, meanwhile, are harmed when “some potential consumers…forgo in-app purchases, resulting in lost profits.” Google Play Billing further “disintermediates” app developers from their customers, preventing them from “providing tailored customer service on critical customer interactions such as payment history and refund requests.” Lastly, the forced tie between the Google Play Store and Google Play Billing “impedes developers from researching, developing, and bringing to market innovative new apps, resulting in further lost profits for them and less innovation and choice for consumers.”
How does Google maintain its alleged monopoly?
The majority of the lawsuit lays out the practices that Google allegedly partakes in to maintain its dominance over app distribution on Android and payment processing on the Play Store.
For starters, Google gets up to 30% of the money anytime a user purchases an app, digital content, or subscription from Google Play, though this was recently reduced to 15% for earnings under $1 million. What’s more problematic is how the company is said to use anticompetitive practices to “collect and maintain this extravagant commission.”
The Complaint focuses on “five categories of anticompetitive conduct through which Google has obstructed competition in Android app distribution and in-app purchases.” The Complaint argues that, in the absence of this conduct, there would be “vigorous competition” in the Android in-app payment processing market and that Google’s “app distribution monopoly could be disrupted.”
- First, Google creates and imposes impediments to “close the Android app distribution ecosystem.” They do this by imposing “needlessly broad restrictions on direct downloading of apps and app stores” (ie. sideloading), using Mobile Application Distribution Agreements (MADAs) with Android device makers to prevent them from modifying the OS to circumvent these restrictions on sideloading, blocking competing app stores from being distributed on Google Play, and preventing non-Play app stores and apps from purchasing advertisements on YouTube and Google Search. App Campaigns are only available to developers who list their app on Google Play.
- Second, Google uses a “carrot-and-stick approach” to discourage competition from the only entities that could challenge their position in app distribution (OEMs and carriers). The carrot is revenue share agreements (RSAs) while the sticks are contracts that force OEMs to preload the Google Play Store (MADAs), prevent it from being uninstalled, and ensure that no other app store can be shown more prominently. Sometimes RSAs have “outright prohibited” the preloading of competing app stores except for OEM or carrier-branded stores.
- Third, Google attempted to “buy off Samsung” to limit competition from the Galaxy Store. Among other things, Google reportedly wanted to turn the Galaxy Store into a “white label” for the Play Store, as in Samsung would use the backend of Google Play — including Google Play Billing — while keeping the Galaxy Store branding.
- Fourth, Google is said to have launched incentive programs to share profits with larger app developers, in an effort to prevent them from moving to a competing store or creating their own. We don’t know exactly which incentive programs the lawsuit is talking about, but this concept is not unheard of.
- Fifth, Google mandates the use of Google Play Billing for all in-app purchases.
The suit then expands upon each of these points with specific examples. When it comes to sideloading, the suit argues that Google’s warnings to users about sideloading “grossly exaggerate the risk.” Even though Google regularly scans apps with Play Protect and even if an app has been sideloaded by thousands of other users (and thus uploaded to Play Protect for analysis), Google still warns the user about sideloading the app, which the suit argues is “misleading and exclusionary.” The suit points out how Google makes lofty claims about how Android is “secure to the core” yet still warns overtly against sideloading. The risk of sideloading an app is negligible thanks to Play Protect, according to a 2018 Google white paper cited by the lawsuit. In the white paper, it was found that potentially harmful applications (PHAs) are present on “‘only 0.08% of devices that exclusively used Google Play’ and on ‘0.68% of devices that installed apps from outside of Google Play.'”
Google’s “carrot-and-stick approach” is defined in further detail in the lawsuit. Specifically, OEMs that wish to preinstall Google Mobile Services (GMS) — a suite of Google apps that includes the Google Play Store — must sign an Anti-Fragmentation Agreement (AFA) or more recently an Android Compatibility Commitment (ACC). The first key provision of the ACC is redacted, but the second allegedly forces OEMs to agree to restrictions on making and selling devices running a forked version of Android. This means that OEMs cannot sell a Google-licensed Android device and also a device that runs a forked version of Android. The standards also allegedly require OEMs to implement Google’s restrictions and warnings about sideloading.
Once an OEM signs an AFA or ACC, they then must sign a Mobile Application Distribution Agreement (MADA) with Google that forces them to bundle multiple Google apps — up to 30 — if they want to be able to preload Google Play Services, which provides key APIs such as push notifications and location services that many apps depend on. Because many apps rely on Google Play Services, OEMs have to accept the MADA’s conditions of also preloading the Play Store and preventing other app stores from taking prominence, further entrenching the Play Store’s dominance, according to the lawsuit.
Developers, meanwhile, have to sign a Developer Distribution Agreement (DDA) that prevents them from distributing apps on Google Play that “[facilitate] the distribution of software applications and games for use on Android devices outside of Google Play.” This provision is what prevented Epic from distributing its Epic Games Store app on the Play Store.
Interestingly, the lawsuit points out how Google felt threatened by Samsung partnering with Epic to bring Fortnite to the Galaxy Store, as Samsung also allowed the Epic Games app to distribute other apps. In addition, once Samsung started pursuing “exclusive deals” with other popular app developers and “indicated its intent” to place the Galaxy Store on the home screen of new devices, Google moved to “preemptively quash” the threat of a growing Galaxy Store. It launched an unnamed initiative allegedly aimed at cementing the dependence of popular mobile games on Google Play and to convince Samsung to abandon its efforts with the Galaxy Store. Google reportedly offered Samsung a “myriad [of] benefits and concessions” to prevent the Galaxy Store from being built out.
Although Google is said to offer incentive programs to share profits with larger app developers, it seems that such efforts failed to entice large music and video streaming services. Starting November 2021, however, subscription streaming services for music and video “must either submit to Google’s tie or deny consumers the ability to purchase subscriptions from their Android apps.” This also applies to “subscription services including those on job search, dating, fitness, and other apps.” If an app chooses not to conform, it can only offer a “streaming only” (non-transactional) version of the app which cannot even inform consumers that they can buy a subscription elsewhere or be directed outside of the app for payment. This means that a service like Spotify (if it went the “streaming only” route) would have no way to convert free music listeners to paid subscribers. The tidbit about Google Play forcing more apps to use Google Play Billing was revealed last year, but the information about the “streaming only” provision is something new disclosed by the lawsuit.
Lastly, the suit argues that, even in the face of a small price increase or reduction of quality in app distribution, a given consumer would be “highly unlikely” to leave Android for iOS. There are multiple reasons for this, including the huge financial investment in buying a device, losing access to purchased digital content, and losing access to data stored on that device or apps. That unwillingness to switch is further compounded when the consumer owns multiple devices within the same ecosystem (e.g. a tablet, smartwatch, or smart home devices). Many Americans also pay for devices under equipment installment plans, making it difficult to leave due to contractual agreements. Lastly, what OS the device runs is but one of many considerations a consumer thinks of when picking a new device.
What is Google’s response?
In a short blog post, Google outlines why it believes the lawsuit is without merit. To begin with, Google points out how anyone can customize and build devices with the Android OS since it’s open source, though the lawsuit rebuts this by saying Android is “‘open source’ in name only” due to the necessity of shipping GMS and thus abiding by Google’s terms. Google goes on to state that anyone can download apps from a rival app store or directly from a developer’s website and that Android doesn’t prevent sideloading like a certain rival mobile operating system (iOS) does.
Google says the suit ignores the competition that Google Play faces from the Apple App Store and that the majority of mobile app store revenues are made on iOS. The lawsuit does address at least the former point by mentioning how ecosystem lock-in, app incompatibility, and other factors mean that the Play Store isn’t really competing with the Apple App Store.
Next, Google mentions how device makers and carriers can, in fact, preload competing app stores alongside Google Play, and that popular Android devices like the Amazon Fire tablet don’t even have Google Play. The former is a point of contention seeing how Google has allegedly taken action against OEMs like OnePlus for attempting to preinstall the Epic Games Store, and how the company is said to have targeted Samsung over its attempts to build up the Galaxy Store. As for the latter point, it’s worth pointing out that the lawsuit mentioned how many apps have become dependent on Google Play Services, hindering apps from supporting other app stores.
Google then talks about app developers. First, it states that developers can communicate with customers outside the app about lower-cost offering or availability on a rival app store. Notably, however, developers can’t communicate within the app or in the Play Store listing, which effectively makes these options invisible to most users. Next, Google says that the Play Store does not inhibit developers’ ability to grow; developers earned over $80 billion through Google Play as of February 2020, and the Android app economy and Google Play helped create nearly 2 million American jobs. The lawsuit does not really quantify how much harm Google’s alleged monopoly brings upon users and app developers, so Google has a point here.
Google goes on to mention how it invests in resources to build apps, lower costs, and grow businesses, including making tools that help developers reduce testing burdens, run beta tests, and monitor their apps at scale. Google also points out how it invests in security; Google Play Protect scans more than 100 billion apps a day and prevented 1.9 billion malware installs in 2019. However, the lawsuit did bring up how a Google executive internally acknowledged the inferiority of Google Play Billing, but it’s unclear when that statement was made as the details were redacted. The lawsuit also points out how Google’s claims of security are incongruous with their warnings about the dangers of sideloading.
Google’s blog post next talks about its payment processing service. The company points out how only 3% of developers on Google Play sell digital products or content, and that they are subject to a progressive service fee of 15% on the first $1 million earned and then 30% for all earnings above $1 million. Furthermore, Google says this lawsuit is only “on behalf of that 0.1% of developers” that are subject to a 30% service fee (i.e.. those that make over $1 million a year.) “This lawsuit isn’t about helping the little guy or protecting consumers. It’s about boosting a handful of major app developers who want the benefits of Google Play without paying for it,” said Google in its blog post.
Lastly, Google mentions that the lawsuit leaves out that plenty of other app stores also charge similar fees and that a centralized billing system protects consumers from fraud and gives them an easy way to track purchases in one place.