Introduction
Hi everyone,
It’s been two weeks since the last newsletter due to some unexpected events that prevented me from focusing on its completion. Returning after this break, this issue is packed with exciting content. Following Google’s anti-monopoly lawsuit with Epic (the developer of Fortnite) late last year, details on how Google secured its 30% Google Play revenue share have come to light. Though these decisions led to Google being seen as anti-competitive and ultimately losing the case, they offer valuable insight into how Google maintains its market position.
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Google Cannot Directly Profit from the Android System
Why does Google need to aggressively secure market share for its app store within the Android system? Doesn’t Google own Android? Isn’t this similar to Apple’s iOS, where Android and iOS are the only two operating systems available to consumers? Couldn’t Google, like Apple, simply profit by leveraging Android? Especially since Apple restricts iOS to Apple devices, while Android is the only widely available system for other smart device manufacturers, such as Samsung and Sony, with approximately 75% of global smartphones using Android.
However, Google cannot profit directly from Android because it was initially a free, open-source product, meaning anyone can use and modify its code. Additionally, anyone or any company can launch their own app store on Android.
So how does Google make money?
Google Profits Through Google Play (App Store)
Google Play, similar to Apple’s App Store, is a platform for Android users to download apps. Developers can upload their self-designed apps for free, attracting users to pay for downloads or in-app purchases, such as subscriptions or one-time services. However, Google isn’t so generous as to offer this for free.
Google principally charges developers a 30% service fee for any consumer subscriptions, app purchases, or in-app transactions. For example, if I subscribe to a budgeting app on Google Play for $10 monthly, Google takes $3, leaving $7 for the developer. This amount may seem small, but it adds up significantly. Some websites estimate global consumer spending on Google Play at nearly $48 billion, translating to approximately $16 billion in revenue for Google at a 30% commission rate.
For Google, Google Play is a major cash cow, with the CEO describing it as one of the world’s most profitable ventures and a key revenue contributor during board meetings.
If app stores are so profitable, why haven’t other manufacturers pursued them? Since Android is open-source, shouldn’t other phone makers develop their own app stores? For instance, Samsung phones feature the Galaxy Store, which functions like Google Play for app downloads.
Why only Samsung? Why haven’t other manufacturers created their own app stores? This leads us to explore the decisions Google made to maintain Google Play’s dominance.
If you were Google, how would you prevent other manufacturers from developing their own app stores and ensure market dominance?
Offering Spotify and Netflix Fee Exemptions or Reduced Fees
Nearly every phone has apps for music and video streaming, with Spotify dominating music and Netflix leading video. Google offers Spotify an exemption from payment processing fees—waiving the 30% commission—while providing Netflix with reduced fees. The reasoning is that by hosting these popular music and video apps on Google Play, and with Spotify and Netflix aggressively promoting downloads via Google Play, Google benefits from advertising revenue while encouraging other developers to list their apps there for traffic and exposure.
This is akin to a department store attracting international brands with special incentives, like rent-free deals or waived commissions, to draw customers who then spend at other commission-based stores.
Project Hug: Incentives for Top Mobile Game Developers
Google launched Project Hug to prevent game developers from collectively leaving Google Play. Marketed as a “hug developers, show love” initiative, it’s essentially a “targeted promotion sprint” for top developers. In plain terms, Google signs agreements with leading game developers, offering incentives—worth hundreds of millions in advertising and other benefits—if they launch new games or updates on Google Play’s first day.
Internal Google documents reveal that while many developers initially resisted, Project Hug was largely successful. By the end of 2020, Google had agreements with most Project Hug targets, including major players like Activision Blizzard, ensuring these companies remain on Google Play.
Revenue-Sharing Agreements with OEM Manufacturers
Since 2019, Google’s Premier Device Program has incentivized OEMs (original equipment manufacturers) to ship devices without preloading third-party app stores, meaning only Google Play is pre-installed, in exchange for a larger revenue share. This boosted Google Play’s market share. By 2020, most of the world’s top Android OEMs joined, ensuring their devices primarily feature Google Play as the sole app store.
Using Complex Developer Agreements and Policies to Enforce Compliance
Google’s developer agreements stipulate that developers “must not use Google Play to distribute or provide any products intended to promote the use of software applications and games on Android devices outside of Google Play.” Section 4.1 of the DDA requires all developers to “comply” with Google’s Developer Program Policies. Under the guise of an “anti-malicious behavior” policy, Google prohibits developers from distributing apps with executable code downloaded from sources other than Google Play. In short, developers cannot allow users to download apps elsewhere. Violating this allows Google to terminate developer agreements.
As a result, developers uploading apps to Google Play cannot offer them elsewhere or bypass Google Play for payments, effectively limiting most from circumventing Google’s platform.
Outcomes of Google’s Decisions
By ensuring top developers stay on Google Play and launch new products on its first day, Google keeps consumers engaged, attracting smaller developers to list their apps there. This allows Google to collect a 30% commission while restricting developers from launching elsewhere, securing Google Play’s monopoly in the Android market.
Google aimed to balance the open-source allure of Android with control and profit, leading to these complex decisions.
These strategies yielded years of high, arguably unjustifiable profits but also triggered anti-monopoly scrutiny. Does Google regret this? It’s unclear, but it’s worth considering: if you were Google, facing a lost anti-monopoly case and forced to open up, what would your next decision be?
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Source: https://hungkaichuang.com/decisionposition17_googleplay_antitrust/