Google/Apple: app fee changes do not mean lost profits

Google’s decision to allow Spotify to use its own in-app payment system looks at first glance like an admission that the days of restrictive mobile app store domination and controversial high fees are coming to an end. But app developers should not get overly excited.

Companies like Epic Games and Match have long complained about fees collected via in-app payment systems. The scale of antitrust criticism suggests many regulators agree. Google Play and the Apple App Store typically take a 30 per cent cut of purchases such as subscriptions in the first year and 15 per cent after that. Providers argue that this is fair because they bring millions of users to apps and offer ongoing services such as security. But they have yet to offer a convincing explanation for the scale of fees charged.

Google’s new scheme will mean Spotify users on Android devices can use an alternative billing system.

The crucial question is how big a fee Spotify might be paying Google. App store providers seem intent on replacing any fees lost when their own payment systems are bypassed. In the Netherlands, for example, Apple has suggested taking 27 per cent of purchases made in-app via alternative payment methods.

Google’s move puts pressure on Apple to further loosen its restrictions on third party payment systems. It has already tweaked fees, charging smaller companies 15 per cent. Developers would like to see rates fall further. Microsoft Store charges 12 per cent.

Google and Apple are unlikely to go this low. Neither company breaks out profits from app fees but an investigation by US states filing an antitrust action found that Google Play accounted for a fifth of parent company Alphabet’s operating income in 2019. It will not relinquish this easily.

Alternative payment options may satisfy regulators. But developers could find themselves paying large fees to app store providers regardless. App store charges are in flux but they have not been eliminated.