The $200 Billion App Store Industry Faces Major Threat Following Google’s Legal Defeat

The recent legal loss of Google to Epic Games Inc., the creator of Fortnite, poses a significant risk to the app store duopoly dominated by Apple Inc. This duopoly generates nearly $200 billion annually and has a profound influence on how billions of mobile device users engage with apps.

The loss handed down by a San Francisco jury on Monday is a blow to the two companies’ business model for apps, where they charge fees of up to 30 percent to software developers who usually have no other options.

Epic has complained for years against the practice and got a federal jury to admit that Alphabet Inc’s Google unit had acted as an unfair monopoly. The case is likely to accelerate the weakening of app store rules, which have already come under fire from regulators and lawmakers around the world.

“The dominoes are starting to fall here,” Tim Sweeney, Epic’s CEO, said in an interview after the ruling. “The end of 30 percent is in sight.”

Although Apple won a similar case against Epic in 2021, the ruling was made by a single judge. The nature of the Google suit — in which the jury unanimously sided with Epic — allowed real consumers to influence the world of smartphone apps. In less than four hours of deliberation, they found that Google had committed anti-competitive behavior, harmed Epic, and illegally imposed its own billing system on developers.

The battle began in 2020 when Fortnite was kicked out of the Apple and Google Play app stores because the game developer had secretly installed its own payment system. The idea was to bypass the up to 30 percent share of revenue that the two tech giants take from in-app purchases and subscriptions on their platform. In response, Epic sued both companies.

Google has also been criticized for entering into side deals with major developers, such as Spotify Technology SA, where it offers lower fees. In its ruling Monday, the jury said Google shouldn’t require Android app developers to use a billing system for software sold through its store — and that it shouldn’t offer custom contracts to certain developers.

“The immediate effect is that we’re seeing a shift in the market where big tech companies have to make arrangements — whether it’s more access, better terms or more options for developers — to avoid legal exposure,” said Paul Swanson, partner. At Holland & Hart, which specializes in technology and antitrust law.

The case also underscores the opinion of many consumers that large technology companies have gained too much power. Google also came under scrutiny from a Justice Department judge this fall over its search power, though the outcome of the lawsuit won’t be known for months.

Epic’s Sweeney predicted that — as Google begins to make changes to its operations and public pressure mounts — its app store peer will be forced to act as well. “The same thing is starting to happen with Apple,” he said.

And that ultimately helps consumers, Sweeney said. “The economy is real,” he said. “When the 30 percent tax is removed from the ecosystem, consumer prices will improve. Or the quality improves and the selection increases.

During the case, Epic highlighted deals Google made with top game developers, including Activision Blizzard Inc. and Nintendo Co., for lower payments. Every developer should now require one of these stores, Sweeney said.

The fortunes of both Apple and Google are at stake. According to research firm Sensor Tower, in-app spending is forecast to reach $182 billion next year and $207 billion in 2025.

The Digital Market Act in the European Union is already accelerating changes. For the first time, Apple must allow third-party app stores and billing systems in the region.

Even before the law enters into force next year, the companies have made changes. Apple now allows so-called reader apps — such as cloud storage software, watching videos and reading books — to link to third-party websites so users can pay. This bypasses Apple’s revenue cut.

Both Apple and Google have also changed their policies to charge for subscription apps. And Apple has had to let Dutch dating apps bypass its billing system.

But an Epic win against Google could bring big changes to the companies’ homeland. That includes moving Internet software back to a more open environment instead of the closed ecosystems of app stores, says Stanford law professor Mark Lemley.

“Over the past two decades, there has been a profound shift from the open Internet to walled gardens,” Lemley said. “It’s one of the things that has kept the Internet market so concentrated. This judgment just punched a big hole in the garden wall.

Although Apple won nine out of ten of the charges against Epic when this decision was made in 2021, one question remains in the air: whether Apple should allow all third-party developers to direct customers to websites to pay for purchases, bypassing Apple’s payments. It may now be harder for the iPhone maker to avoid this fate.

Google, which plans to appeal the ruling, said it “continues to defend the Android business model and remains deeply committed to our users, partners and the broader Android ecosystem.” Apple did not respond to a request for comment.

Apple has said it has no side deals with developers, although it offers discounted rates to some video streaming partners, such as Amazon.com Inc. During the lawsuit, Epic’s lawyers said Google also failed to properly retain some data related to video streaming. case.

“I don’t think there’s much debate that Google’s monopoly finding applies to Apple,” said Jason Kint, CEO of Digital Content Next, a trade association for digital content companies. “The distinction that will be addressed is whether Apple misused it or not.”