Epic Lawsuit Reveals Google’s Rejection of Play Store Fee Changes Over Revenue Concerns

According to recently released documents, Google, a subsidiary of Alphabet Inc., contemplated altering its app store pricing strategy to evade regulatory scrutiny. However, the company ultimately discarded the idea of implementing a fixed fee per app as it became evident that this approach could potentially result in significant financial losses amounting to billions of dollars.

Google created Project Everest in 2021 to rethink the Play Store’s billing model, according to documents released as part of Epic Games Inc’s antitrust lawsuit. Last week, Google lost a lawsuit filed by the maker of Fortnite after a federal jury found the tech giant abused its monopoly position in the app store.

Under increasing pressure from regulators and developers, Google Play’s hefty 30% premium show showed the search giant was worried about potential regulatory overreach.

“We can defend the status quo for a few months,” Google said in the presentation. “Making the proposed changes faster can help support common sense legislation, position Google as a leader, and prevent tougher legislation.”

Project Everest investigated partial service fees from developers for placing apps or games on the Play Store, as well as additional fees for user downloads, updates and referrals. But the company estimated that the model created a “significant potential for loss” of $1 billion to $2 billion in apps and $6 billion to $9 billion in games.

Instead, the employees recommended that app developers can process payments themselves in exchange for paying Google a lower fee. The company estimates that the change would reduce the store’s annual revenue by between $250 and $1.3 billion, depending on how many users chose another payment option. That settlement essentially mirrors the $700 million settlement Google announced last week with a group of state attorneys general from about three dozen states and consumers.

Google’s loss to Epic threatens to destroy the app store duopoly with Apple Inc., which generates nearly $200 billion a year and dictates how billions of consumers use mobile devices. For years, Epic has railed against Apple and Google’s practice of charging up to 30% commissions to software developers, who typically have few other options. Google’s loss is likely to accelerate the weakening of app store rules, which have already come under fire from regulators and lawmakers around the world.

Mobile app developers have long complained that Google’s fees are too high and require them to charge consumers more, prompting countries like Korea to demand the company open its app store to other payment systems. New European Union rules that will come into force in March also require Google and Apple to open their stores.

Dozens of state prosecutors sued Google in 2021, alleging the company used illegal tactics to prevent competition and ensure developers had no choice but to go through the Play Store. On Monday, the states announced that Google would pay $700 million and allow developers to use their own payment systems to resolve the dispute.

However, internal Google documents show that the company was already moving in this direction.

Google spokesman Dan Jackson said the payments help the company maintain investments in Android and the Play Store. Google has also reduced fees for subscriptions and the first million dollars that developers make in the store.

Dubbed “User Choice Billing,” the company rolled out a program in 2022 that would allow app developers to handle payments themselves and give Google a slightly lower 26% or 11% fee on subscriptions.

“User Choice Billing is designed to deal with choices,” Purnima Kochikar, one of the Google employees who helped design it, testified as part of Epic’s lawsuit. About 80 developers have decided to switch to User Choice Billing in May 2023, he testified.