New Lawsuit Claims Google Boosts Prices for Android Apps

    States accuse the tech giant of dominating the app market and charging developers hefty fees

    Google app store logo Source: Google

    Google dominates the sale of apps for smartphones that use the company’s Android operating system, resulting in higher prices for consumers, a new antitrust lawsuit claims.

    The suit (PDF), brought by 36 states and the District of Columbia, says the Google Play store, which holds a 90 percent market share of the sale of apps for Android phones, reduces competition and stifles innovation. That allows Google to charge commissions of up to 30 percent on app sales, forcing developers to pass on some or all of the cost to consumers, according to the suit.

    “So consumers often end up paying a higher price,” says Sumit Sharma, senior researcher for tech competition at Consumer Reports, who says Apple’s App Store has a similar fee structure, raising similar antitrust concerns.

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    This is just the latest antitrust action against Google, which is also facing state and federal lawsuits over its dominance of online advertising and search. While the outcome of the app store lawsuit is uncertain, some advocates think that the growing pressure on both Google and Apple could ultimately prompt them to lower or eliminate their app fees.

    “Because of Google’s anticompetitive conduct, Google Play Store’s market share—which is well over 90 percent—faces no credible threats, and market forces cannot exert pressure on its supracompetitive commissions,” the suit says, which was filed in the Northern District of California and is led by attorneys general in North Carolina, Utah, New York, and Tennessee. 

    Google, for its part, called the suit “meritless,” claiming instead that Android and Google Play store increase competition and choice.

    “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,” William White, the company’s director of public policy, wrote in a blog post.

    A group of app developers, including Spotify, Match, and game developer Epic, that filed an antitrust suit against both Google and Apple last August, is pushing back against the Play store business model.

    “App stores have been given a free pass to abuse their dominant market position for far too long,” Meghan DiMuzio, executive director for The Coalition for App Fairness, said in a statement on the group’s website. "We support these attorneys general’s efforts to enforce fairness in the app marketplace and urge lawmakers and regulators to find solutions that level the playing field for developers and provide consumers with more choices.”

    This week’s lawsuit comes on the heels of a broad state and federal antitrust case that was brought against Google last October, which alleges that the search giant entered into anti-competitive agreements with phone manufacturers such as Apple and Samsung, as well as with wireless carriers and browser developers. That lawsuit calls Google “a monopoly gatekeeper to the internet.” 

    An additional state government suit, filed in December, which has been consolidated with the October case, claims that Google unfairly hurt the company’s rivals in search. 

    Here’s a discussion of how this week’s Play Store suit could play out, how it fits into the broader landscape of other antitrust actions, and how it will affect consumers. 

    What Is This Suit About? 
    It centers on the pay structure of Google’s app store. App developers who use the Play store must give Google a cut—often as large as 30 percent—of in-app purchases, such as the virtual tools that enhance your game play or songs or movie clips. (Google recently reduced that fee to 15 percent of an app developer’s first $1 million in revenue from the store every year.) Google recently changed its rules to make it harder for subscription-based apps, such as Netflix and Spotify, to sidestep these fees. 

    Does This Have Anything to Do With Apple’s App Store?
    While this case doesn’t involve Apple directly, the company, which charges developers a similar 30 percent fee in its own App Store, is dealing with many of the same issues as Google. Epic Games, the creator of the wildly popular game Fortnite, for example, filed suit against both companies last year, making similar antitrust claims. (Apple, in a court filing, called the suit “a marketing campaign designed to reinvigorate interest in Fortnite.”)

    Google, for its part, stresses that, unlike the Apple App Store, consumers using Android devices do have options other than the Play Store. However, according to the suit, most consumers don’t actually take advantage of these alternatives, with Google controlling more than 90 percent of the market. 

    “This is another side effect of market power and how it restricts choices,” says George Slover, senior policy counsel at Consumer Reports. “In practice, consumers will often just stick with the default setup on their phones, and Google’s services are typically the default on Android phones.”

    How Do App Store Fees Harm Consumers?
    At a basic level, app store fees raise prices, according to CR’s Sharma. Some developers, including Spotify, passed along the app store fees directly, charging more for the same service when it’s purchased through the Play store or the App Store than through its website.

    When that’s the case, Google’s terms of service—like Apple’s—restrict the developer from contacting consumers directly and informing them about this better deal. 

    “People are paying more and they may not even be aware of it,” Sharma says. 

    On a less obvious level, Google and Apple’s tight control over their app stores also suppresses competition and innovation. Apple and Google’s own products and services don’t have to pay the 30 percent commission, which gives them an artificial leg up on the competition. 

    Also, certain products and services that might be economically feasible without the cut taken by the app store simply never come to market when the added fees must be added to the price or absorbed by the developer. 

    “We don’t know who the next great innovator is, but there’s a good chance that they’re being blocked by this system,” Sharma says.

    What’s the Likely Outcome of This Suit?
    It’s not clear when (or even if) the states’ case against Google will go to trial. For example, a federal antitrust lawsuit against Facebook was recently dismissed before it reached a courtroom. And the Epic suits, filed against Google and Apple at the same time, have followed a very different timeline because of the vagaries of the court system; the Apple suit is awaiting a verdict while the Google trial hasn’t even started yet. 

    But experts say there’s plenty of pressure on Google and Apple on a variety of fronts—from government lawsuits, from private suits like the one by Epic Games, and from state and federal legislation under consideration. And that pressure might result in the companies changing their policies and reducing or eliminating these commissions.

    “I think a relaxation of these fees is inevitable,” says John Bergmayer, legal director of Public Knowledge, an advocacy group based in Washington, D.C. “This is one part of a really big story.”

    Allen St. John

    I believe that technology has the power to change our lives—for better or for worse. That's why I’ve spent my life reporting and writing about it for outlets of all sorts, from newspapers (such as the Wall Street Journal and the New York Times) to magazines (Popular Mechanics and Rolling Stone) and even my own books ("Newton’s Football" and "Clapton’s Guitar"). For me, there's no better way to spend a day than talking to a bunch of experts about an important subject and then writing a story that'll help others be smarter and better informed.