- Google just lost a crucial lawsuit against how it handled its Play Store.
- A judge could rule that Google must allow rival app stores to compete freely.
- The result could be a major blow to Google’s Android business model.
Google Play Store is under threat.
Epic, the creator of the hit game Fortnite, has emerged victorious in a lawsuit against Google, after a San Francisco jury found that the search giant had built and maintained an illegal monopoly over its App Store.
The ruling culminates a multi-year campaign by Epic Games against the ways Google and Apple control their app stores, and how much developers charge to be there.
It threatens to expose one of the key distribution models that Google has relied on for years to make Android popular.
Google’s Play Store is making billions – right now
We won’t know what remedies the judge will impose on Google until January — Google has said it plans to appeal the case — but Epic wants big structural changes here. It wants to force Google to let app developers build their own app stores and run their own billing systems on Android freely and without restrictions or penalty.
This could be a huge blow to Google Play Store’s business.
Although Apple’s App Store is by no means a cash cow, the Play Store still generates significant money by charging developers up to 30% of app sales and in-app purchases.
Google is withholding how profitable the Play Store is, but a court filing in 2021 revealed that the store generated $11.2 billion in 2019.
In theory, Android users can install an app store other than the Play Store. But for years, Google has relied on a strategy in which third-party manufacturers ship their own Android software to its devices. These companies get an operating system they don’t have to build themselves, and in return, Google gets widespread distribution of its services, like Gmail, Maps, Chrome, and the Play Store. That — and the confidentiality agreements Google has with potential competitors — have undermined the rise of alternative app stores.
This deal also gained Android nearly 70% global market share, and arguably delayed Google’s efforts to build its own smartphones and other devices.
If Google is forced to allow other app stores to access Android devices, Play Store revenues may soon start shrinking — something Google is keenly aware of.
Earlier in the trial, Epic pointed to an internal Google presentation from 2019 that estimated the company could see losses of up to $6 billion by 2022 if Epic and rivals like Samsung can build successful competing app stores on Android.
This alone shows how important the Play Store is to Google’s Android strategy, and why Epic’s ruling may keep some Alphabet executives up at night.
Google’s boasts about Android’s openness don’t add up
It may seem strange that Epic lost a largely similar antitrust case against Apple in 2020, but there are some important differences here.
This is largely due to the fact that consumers buy an iPhone knowing that the App Store is all tied to it, as well as the way Google does business in the smartphone market. Google has bragged that Android is an open platform, but the Epic case has shown us that it exercises increasing control through secret deals and revenue-sharing agreements to prevent competitors from emerging.
“Google has tried… to have its cake and eat it, too,” analyst Ben Thompson wrote in 2021. “After initially competing to be open and unencumbered, the company has since changed the rules, as it were, to maintain its advantages. Through a combination of carrots, revenue sharing, and contractual sticks.”
The islands mentioned included a secret deal known internally as Project Hug, where Google allegedly paid game developers hundreds of millions of dollars to keep their games on the Play Store (you hug them and keep them close!).
If Google had built and sold a smartphone anywhere near as popular as the iPhone, it might not be in this position. But maybe she knew this day would always come.
“As much as Google likes to talk about the success of the Android model, it’s seen as very risky internally,” one former Google employee told Business Insider recently.
Google’s biggest mistake? Not pressing harder and faster on the Pixel
It’s not the only risky strategy for which Google’s bill is coming due.
And in Washington, D.C., another of the company’s distribution models came under threat as the Department of Justice filed a lawsuit against Google over alleged antitrust violations in search.
This case hinges on the revenue deals that Google has concluded with Apple and others to make its search engine the default on iPhones and browsers such as Firefox. Google says its search engine is the most popular because it is the best, while it pays tens of billions of dollars to keep it locked down as the default. Critics say that these two things are incompatible.
We won’t get a ruling in this case until later next year, and remedies could include barring the company from paying Apple and Android phone makers billions of dollars annually to secure this default status.
The best solution for Google is to have its cutting-edge lab run a time machine, go back to around 2005 and formulate a hardware strategy that would make the Pixel a competitor to the iPhone.
Google can justify developing and operating Android thanks to the success of its distribution model and the reach of the Play Store. With this model under threat, Android’s strategy may be starting to unravel.
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In a landmark ruling, Google’s strategy with the Android operating system has been thrown into uncertainty following an epic legal battle. The decision has far-reaching implications for the tech giant and could potentially disrupt its business model. This ruling brings into question Google’s dominance in the mobile market and raises concerns about the future of its Android platform. With potential ramifications for the entire industry, the implications of this ruling are sure to be closely followed by both technology experts and consumers alike.