Google and Apple will have to be ‘forced out’ of the app fee business, analyst says

Google (GOOG, GOOGL) recently unveiled a pilot program that will allow Spotify (SPOT) users to bypass Google Play’s billing system.

Spotify is among the companies that have publicly fought against Google and Apple’s stranglehold on their respective app stores. Apple takes a 30% commission on app and app purchases for large developers, while Google Play takes a 30% or 15% commission, depending on various factors. It seems like a small but substantial turning point for critics, but the move is unlikely to signal that Google is ready to move on, Anurag Rana, Bloomberg Intelligence Senior Software and IT Analyst, told Yahoo Finance Live (video above).

“This is a very high-margin business for Google and Apple,” he said. “They’re not going to give it away [up] easily. You will have to take that out of their hands by force. So, I think they’re trying to appease the regulators right now, but I don’t think it’s going to go away that easily.

In 2020, Google garnered $11.6 billion in in-app purchases worldwide, as previously reported by CNBC, which cited an estimate provided by analytics firm Sensor Tower. The Google-Spotify partnership itself, in terms of revenue, should be a big win for Spotify and negligible for Google, Rana added.

“The question is whether, you know, the revenue contribution or the revenue loss for Google is enough to make a dent,” he said. “…The real impact is on smaller companies, like Spotify, like Match (MTCH), so they’re the ones benefiting.”

Developers and regulators have been chasing App Store fees for some time. Developers like Spotify have long denounced the commissions Google and Apple take and are forced to accept, while regulators fear the companies’ app store practices are anti-competitive. Last Thursday, the EU passed the Digital Markets Act, which says Apple may need to allow more app stores on iPad and iPhone.

The practices of Google’s and Apple’s App Store have been called into question. Image: Getty

Keep critics, regulators away

This partnership with Spotify could be an effort for the company to loosen its grip on App Store fees on its own terms as the industry comes under increasing regulatory scrutiny. The move could be an effort to avoid regulatory pushes, in what could be a win for everyone involved, according to Rana.

“They’re going to experiment to see how many users actually leave the ecosystem and come out to pay,” he said. “…if the loss isn’t big, they can relax the rules a bit more. That makes everyone happy.

Elsewhere, tech giants are also facing legal pressure to change how their app stores work. Epic Games is in a now-famous App Store stalemate, as the maker of Fortnite launched legal action against Apple in 2020 over the issue. The case is still unfolding today, as both companies are appealing a 2021 judge’s decision in the case.

The saga dates back to early August 2020, when Epic offered Fortnite players the option to pay them directly using a new in-app feature. When Apple retaliated by pulling the game, Epic filed its first lawsuit against the iPhone maker in the U.S. District Court for the Northern District of California.

Google Play also removed the Fortnite app in 2020, and it has remained unavailable there ever since.

Allie is a technical reporter for Yahoo Finance. She can be contacted at [email protected] Follow her on Twitter @agarfinks.

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Lance B. Holton