South Korea could be the first country to legislate open app store payments
South Korea is set to regulate an end to exclusive payment terms on app stores, striking an economic blow against the integrated mobile systems of Google and Apple. A bill approved by the National Assembly this week would force both companies to allow app developers to accept payments from third-party systems, on the Play Store and App Store, respectively. This would threaten the lucrative cut (between 15% and 30%) they receive on each digital transaction.
The Wall Street Journal reports that the bill received overwhelming support — 180 out of 188 of the body’s legislators — and is expected to be signed into law by President Moon Jae-in. The bill adds a stiff penalty for non-compliance: 3% of the company’s total revenue in the country. Last year Google’s revenue in South Korea was reported at 220.14 billion won; a 3% penalty would be 6.6 billion won, approximately 5.7 million US dollars.
Google responded to the bill’s passage with clear consternation, implying that forcing it to allow outside payments for apps, subscriptions, and in-app purchases might threaten the Android platform’s free price. Associated Press quotes a Google statement:
Google Play provides far more than payment processing, and our service fee helps keep Android free, giving developers the tools and global platform to access billions of consumers around the world. And just as it costs developers money to build an app, it costs us money to build and maintain an operating system and app store. We’ll reflect on how to comply with this law while maintaining a model that supports a high-quality operating system and app store, and we will share more in the coming weeks.
Despite the protestations, Google’s intention to “reflect on how to comply with this law” implies that it’s going to at least attempt to meet the requirements if they come into play.
Google and Apple have been under increasing scrutiny worldwide for their rules on the Play Store and App Store, which force all purchases for apps, subscriptions, and add-ons like game currency to go through their payment processing system. While both companies have added less stringent charges for smaller developers, the vast majority of purchases — and profits — remain at the hefty 30% standard cut. Developers and competitors accuse both companies of cultivating a monopoly on mobile apps and services.
Legislators and law enforcement are starting to listen. In the United States dozens of state attorneys general are suing Google for antitrust behavior. In Australia a government panel says that Google and Apple have to make significant changes to their models to ensure competition. And that’s on top of civil lawsuits from individuals, most notably game developer Epic, whose spat over revenues from the mobile game Fortnite got the ball rolling last year. That ongoing lawsuit continues to provide illumination into Google’s business practices, some of which are less than flattering.
Assuming it’s signed into law, South Korea’s action would be the most dramatic in the world, essentially forcing Google and Apple to treat the Play Store the same as the wider internet. Google would still make huge amounts of profit on the Play Store (its integrated services would be the easiest and most convenient way to get paid). But developers with big apps and big resources, like Spotify, Amazon, and Epic would jump at the chance to skip the middleman. Competition might force Google to settle for a much less dramatic cut of profits.