Google vs. Epic – Precedent not cash.

This is not about money.

• I think that Google is hoping to use the parts of the previous ruling that were favourable to Apple in order to set a legal precedent that it hopes will enable it to lengthen the time it can maintain a dominant position in-app distribution.
• Google’s countersuit against Epic Games is for breach of contract after it pledged to use Google’s payment system for in-app purchases but then updated its apps to use its own in-house system.
• As part of the recent Apple ruling, Epic was forced to pay Apple $3.65m in damages to compensate it for lost earnings when it updated its apps to circumvent the Apple App. Store.
• To be fair, I think that Google has a point with this suit which is that Epic agreed to use the Google Play system but then breached this agreement by redirecting payments to its own payment system.
• Given the size of Google, the amounts of money likely to be awarded to Google should it win are tiny and, as a result, I see another motivation here entirely.
• I think that Google’s motivation is more about setting a legal precedent that will be used further down the line when there are bigger and far more consequential fights over how the app ecosystem is monetised and paid for.
• This is why the suit aims to draw a very clear line between the Apple App. Store and Google Play.
• For example, Google allows other app stores to be loaded (or sideloaded) onto its devices and these app stores can use whatever payment mechanisms that they choose.
• What Google is pointing out is that Epic is on Google Play by choice and if it doesn’t like being there it can go somewhere else.
• Epic has already tried this with its own app store which is significantly cheaper than Google Play, but this did not meet with the success that it hoped (or I expected).
• It has had similar results on the PC with its attempts to challenge Steam which also takes a 30% cut of app developer revenues.
• Consequently, Epic is likely to argue that for all intents and purposes, it has no choice but to be on Google Play in order to be able to distribute its app.
• If Google can win this suit, then it will have set a legal precedent that can be used in future cases which claim that Google is abusing its position with Google Play.
• Future cases may be far more consequential in financial terms.
• At the end of the day, I think that the app store business model where the platform owner takes a 30% market share is no longer fit for purpose.
• It was created in the 1980s when software was distributed by selling hardware (i.e., cartridges) and was never meant to be a profit centre in its own right.
• Fast forward to 2021 and Apple, Google and Steam make large profits from app developers, and I think that the pressure for change is likely to prove irresistible in the long term.
• I think that the part of the ruling that came down in Epic’s favour is just the beginning.
• We will see Apple, Google and Steam try and hang onto this for as long as they can, but a lower rate or even a flat fee looks inevitable.
• The good news for Apple and Google is that even if the fees went to zero, their other businesses are so large and so profitable that their income statements would barely miss a beat.
• Hence, the consequence for their valuations remains insignificant in my view.
• However, I still do not particularly like the valuations of either of them and I continue to steer clear of the FAANG names.