Google Wants Fee for Alternate Billing Systems
Abner Li (via Benjamin Mayo):
In late August, South Korea passed a law requiring alternate in-app payment systems in Google Play and the iOS App Store. Google today detailed what steps it will be taking to comply.
[…]
Meanwhile, apps that use alternate billing and are distributed via Google Play will still be subject to service fees. That cut will “continue to be based on digital sales on the platform,” but Google will reduce what it takes by 4% in recognition of how “developers will incur costs to support their billing system.”
For example, for the vast majority of developers who pay 15% for transactions through Google Play’s billing system, their service fee for transactions through the alternate billing system would be 11%.
As Ben Thompson observed on today’s episode of Dithering, for small transactions — like the ones typically offered in games — credit card fees are likely in the 5-6 percent range. So if this flies, Google’s revenue per in-app transaction for apps from the Play Store isn’t going to effectively change at all.
Is it going to fly? Like I’ve said, stock up on popcorn.
Apple meanwhile has yet to make any changes to App Store billing in South Korea. The company previously said the law “will put users who purchase digital goods from other sources at risk of fraud, undermine their privacy protections, [and] make it difficult to manage their purchases,” while making parental controls less effective.
In October, Apple told the South Korean government that it was “already in compliance with the new law and did not need to change its app store policy,” according to Reuters.
Apple and Google aren’t entitled to a cut of anything that happens on the computer I bought, or the company I built just because it works on computers they made.
Why not your ISP, and your cellular carrier, and your electric company, etc.?
Previously:
Update (2021-11-12): Michael Love:
One thing to note about Google’s new 11% cut of third party payments is that it seems to be heavily dependent on these payments taking place in-app and through Google’s standard UI; it’s the only way they can reliably determine their commission.
For Apple or Google to introduce a commission like this on web links would be an extremely tall order; they have no way of figuring out what people are spending, and would be relying on developers to accurately track + attribute payments from web links versus other sources.
Update (2021-11-23): Florian Mueller:
Apple’s concerns are all about the practical aspects of collecting its commission--there’s no reason to believe Apple would not want to get paid even on payments made after users click on external links presented by an iOS app.
Anybody dreaming of a “30 percent less” option in connection with external links is barking up the wrong tree. The app tax will be imposed one way or the other. Collection may be more cumbersome, but Apple’s position is that it’s entitled to its commission and that’s what even the Epic Games v. Apple judgment says.
So Google’s reduction would leave a margin for third-party payment processing of only about 2.5% in the best case and 0.5% in the worst case (Amex’s peak rate).
As a result, end users wouldn’t save enough money to even bother to enter payment credentials elsewhere.
17 Comments RSS · Twitter
@Kevin Thank you for laying out some of the issues, but I think you’re making unwarranted assumptions about what I understand and responding to arguments I haven’t made. Yes, this is Google, but Apple has indicated that it sees things similarly, except that it wants a percentage, not for operating the service, but for IP licensing. Even though it’s already getting recurring revenue from hardware with a relatively short life cycle, developer membership fees, and consumer service subscriptions. The fact that “even despite that, they are still in a position” is precisely the point. That is not a healthy situation.
In the electric company analogy, I see the iPhone more like the wires. Apps are like the devices that I plug in. It is fortunate that I don’t have to go to the electric company’s store to buy approved devices, that such devices don’t extract fees depending on how I use the electrons coming through the wires, and that I’m not blocked from buying devices from other stores.
@Michael Tsai Precisely. The sole reason why ISP and Electricity company cant ( or dont ) do that is they are regulated and they have competitions.
>No, the system is not perfect (free apps without IAP get a free ride, etc.) but to act like, in the case of purchasing an app, you're literally doing nothing with the device that involves anybody except you and the app developer is a completely bizarre take.
It is not a bizarre take. It is a call that you should bundle those cost into to Smartphone or Smartphone OS itself. I understand the free market argument in US. Where political spectrum tends to lean to less regulation and competitions. But the point wont stand in the other 7 Billion market part of the world. They could also have separate the Games into its own Store where they continue to charge 30%, which already protect nearly 90% of their App Store services revenue. And charges much less on other essential Apps. ( Which may be in the process of happening since they have officially declared PS4 and Xbox as their competitors in their recent quarterly fillings )
I think Apple should have the courage to listen to Macrumours comment and pull out of those market that think they are in the wrong. /s
[…] Reference: Google Play Will Let Developers Use Alternative Billing Systems in South Korea, While Apple Has Yet to Make Changes, Google Wants Fee for Alternate Billing Systems […]
Grifters gonna grift. This is the same as when France, wisely, banned free shipment, and Amazon started charging 0.01€
Greed is one hell of a drug.
Funny how a model that worked for decade and still work like that for Video Game, cause issues when transposed to mobile phones.
@Michael
Some of my comments were directed more broadly, and I was also responding to the tweet I quoted from your post.
> Even though it’s already getting recurring revenue from hardware with a relatively short life cycle
Which, yes, includes a profit margin, but is priced based on the cost of the device. If they want to recognize some of the revenue from the device as going towards developer-related expenses (which seems to be what they mean by “IP licensing”), then go ahead, but I’m not aware of laws anywhere that would require them to do so.
> developer membership fees
On the surface this comes the closest to hitting the mark. This is where Apple’s and Google’s stories will diverge if Apple sticks with the “IP licensing” line. Google has the argument of ongoing costs involved in operating a distribution service which is at least partly proportional to incremental sales of a developer’s app.
That said, Apple may contend that the developer membership fee is so low, relatively speaking, precisely because they are relying on making up the difference with incremental revenue from the percentage charged on app and IAP sales. This line of thinking loses a lot of water when free, no-IAP apps are taken into account, though.
> and consumer service subscriptions.
So because they make some amount of profit from Apple Music, they shouldn’t be able to charge a developer a percentage fee on sales of the developer’s app that is wholly and completely unrelated to Apple Music? That’s like saying because a food truck operator shouldn’t be able to mark up prepackaged ice cream sandwiches he resells because he makes a profit on homemade pulled pork sandwiches.
> In the electric company analogy, I see the iPhone more like the wires. Apps are like the devices that I plug in.
Taking that analogy to its logical conclusion, you were charged for the wires in the house, and then you are charged a fee every time you run a device that uses electricity. So every time you start an app on your phone, which phone you paid for, you would then pay Google or Apple by the second to use it.
@Ed
> It is not a bizarre take.
It is so long as that app purchase involves infrastructure not owned by the end user or the developer.
As an analogy, it’s like saying that you walk into a grocery store, buy a box of pasta, and then it’s not a bizarre take to say the transaction is between you and the pasta manufacturer, and the store has no role in anything, despite the fact you’re literally taking the box off of a shelf they own, in a building they own, lit by electricity they’re paying for, and on and on.
If you go to the manufacturer’s warehouse and buy the pasta directly from them, then no, the store is not involved. That scenario is not what is being discussed here, though.
> It is a call that you should bundle those cost into to Smartphone or Smartphone OS itself. I understand the free market argument in US. Where political spectrum tends to lean to less regulation and competitions. But the point wont stand in the other 7 Billion market part of the world.
I have a very strong suspicion that not all 7 billion people think phones should have their prices raised across the board to include the incremental costs of app sales and distribution. Especially since someone like me, who has downloaded thousands of apps over 11+ years, would have to be averaged against someone who has downloaded a handful, and that person would end up subsidizing my download habits. There is no mass market consumer device I am aware of that operates the way you describe.
Trying to project this into the future I wonder if this was such a wise move.
Apple's stance is "WE are already compliant, see you in court!"
Google "OK, then we will switch tack and ask 11% for being in the store!"
Neither of which meets the intention of the law. So what now?
Make a new law that demands alternate stores. This is also where the video game comparison falls flat on its face. You don't have to buy through Steam etc. You can buy from the developer (if they chose to set up their own store) or you can buy physical copies.
With a non locked down system there are options and the possibility for competition. (That in turn usually leads to so called "natural" monopolies, but that's another discussion)
@Kevin Apple isn’t sharing the numbers, but I think it’s quite possible that developer membership fees cover the entire cost of running the store except for credit card processing. In any case, dollars are fungible and everything is intertwined, so it makes no sense to allocate fees from one area to pay for costs from that particular area. Apple obviously sees the app ecosystem as a selling point of the platform as a whole. You could imagine, as Jobs once said, that the store is designed to run at break even to ensure that they continue to get good hardware margins. I’m not saying they have to do that, but neither do they have to precisely account for the incremental costs of particular customers, apps, or developers. What matters are the aggregate numbers.
I don’t see grocery stores as a good analogy because there is a lot more competition there. And the products they sell are interoperable. Once I have the pasta I can cook and eat it however I want. I don’t have to use a particular brand of stove to cook it. I don’t have to give the store or manufacturer a percentage of the revenue if I use the pasta for sustenance that helps make possible a billable hour.
In France, it used to be illegal to plug in a phone not made by the PTT into the PTT's network. It was a right pain in the neck. Modems had to use audio-coupling, or were tremendously expensive. Opening up that network to other devices reduced internet access costs significantly.
The same could easily have happened without standardization with electricity networks: Different voltages. Different maximum currents. Different alternating phases (60Hz in the US, 50 in the EU, 0 for DC). Imagine having a limited number of vacuum cleaner choices, each costing more than they do today, just because you live in a "Apple" or "Android" town.
So Michael's electricity analogy seems absolutely relevant to me.
Contra John Gruber, I find this whole situation really dispiriting and not at all popcorn-worthy. A government attempts to fight back against corporate misuse of power and they respond by just... tightening the screws and shifting the accounting around such that their bottom line remains unaffected. Will we ever be free of this?
I'll say it again: as long as free apps exist on the App Store, the arguments that Apple has the right to charge a percentage fee on paid apps is BS (other than maybe 5% to cover the cc processing and development of the App Store payment/IAP system + tax tracking etc). There's no reason that the other 25% has any bearing AT ALL on the price that the DEVELOPER chooses for the app. Why does a $30 app pay $10 in fees, a $1 app pays 30 cents, and a free app pays nothing?
At most, Apple should be charging 5% for payments, just like PayPal and Square etc. Anything else is just straight up stealing BILLIONS from developers and customers, while all the multibillion dollar companies like Facebook, Uber, and Amazon pay nothing.
What I find particularly egregious is that if you want to do the right thing: make an app that does not spy on users, costs something reasonable, and provides the best experience to users, you are penalized by Apple driving down the prices of apps (99 cents!) and taking 30%.
If, on the other hand, you want to do something harmful to users, like addict them to your game/social network, sell their data including whatever the accelerometer is measuring (which can then be used to determine your location if you're on public transport), then Apple gives you free distribution, and no headaches.
Which of these two scenarios is better for users? Isn't it odd that distribution of giant corporations' applications, such as Facebook's or Netflix's, are subsidized by tiny indies?
@Moonlight
To quote Ursula K. Leguin
"We live in capitalism, its power seems inescapable – but then, so did the divine right of kings."
@Kristoffer
Very apropos! I have actually been reading a fair bit of Ursula LeGuin lately, having thoroughly enjoyed the Earthsea books when I was younger but never getting around to exploring her other works. Until recently, that is, when I picked up a collection of her "Hainish" novels and stories, figuring it was high time to fill in this gap in my science fiction experience. It's great, she's great, and, frankly, she's right that it all seems impossible until it doesn't. Gotta keep fighting the good fight.
What I find particularly egregious is that if you want to do the right thing: make an app that does not spy on users, costs something reasonable, and provides the best experience to users, you are penalized by Apple driving down the prices of apps (99 cents!) and taking 30%.
If, on the other hand, you want to do something harmful to users, like addict them to your game/social network, sell their data including whatever the accelerometer is measuring (which can then be used to determine your location if you’re on public transport), then Apple gives you free distribution, and no headaches.
Yes, but I don’t think Apple is any happier about that than you are. It’s an unintended side effect of their model. If they were to design the App Store from scratch today, they’d probably look into avoiding it.
Funny how a model that worked for decade and still work like that for Video Game, cause issues when transposed to mobile phones.
Video games are far less essential to our daily lives than phones.
> agilethumbs:
> Apple and Google aren’t entitled to a cut of anything that happens on the computer I bought, or the company I built just because it works on computers they made.
> Why not your ISP, and your cellular carrier, and your electric company, etc.?
Normally your insights aren't this disingenuous.
Your electric company already charges you for the electricity you use. They (more than likely) didn't make the devices you use that consume electricity and so didn't charge you for them. If they did, they will charge you for the device at the time you purchase it. If you use more electricity, they will charge you more.
Your cellular carrier absolutely didn't make the device you're using, and they only charged you for it if you bought it from them, which most of that money goes back to whoever did make it. If you use more cellular data and aren't on an unlimited plan (or have to switch to one), your cellular carrier will charge more based on your usage.
Your ISP doesn't make the websites you're visiting, and they don't charge you based on the website, only for usage. (If ISPs in the US thought they could get away with charging you more to access certain sites, they would in a heartbeat. IIRC this already happens in other countries.)
Google or the manufacturer charges the consumer for the device that they buy. Google isn't charging the consumer anything beyond that. Google is charging developers 11% for utilizing the Play distribution services, which is what they say their fee for those services is after it's reduced by the approximate amount of payment processing fees.
I really don't understand how this is so difficult to understand, that services like the Play Store generate incremental costs each and every time they're used, not to mention the costs of initially developing and then maintaining the service on an ongoing basis more generally. The argument here seems to be that the purchase of the device should pay for not only a fixed cost (the materials and labor of the device itself) but ongoing incremental costs for operating a service in perpetuity. There's certainly examples where someone has tried to do this, but as we see with this massive wave of software changing from one-time purchases to subscriptions, even in cases where there isn't a corresponding ongoing service the app utilizes, charging once for something that generates ongoing costs doesn't often work out very well. And of course, this is all ignoring the ongoing costs of developing the OS that the device runs.
No, the system is not perfect (free apps without IAP get a free ride, etc.) but to act like, in the case of purchasing an app, you're literally doing nothing with the device that involves anybody except you and the app developer is a completely bizarre take.
Also, this is happening on Android, which in these discussions is often pointed to as "Hey look, Apple could emulate them and allow sideloading and alternate stores, and everything would be great." Google believes that, even despite that, they are still in a position to charge 11% to developers for Play Store services. Meaning that the idea that alternate app stores and sideloading are going to lead to this wholesale revolution is kind of nutty, given what's happened.