Google’s loss to Epic will likely have little impact in the near-term

Google’s loss to Epic will likely have little impact in the near-term

The logo of Google Play is seen on a screen.

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A federal jury decided on Monday that Google’s app store has benefited from anticompetitive behavior, but it could take a long time before the company faces any potential changes to the Google Play store, and those changes are unlikely to hurt revenue significantly. That said, the ruling could give more ammunition to other antitrust cases against the company, even though those cases will likely take years to reach a resolution.

Epic Games originally sued Google in 2020, alleging it uses its dominant position as the developer of Android to strike deals with handset makers and collect excess fees from consumers. Google collects between 15% and 30% for all digital purchases made through its storefront. Epic tried to bypass those fees by charging users directly for purchases in the popular game Fortnite; Google then booted the game out of its store, spurring the lawsuit.

After a four-week trial in a northern California federal court Monday, a jury unanimously found that Google had acquired and maintained monopoly power in the Android app distribution market, as well as the in-app billing market for digital goods and services transactions. Epic filed a similar suit against Apple but lost in federal appeals court in April.

In an interview with CNBC, Epic CEO Tim Sweeney attributed the win to revelations during the trial that Google had allegedly deleted or failed to keep records such as chats about its secretive deals with app makers. He also noted that it had been a jury trial, while the Apple case was decided by a judge.

The decision comes as Google faces two separate Justice Department suits in Virginia and Washington, D.C., related to allegedly anticompetitive behavior

Judge James Donato of the United States District Court for the Northern District of California will decide on remedies in the next phase in the coming months. Google could be forced to change its Play Store rules, which is what Epic asked for as opposed to monetary relief.

What’s at stake?

The company doesn’t break out Google Play revenue separately, but it is included in its “Google Services” segment, which brought in $67.99 billion in the third quarter of 2023 — an increase from $61.38 billion the year prior. It earns money from consumer in-app purchases and subscriptions. 

A Wells Fargo analyst note Tuesday estimates Google will book $38.5 billion in Google Play Store billings in 2023. That’s about 13% of the company’s total expected revenue of $305.7 billion for the year, according to estimates from LSEG (formerly Refinitiv).

Epic’s victory could force Google to change its app store billing model, so it could no longer force app makers to use Google’s billing system as a condition for distribution through the Play Store.

It could also force Google to make changes to its Android commission, where it charges a 15% to 30% fee on digital goods and services purchased within apps.

The court could force Google give other app stores more exposure on its Android ecosystem, which has the largest share of the smartphone operating system market worldwide. The Google Play Store comes preinstalled on most Android devices, but users can install alternate stores manually. The court could require Google to allow other app stores equal footing on third-party devices, prevent Google from restricting distribution of those app stores, or take other measures to make sure consumers had alternatives.

In addition, the information that came to light during the trial could give third parties more negotiating leverage, argued KeyBanc analysts in a note late Monday night.

During the trial, Epic Games called a Google executive who testified that Google gave Spotify a special rate on Google Play subscription purchases — only 4%, versus 15% for others.

Epic Games CEO Tim Sweeney told CNBC Tuesday “I think it’s going to be impossible for Google Business Development to avoid giving everybody the Spotify deal at this point, and we’ll see, I hope, I hope journalists give that a good amount of scrutiny.”

Other financial information also came out during the trial. For instance, Pichai revealed that Google pays Apple 36% of Safari search revenue under the terms of a default search agreement that is core to the Justice Department’s separate antitrust claims. Epic’s attorney then alleged that Google pays Samsung, Android’s largest hardware partner, less than half of what it pays to Apple. Pichai replied that while he didn’t know for certain, it was possible.

A long journey ahead

It will be a while before any potential changes come to pass.

Google denied any wrongdoing and says it will appeal the verdict, so it could be tied up in appeals court for years. 

“The trial made clear that we compete fiercely with Apple and its App Store, as well as app stores on Android devices and gaming consoles,” wrote Wilson White, VP, Government Affairs & Public Policy in a statement. “We will continue to defend the Android business model and remain deeply committed to our users, partners, and the broader Android ecosystem.” 

Analysts noted Tuesday they expect a multi-year process before any changes would likely come to pass. “Google’s epic loss is much ado about nothing,” wrote Needham analysts.

Worst case scenario, Needham analysts argued, was that “Google loses all appeals and must add competitors, though it’s unclear consumers would move,” they stipulated. “Also, Google could charge new competitors to the Play store a revenue share of 15%+ so that the new competitors would have to charge consumers higher fees that includes Google’s ‘overhead’ charge.”

However, the verdict does have the potential to arm separate antitrust action against the search giant — ones that are closer to the heart of the company’s core revenue streams. Some analysts have noted that the loss for Google could influence an ongoing similar case brought by the Department of Justice.

Investors are awaiting more details of potential remedies to react strongly one way or another. Alphabet’s stock barely moved upon news of the verdict, and closed down less than 1% on Tuesday.

CNBC Tech Reporter Kif Leswing contributed to this report.

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