This is what Google's defeat in the antitrust case means for the world of tech giants – Atlantico

Atlantico: A California jury ruled in favor of Epic Games, the publisher of Fortnite, which accused Google of abusing a dominant position in the market for the distribution of applications on Android. In particular, the jury found that Google acted anti-competitively by imposing the Google Play Billing payment service and charging a commission on the applications available in its Google Play Store. Could this decision challenge the position of the tech giants and change the market for application stores?

Julien Pillot: The basis of this case is a complaint filed by Epic Games. Fortnite’s publisher has attacked Google and Apple. Epic Games accuses the two tech giants of having a monopoly in the distribution of mobile applications through their app stores, the App Store for Apple and the Play Store for Google. These application stores determine their technical and price access conditions. Specifically, Apple, like Google, sets technical specifications for all application developers to be compatible with the computer languages ​​of devices running on iOS for Apple or on Android for Google, for security issues, for interoperability issues and for many other criteria. If they are to be sold through these stores, strict pricing conditions also apply. On the one hand, developers are obliged to pay Apple or Google 30% of the revenue that applications can generate when sold through their store. This is their sales margin. On the other hand, Apple and Google, in their capacity as business providers, will also make a 30% deduction on all purchases that can be made within the application (subscriptions, microtransactions, etc.). In order to pay them, you have to go through a payment software and the relevant stores. Apple and Google therefore know exactly which amounts go through per application and take their share. It is precisely this double obligation to use the app stores and payment systems of Apple and Google that is perceived as an abuse of competition.

Specifically, third-party application providers like Epic Games want to have the choice of distributing through app stores other than just and exclusively Apple or Google, or even launching or even self-distributing their own competing app stores. The developers also hope that the competition will enable them to achieve negotiation rates that, in their view, would be more advantageous than the current 30%.

In this case, American competition judges had to decide between Google and Epic Games on several levels. In order to characterize abuse of dominance or abuse of a monopoly, they had to question the distribution monopoly, the possible alternatives to the Apple and Google app stores, and the potentially anti-competitive practices.

In 2021, the American competition authorities had not really ruled in favor of Epic Games in the case between Epic Games and Apple. But this week, American competition authorities ruled in favor of Epic Games, recognizing that there is indeed a distribution monopoly in the Play Store and that certain Google practices constitute an abuse of dominance that is reprehensible under competition law. What measures could be taken against Google to remedy the distortion of competition caused has not yet been recorded in court. These behavioral measures and the fine are expected to be issued in January.

While Google waits for a judge to determine the exact amount of the fine, which could run into billions of dollars, it has decided to appeal. Is this a bad signal for consumers and developers?

Google has no plans to stop. The company has already announced that it will appeal. Google believes there are many alternatives for developing and distributing applications outside of the Play Store. The company argues that in the United States, 3% of installed applications are installed via alternative download platforms, proving that while there are technical alternatives, users prefer quality and simplicity – i.e. superiority – from the Play Store.

In addition, Google does not want to be recognized as a distribution monopolist within application stores, since the company sees itself competing not only with mobile phones, Apple smartphones, but also with the market for video games consoles and, to a lesser extent, connected televisions, all of which are distribution platforms for alternative applications are.

The basis of the legal decision is the definition of the relevant market. Considering that the relevant market for application distribution is based on directly compatible application stores for Android mobile devices, the relevant market becomes extremely small. With a market share of 97%, Play Store can only be viewed as a quasi-monopoly. But on the other hand, if you consider that the market is much broader and affects all connected devices on which digital applications can be downloaded, the Play Store becomes a very strong player, but in reality it is far from being in a monopoly situation.

What consequences could this court decision have for the application market?

Depending on the type of sanction and remedial measures, this will have a more or less significant impact on the market. The uncertainty concerns the reaction of users, but also of developers, to possible remedies.

First of all, it is important to know whether this decision can break Google’s monopoly or very dominant position in the distribution of applications on Android devices at a technical level. Consumers must also agree to visit app stores other than the Play Store, which is not guaranteed but possible. We will come back to this using Internet Explorer as an example.

Candidates must also submit competitive offers on the Play Store or App Store. Other players such as Epic should compete to develop alternative store offerings for application distribution. These app distribution stores must be of sufficient quality to encourage users to use them, which means that they must be attractive in order to count many developers of important applications such as Netflix, Airbnb, Uber and many others among their customers.

However, as we know, price is one of the most important competitive levers in distribution markets. If there were much stronger competition between providers of digital applications than there is today, one of the most important competitive levers would be to rely on price and thus on margins, on the reimbursements demanded by application developers. The required 30% could probably be reduced. This could hurt the results of companies like Apple and Google, which have built some of their fortunes on these revenue streams.

In the past there was a precedent very similar to what is happening in the application market between Google and Epic Games. In the early 2000s, Microsoft had a near monopoly on Internet browsers. Microsoft’s browser is called Internet Explorer and most people around the world are of the opinion that you must use Internet Explorer to access the Internet. This software from Microsoft is very convenient because it actually comes pre-installed on all computers that run Windows. At that time, the competition authorities at both the European and American level filed a voluntary denunciation against Microsoft for dominating the operating system market. At the end of this multi-year process, a behavioral remedy was imposed on Microsoft to not only install Internet Explorer on computers, but also to preinstall other browsers in addition to Internet Explorer, such as Netscape, Safari, Mozilla Firefox and Google Chrome, when you start Windows for the first time. Someone who had just purchased a computer had a variety of options for getting online. After this technical decision, Internet Explorer’s market share fell from year to year until it became a minority, whereas in the past it was over 90%.

From the moment Microsoft was ordered to develop its market, it was possible to reintroduce competition. This made it possible to make other alternatives known and have them tested by a very large number of users. And because of this freedom of choice, they were able to compare the different offerings and find that Internet Explorer is neither the only browser nor necessarily the most efficient.

If a similar measure is announced in January, alternative offers to the Play Store could be suggested. And if they are convincing from both a user and developer perspective on a competitive level, then we can imagine that the Play Store’s market share will no longer be 97% in a few years.

Will justice make it possible to regulate the practices of tech giants? After this decision, what might the world of Silicon Valley companies look like in terms of these offerings?

In recent years, tech giants have been increasingly sanctioned at European or American level for violations related to abuse of market dominance, but also over issues of respect for private life or compliance with the GDPR. GAFAM is increasingly being sued for possible abuse of a dominant market position, particularly by Google (Alphabet). In addition to the lawsuit with Epic, there is a lawsuit in the US and Europe about Google’s practices in the advertising market, which could ultimately lead to competition authorities sanctioning Google and perhaps even dismantling it, as Margrethe Vestager has suggested. the EU Competition Commissioner last June.

We are witnessing a revival of antitrust law, be it at the American or European level. The market practices of the very large digital players GAFAM are increasingly being understood by competitors, but also by regulatory and competition authorities. And this better understanding is the precursor to better measurement of the positive, but also anti-competitive, effects that arise from the market practices of these digital giants.

This opens the way to proceedings for abuse of dominance, whether by competitors who feel hampered or by competition authorities themselves who believe that these giants are concentrating too much market power, including abuse to the detriment of the public interest . For now, these are still procedures that can lead to dismissals. But colossal sanctions could also be imposed. The nuclear weapon would be the opportunity to break up Google for abusing its dominant position. Between these two extremes, the field of possibilities is very wide indeed, and the severity of possible sanctions as well as behavioral measures that could be imposed will have very different impacts on competitive dynamics and, more generally, on the markets in which the GAFAM is engaged. The games are open.