Cracks in the walled garden: Google Play to allow UK developers to use alternative billing systems

Last week, the UK’s Competition and Markets Authority (CMA) provisionally accepted commitments offered by Google to allay concerns around its practice of forcing all in-app payments to be made through the Google Play Billing (GPB) system. This is the second set of commitments Google has offered the CMA in as many years. With the legislation that will give powers to the new Digital Markets Unit (DMU) being introduced to Parliament today, Google’s two cases could prove the textbook examples for resolving the multiple pending competition investigations in relation to the tech majors – with commitments likely backed up in any eventual Codes of Conduct and monitored by the DMU over the long run.

The CMA’s investigation and the proposed commitments

Following the CMA’s Mobile Ecosystems Market study, the CMA launched an investigation focused on whether Google was abusing its dominant position by requiring the exclusive use of Google’s own GPB system by app developers who use the Google Play store. Entering into commitments would bring that investigation to an end and mean Google avoids the risk of an infringement decision and the imposition of a fine. 

Google’s proposed commitments will allow UK developers to offer alternative in-app billing systems alongside the GPB system or choose not to offer GPB at all. The CMA has indicated its willingness to accept these commitments, indicating it believes that they will result in greater innovation and competition for in-app payment services and allow developers to have a more direct relationship with their customers. 

UK developers will have to continue to pay a “service fee” on in-app payments (currently 25-30%), but Google has agreed to offer a discount of 3% for developers that use an alternative payment system and a discount of 4% to those that will use GPB alongside a third-party provider (the idea being this discount at least compensates for the interchange fees they will pay third parties, giving rival payment systems the ability to be competitive on price).  

Google has promised immediate implementation for non-games apps once the CMA accepts the commitments, but for games apps the commitments will be implemented on a slower timetable by October 2023.

An easy give for Google?

The commitments offered by Google are not new or surprising. In July 2022, Google announced a pilot program to support billing alternatives in non-games apps for EEA users as part of their plans to comply with the Digital Markets Act (DMA), which prohibits tying of payment systems. By accepting the proposed commitments, the CMA will secure equivalence for UK users.

While this may be a “low cost” resolution of the CMA’s investigation for Google in that the incremental "give" on top of the DMA is limited, it remains under scrutiny for its Play Store practices. A class action pending before the UK’s Competition Appeal Tribunal includes allegations that Google abused its dominant position in relation to GPB, as well as through conduct that the commitments do not address: (i) bundling the Play Store with other proprietary apps; (ii) imposing contractual and technical restrictions on the ability of developers to distribute apps via distribution channels other than the Play Store; and (iii) charging excessive and unfair service fees on in-app purchases. A CMA infringement finding would have made it more difficult for Google to defend this claim, but if the commitments are finally accepted, Google will have avoided this risk. 

Google’s commitment to provide a discount on service fees is likely to be insufficient to placate app store developers who have been actively campaigning against “app store taxes”, including during the CMA’s Mobile Ecosystems Market Study. The question of what constitutes “fair” service fees is likely to remain one of the hotly debated topics during the implementation of the DMA which requires all gatekeepers to provide business users with “fair, transparent, and non-discriminatory access to gatekeeper’s software application store”. The same issues will doubtless arise under the UK's new regime once in force. 

There will doubtless be representations on both these points made to the CMA in its consultation, which is open until 19 May 2023.

A blueprint for DMU cases?

Beyond being of interest for how the long-running debate on app stores is resolved, the Google Pay commitments – like the Google Sandbox commitments before them – will be interesting to watch as a blueprint for monitoring of tech businesses by the DMU.

The CMA was traditionally reluctant to resolve competition investigations with commitments that required significant ongoing monitoring, but under new UK legislation expected to be published imminently, tech companies with “strategic market status” will be subject to a tailored Code of Conduct. Google is expected to be designated as SMS for several of its services and we expect that ultimately, the commitments given by Google in both cases will be rolled into its SMS Code of Conduct and monitored by the DMU, potentially along with broader obligations addressing some of the other issues identified by CMA in its Mobile Ecosystems Market Study.

Despite years of tough rhetoric, the CMA (unlike the European Commission) has not yet issued a fine against a tech major. This is in large part because of a deliberate decision by the CMA to wait for legislation better targeted to addressing what it perceives to be more systemic issues in digital markets. There remain four open antitrust investigations into tech majors in the crop opened since the CMA became impatient waiting for its new powers just over two years ago – observers will be watching with interest to see whether those are resolved in a similar manner, or whether the CMA will proceed all the way to an infringement finding in any of the cases.