Why Indian app developers are most vocal in resisting Google’s 30% ‘gatekeeper’s fee’

Google has decided to strictly impose a 30% fee on all digital purchases through Play Store, but backlash from Indian firms has caused it to push back deadline.

Representational image for Google | Bloomberg file photo

New Delhi: Indian app developers have raised a furore about Google’s announcement that it will strictly enforce its policy of taking a 30 per cent cut for all digital purchases from 30 September 2021.

Following the backlash, on 5 October, Google decided to delay the implementation of the policy for Indian developers until 31 March 2022. But the developers are still not satisfied — some of them are looking to break the tech giant’s dominance of the market for the Android platform through its Google Play Store, and asserting the need for self-reliance, as outlined by Prime Minister Narendra Modi’s call for an Atmanirbhar Bharat.

ThePrint breaks down what exactly Google’s policy is about, why it wants to implement it strictly now, the importance of Google Play Store in the Android ecosystem, and why and how Indian developers are so vocal in their objections to the policy.

What is Google’s new policy?

On 28 September, Google released a blog post on how it plans to ‘improve Google Play’, also making some clarifications on its billing policy. It reminded app developers: “We’ve always required developers who distribute their apps on Play to use Google Play’s billing system if they offer in-app purchases of digital goods, and pay a service fee from a percentage of the purchase.”

This service fee of 30 per cent is not new, but the policy has not been strictly enforced. Now, Google says it will be enforced from 30 September 2021, because it is “trying to plug” what it believes to be revenue leakage. “Google intends to restrict by-passing its own billing system, which is a key source of its revenue,” said an e-commerce analyst with a leading consulting firm, not wishing to be named.

With this move, Google will route all financial transactions — app purchases, purchases inside the app, and subscriptions — through its billing system, which will allow it to closely monitor and collect the 30 per cent “gatekeeper’s tax”, as the analyst put it.

The billing policy itself isn’t new, but Google had received feedback that language used in the policy was not clear enough, and was creating confusion about the policy and where it applies.

“We have heard feedback that our policy language could be more clear regarding which types of transactions require the use of Google Play’s billing system, and that the current language was causing confusion. We want to be sure our policies are clear and up to date so they can be applied consistently and fairly to all developers, and so we have clarified the language in our Payments Policy to be more explicit that all developers selling digital goods in their apps are required to use Google Play’s billing system,” the tech giant said in a blog post.

“Again, this isn’t new. This has always been the intention of this long standing policy and this clarification will not affect the vast majority of developers with apps on Google Play. Less than 3 per cent of developers with apps on Play sold digital goods over the last 12 months, and of this 3 per cent, the vast majority (nearly 97 per cent) already use Google Play’s billing. But for those who already have an app on Google Play that requires technical work to integrate our billing system, we do not want to unduly disrupt their roadmaps and are giving a year (until 30 September 2021) to complete any needed updates. And of course, we will require Google’s apps that do not already use Google Play’s billing system to make the necessary updates as well,” it added.

Deadline extended for India

Google extended the deadline for India for another six months until March 2022, because after it posted the clarification to its policy, it said it had “heard some additional questions from the community in India”.

These concerns from India came in the form of news that “more than 50 technology entrepreneurs” were joining hands to petition the government for support to create an overarching Indian digital app ecosystem to counter what they view as the dominance of US technology giants Google and Apple, according to a report in The Economic Times.

The government responded positively to the demand and said it’s “open” to launching an alternative, the report said, and quoted Google’s vice president of product management Sameer Samat as saying the giant had decided to delay applying the fee due to the concerns raised.

The same report, however, clarified that Google has no plans to change its billing policy, and wants to discuss billing and other issues with Indian stakeholders.

Why are Indian developers angry?

As soon as Google put out its blog post, Indian app developers started raising a hue and cry about it. Industry body Internet and Mobile Association of India (IAMAI) said on 29 September: “The Indian founders’ community is on fire at the announcement of the policy.”

The developers are angry because implementation of the 30 per cent service fee will reduce their revenues.

“A small decision made by big players can cause serious ripple effects on the entire industry,” said Vaibhav Vasa, director of Biz Analyst, an app company that targets small and medium businesses (SMB) with an app to track operations like accounting and inventory management.

Vasa estimates there are about 1,31,600 apps from Indian publishers listed on Google Play, and that providing software as a service to SMBs already had a “less margin on the app pricing”, so if they have to pay an additional 30 per cent to Google, this increase will directly impact the “end customers”, that is SMBs.

Mehul Sutariya, co-founder and director of Biz Analyst, said earlier app developers only had to pay around 2 per cent from each transaction when they used a payment gateway like PayU, Razorpay, Paytm. But Google’s 30 per cent fee will mean steep hikes in pricing.

“Ultimately, the consumer will end up paying for it,” said the unnamed e-commerce analyst quoted above. Sutariya added: “If this policy is enforced, customers will end up paying more for services and the hike will be more than 30 per cent on the total value to account for Google fees.”

The apps that will be most impacted are the ones that sell digital goods like gaming, subscription-based edtech apps like Byju’s, health apps, and streaming services like Netflix. Apps will not have to pay 30 per cent to Google for physical goods they sell, so food delivery apps like Swiggy and Zomato don’t have to pay this 30 per cent fee, Sutariya explained.

‘Using its dominant position’

This row is similar to the battle between Apple and Epic Games, the maker of gaming app Fortnite. Epic Games sued Apple, alleging that its app store had a monopolistic position in how apps are distributed on iOS.

In August this year, Apple removed Fortnite from its app store because Fortnite implemented a payment method that would circumvent Apple’s billing system, which meant Apple was losing its 30 per cent fee from purchases on Fortnite. Apple earned around $360 million in the last three years from Fortnite, an August 2020 Business Insider report said. In 2018, Fortnite earned “the most annual revenue of any game in history” at $2.4 billion.

Similarly, Indian developers say, Google’s move only further consolidates the dominant position it has online — from owning the Android operating system software, the most popular app store for Android apps (Play Store), and now to its ability to channel purchases on apps through its own billing system.

Following Google’s announcement, Paytm founder Vijay Shekhar Sharma — whose app had been removed from Google Play for a few hours on 18 September for alleged violation of policies — had reportedly told a meeting of start-up executives that Google controls “oxygen supply of (app) distribution” on Android phones.

Vishwas Patel, Payments Council Of India chairman, had also said: “Google’s stand in courts is that it does not need RBI authorisation as it is not a payment system operator, and here it is mandating that Indian apps use only Google’s proprietary billing and payment systems. Google should not exercise its dominant position; rather, allow a level playing field for everyone in the ecosystem.”

High costs for developers

Ajay Data, whose company Data Ingenious Global Limited has made the video conferencing app VideoMeet, pointed out the high costs involved in app development.

“First, a company has to invest in building the app and its infrastructure, then invest lakhs per month in search engine optimisation (SEO), and then pay a high cost to Google for advertising on Google ads. It is completely unfair to charge as high a fee as 30 per cent on transactions done in the app — it would be like giving away your entire profits,” Data said.

Data’s app is listed on Google Play Store, but he said they won’t add paid features like recording and streaming capability “because we never wanted to launch with the revenue share” model that Google wants to enforce. He said they are now negotiating adding the features to the iOS version of app, which will be available on Apple’s App Store.

Sutariya added: “Google will likely have to rethink this policy of charging a 30 per cent fee. It is too high an expense for the Indian app ecosystem to bear.”

Atmanirbhar Bharat call

The developers’ resistance to Google’s fee fits neatly with PM Modi’s call for a self-reliant India or Atmanirbhar Bharat — they are now looking to build an Indian alternative to the Google Play ecosystem.

On 5 October, Paytm announced its own app store called Paytm Mini App Store, and said it invoked the “true spirit of Atmanirbhar Bharat”. The Paytm app platform already has over 300 app-based services.

Sutariya said the fact that Google has extended the deadline for the implementation of the policy to March 2022 could mean Indian companies come up with alternative ways to distribute their apps and services. “This is India… 18 months is a long time. Businesses will start figuring out alternative ways to collect payments to ensure that the customers do not have to bear the extra burden,” he said.

Disclosure: Paytm founder Vijay Shekhar Sharma is among the distinguished founder-investors of ThePrint. Please click here for details on investors.