'Google Charging 4 To 5 Times Of Its Cost To App Developers' : CCI Finds Google Play Billing System To Be Prima Facie Anti-Competitive

In tech companies' challenge to Google's Play Store Billing policy in relation to in-app purchases and paid apps, the Competition Commission of India (CCI) has prima facie found a violation of Section 4 of the Competition Act and directed an investigation by the Director General under Section 26(1) of the Act.

The order passed by CCI Chairperson Ravneet Kaur alongwith Members Anil Agrawal, Sweta Kakkad and Deepak Anurag says: "the Commission is of the prima facie view that Google has violated the provisions of Section 4(2)(a), 4(2)(b) and 4(2)(c) of the Act, as elaborated supra which warrants detailed investigation."

Informants' case

The Informants in the case were People Interactive India Private Limited (operator of Shaadi.com and Sangam.com), Mebigo Labs Private Limited (owner of Kuku FM), Indian Broadcasting and Digital Foundation & Indian Digital Media Industry Foundation (operators/managers of websites/applications relating to television, digital media industries). They approached the CCI against Google's updated payment policy in relation to its proprietary app store (ie Google Play Store), alleging that it was abusing its dominant position in the relevant market in violation of Section 4 of the Act.

The Informants argued that Google's updated billing policy was discriminatory and unfair, as it skewed competition in the downstream app markets (favoring Google's own apps) and cemented Google's position in the payment processing market as well. It was alleged that Google was imposing a service fee/commission model wherein it admittedly made only 3 percent of the app developers bear the entire cost of all 100 percent of the app developers on the Google Play Store by charging them an exorbitant service fee / commission without any commensurate additional services.

As per the Informants, through the Users Choice Billing (UCB) system, Google was offering an illusory choice for users to opt for an alternative billing option next to Google Play's billing system. In this backdrop, the Informants inter alia prayed for an inquiry into Google's conduct.

Commission's Observations

Relevant market & Google's dominance therein

For examining the alleged abusive conduct of Google, relevant markets were determined to be the market for licensable OS for smart mobile devices in India and the market for app store for Android smart mobile OS in India.

Based on earlier assessments in cases involving Google, the Commission was of the prima facie view that Google was dominant in both the relevant markets.

Abuse of Dominant Position

Though Google claimed that the Commission was not a price regulator, and as such, it ought to show restraint while considering claims about the level of the Google Play service fee, the Commission differed. It noted that anti-trust regulators typically focus on promoting competition and preventing monopolistic behavior rather than directly regulating prices. However, "this approach is based on an important assumption that a competitive market will naturally lead to fair prices being determined by supply and demand forces".

The Commission held that antitrust regulators may intervene "in cases where the market is characterized by significant entry barriers coupled with the presence of a dominant player", if such a dominant player "engages in pricing practices that harm consumers or stifle competition". It was added that intervention by antitrust regulators to prevent unfair pricing is of particular significance in critical internet based economic activities.

In the facts of the case, the Commission observed that Google appeared to be charging a service fee ranging from 10% to 30% in case of GPBS (its own) and 6% to 26% in case of ABS (alternate system). Based on break-even revenue share disclosed by the Informant (@ 6 percent), it concluded that the service fee being charged by Google substantially exceeded its cost of providing the services and thus, was excessive.

"Based on this 6% break-even revenue share, Google is charging 4 to 5 times of its cost to the app developers which on a prima facie level appears to be disproportionate to the economic value of services being rendered to the app developers and appears to be an abuse of dominant position by Google."

Pointing to lack of competition due to Google's virtual monopoly power, the Commission said, "app developers appear to have insignificant bargaining power vis-à-vis Google and are forced to accept terms that deter legitimate competition and increase their costs of operation. The app developer has no choice but to agree to the terms and conditions unilaterally decided by Google, otherwise they will not be able to access a vast pool of potential Android users in India".

The revenue distribution model within the Google Play Store also appeared to the Commission as skewed in favor of Google, with app developers potentially facing substantial costs.

Ultimately, the Commission recorded a prima facie finding that Google's conduct amounted to imposition of unfair price, constraining of the growth of app market and denial/obstruction of market access to developers.

Conclusion

After a thorough analysis, the Commission was of the prima facie view that Google violated the provisions of Section 4(2)(a), 4(2)(b) and 4(2)(c) of the Act. It directed an investigation by the DG, who shall conduct the same without being influenced by the Commission's observations in the present case. The DG is to complete the investigation and submit a consolidated investigation report within a period of 60 days from the date of receipt of the order.

Notably, Google's billing policy was initially examined by the CCI and an order passed under Section 27 of the Act in October, 2022. This order found Google's conduct to be in violation of Section 4 and directed the company to implement necessary changes in its practices and/or modify the applicable agreements/ policies. Subsequently, Google introduced some changes in its policies and filed a compliance report before CCI. The same is a matter of consideration by the Commission in separate proceedings.

In related news, the Supreme Court recently issued notice on a plea by tech start-ups challenging Google Play Store's billing policy as exploitative. The same is listed before the court on March 19, 2024.

Click here to read the order