Google has been striking multibillion-dollar deals with tech giants like Samsung and Apple to secure default status for its products on their devices. In a recent courtroom revelation, Epic Games Inc. presented evidence that Google committed an $8 billion payment to Samsung Electronics Co. over a four-year period. The agreement ensures Google’s dominance on Samsung phones, making its apps – including the search engine, voice assistant, and Play Store – the default choices.
James Kolotouros, Google’s Vice President for Partnerships, disclosed strategic plans during the San Francisco trial. Under questioning by an Epic lawyer, Kolotouros explained how Google has been sharing app store revenue with Android device manufacturers to ensure the preinstallation of Google’s suite of apps with Google Play on the home screens of these devices.
Epic, the creative force behind the immensely popular Fortnite game, initiated a lawsuit against Google in 2020, alleging antitrust violations in Google’s app marketplace.
Google Discouraging Third-Party App Stores
As disclosed by Bloomberg, Epic demonstrated that Google executives actively discouraged third-party app stores on Samsung devices, a move perceived as protecting the profitability of Google Play. Kolotouros’ testimony added a startling twist, revealing that a substantial portion, if not more than half, of Google Play revenue is derived from Samsung devices.
Epic’s objective is to highlight that leaders at Alphabet Inc. were purposefully taking measures to impede the expansion of third-party app stores, a move seen as a protective stance for Google Play’s financial gains. The disclosed estimated operating profit of Google Play exceeded $12 billion in 2021, stemming from sales that encompass the standard 30% revenue cut imposed by Google on app developers.
The testimony on Monday, November 13, 2023, followed evidence presented by Epic last week, revealing that Google was deeply concerned about game developers opting to release their products independently. This concern led Google to be willing to invest millions to persuade these developers to remain within the Google Play ecosystem. On Tuesday, Epic’s legal team was scheduled to question Alphabet Chief Executive Officer Sundar Pichai. This legal saga has far-reaching implications for the competitive dynamics of the app market and the relationships between tech giants.
Google’s 2019 Proposal for Samsung
In 2019, Google proposed a $200 million payment over four years to Samsung, suggesting that Samsung’s Galaxy Store app marketplace be available within the Google Play store rather than being preinstalled, and that Samsung refrain from offering its payment or billing system. However, this proposal was abandoned, and in the subsequent year, Google inked three deals with Samsung, totalling $8 billion over four years. Internal documents revealed that Google saved nearly $1 billion over four years by retracting its request for Google Play exclusivity on the device’s home screen, allowing space for Samsung to add the Galaxy Store.
Another internal presentation unveiled Google’s 2019 strategic initiatives to ensure the prominence of its search engine and apps on mobile devices. The proposal involved offering a share of Google Play revenue to Android OEMs, besides Samsung. A proposal was presented to top-tier Google executives, suggesting an expenditure of $2.9 billion in 2020, with an anticipated increase to $4.5 billion by 2023. This financial commitment was aimed at partnering with wireless carriers and non-Samsung manufacturers to “secure platform protections for Search and Play and critical apps protections on more devices.”
The tech giant devised a tiered plan to establish “exclusivity” for Google Play. This plan proposed a 16% share of Google Play’s revenue for mobile device makers or a range between 4% and 8% of the app store’s sales for smaller manufacturers. Additionally, the plan included an extension of up to a 12% revenue share from sales generated by its Search business.
Under the scrutiny of Google’s lawyer, Glenn Pomerantz, Kolotouros clarified that Google and Samsung never reached an agreement that prohibited Samsung from placing its Galaxy store on a device’s home screen. Kolotouros emphasized that these deals were crafted with the primary objective of discouraging users from transitioning from Samsung’s Android devices to Apple Inc.’s iPhone. This, in turn, supports Google’s argument that its policies and agreements with developers and device makers were genuine efforts in the pursuit of healthy competition.
Kolotouros, a seasoned 20-year veteran at Google, provided testimony in September as a crucial part of the Justice Department’s antitrust lawsuit against the search giant. This legal action questions the agreements Google forged with manufacturers, including Samsung, to establish its search engine as the default option on web browsers and mobile phones. As the courtroom revelations continue, the tech industry braces for the far-reaching implications of this billion-dollar dance.
Antitrust Lawsuit Against Google
The consistent efforts by Google to secure its search engine as the default choice on mobile devices have come under intense scrutiny, notably in a separate antitrust trial with the Justice Department unfolding in Washington.
On July 7, 2021, several state Attorneys General filed an antitrust complaint in the U.S. District Court for the Northern District of California. This complaint alleged that Google’s management of Android and Google Play violated U.S. antitrust laws, as well as state antitrust and consumer protection laws.
The legal landscape further intensified in May 2022, as both the European Commission (EC) and the Competition and Markets Authority (CMA) launched investigations into Google Play’s business practices. Simultaneously, Korean regulators focused on scrutinizing Google Play’s billing practices, initiating a formal review in May 2022 to evaluate Google’s compliance with the new regulations governing app store billing.
