Recently it was reported that the supreme court of India will hear Google’s Appeal on 10th Oct 2023 - its filing against the recent CCI’s judgments. CCI (Competition Commission of India) of India vide its order dated 20th Oct 2022 & 25th Oct 2022 has imposed penalties (Rs 1337 & 936 Cr) on Google and also asked the company to comply with its suggested remedies. NCLAT - the appellate body, by its order dated 29th March 2023, upheld most remedies, barring a few. The purpose of this note is to discuss the key issue in simple layman’s terms and understand what possible leverage Google has (legal vs business) in preventing the dilution of its business interests.
The Background
At the time when mobiles were becoming pervasive, Google in July 2005 acquired and nurtured the “Android” Operating System for mobiles, which mirrors the “Windows” Operating System for desktops. The key difference between the two is that “Android” was designed for optimal functionality in a mobile environment, just like “Windows” was for desktops. Now in order to make the OS popular Google started to give it “free” to the mobile phone manufacturers, quite unlike “Windows”, whose license had to be purchased by the end user. This created a win-win situation for both Google and the phone manufacturers. Google through a batter system, was able to position its key apps prominently on the home screen, and in return, the mobile manufacturers got the best-in-class OS without spending a dime - the cost of which otherwise could have been significant. Google’s objective was to get access to as many users (customers) as possible (through its prominently positioned apps) so that it can sell more ADs, whereas the mobile phone manufacturer’s aim was to make their devices useful for their customers from day 1. Hence, to support that objective Google developed a “Play Store” (app store) - which has now become the most popular and preferred way to distribute applications on smartphones.
The Issue
The “Android” OS is largely controlled and maintained by Google. In other words, Google makes available the latest features and releases of “Android” to the handset manufacturers. Now, (as mentioned above) for the handset makers, an OS without apps is useless. Hence, Google provides them with all its key apps (including the Play Store) in return for signing a contract (MADA - Mobile Application and Distribution Agreement) - mandating the mobile manufacturers to position Google’s key apps prominently on the home screen.
Google also pays OEMs (Original Equipment Manufacturers) a share of their search revenue share in lieu of them setting Google’s search engine as the default option on their devices. Google ensures (through its contract) that handest manufacturers do not support fragmentation of the OS (different versions of Android are not supported and maintained by Google). Those indulging in fragmentation (without approval) will be deprived of Google apps, which include the PlayStore. Google’s logic is to ensure security and quality customer experience, which otherwise can get compromised in case the OS is tampered with, thereby compromising its fidelity.
Google also is accused of charging a huge cut (15 to 30%) of revenues that the app providers make out from selling their apps. Given the dominant position of Google in the app store business in India, this also became the point of investigation.
CCI’s Remedies (20th Oct 2022)
In this section, we will discuss the CCI’s remedies for the 20th Oct Judgment, and the various options available for Google for complying with them. Each of the remedies is tagged with the exact clause number of the CCI’s judgment.
617.1 - OEMs shall not be restrained from (a) choosing from amongst Google’s proprietary applications to be pre-installed and should be forced to pre-install a bouquet of applications, and (b) deciding the placement of pre-installed apps on their smart devices. (Upheld by NCLAT).
Google’s Option - Charge a nominal license fee from those OEMs who choose not to pre-install key apps and place them prominently on the home screen of the device. Anyways, OEMs will be motivated to install some key apps (like PlayStore), without which their mobile device will not sell in the marketplace.
617.2 - Licensing of Play Store (including Google Play Services) to OEMs shall not be linked with the requirement of pre-installing Google search services, Chrome browser, Youtube, Google Maps, or any other application of Google. (Upheld by NCLAT)
Google’s Option - As stated above, no OEM will like NOT to get the Play Store installed on his devices. And for the rest of the apps, Google can structure a new agreement of charging a license fee from those OEMs who choose not to install some of the key apps related to the search.
617.3 - Google shall not deny access to its Play Services APIs to disadvantage OEMs, app developers, and its existing potential competitors. This would ensure the interoperability of apps between Android OS which complies with the compatibility requirements of Google Android Forks. By virtue of this remedy, the app developer would be able to port their apps easily onto Android forks. (Set aside by NCLAT)
Possible Reason For Setting Aside - It is unfair to expect Google to keep refining its API based on the work done by its competitors/app developers over which it has no control. Interoperability is a very complex issue, it can’t be imposed by a simple regulatory dictate. Most interoperability agreements are commercially driven to serve mutual benefits and under some well-defined discipline (rules). This is to prevent unnecessary burdens on the entity which is facilitating such interconnection.
617.4 - Google shall not offer any monetary/other incentives to, or enter into any arrangement with, OEMs for ensuring exclusivity for its search services. (Upheld by NCLAT)
Google’s Option - This should be read in conjunction with 617.8 below. But for a search to work properly, the internet has to be indexed by a mechanism called crawling. In 2018, Findx - a privacy-oriented search engine that had attempted to build its own index -shut down its crawler, citing the impossibility of building a comprehensive search index when many large websites only permit crawlers from Google and Bing (CCI page 107 - 20th Oct 2022). Now, given these constraints how many folks will find the quality of searches comparable to that provided by Google, thereby forcing them to choose an alternative?
617.5 - Google shall not impose anti-fragmentation obligations on OEMs as presently being done under AFA/ACC. For devices that do not have Google’s proprietary applications pre-installed, OEMs should be permitted to manufacture/develop Android forks-based smart devices for themselves. (Upheld by NCLAT)
Google’s Option - Implementing this should not be a problem for Google. The reason - The devices which do not have Google’s products installed, Google should not care what the OEM does with its own version of Android Fork. The only thing Google might do is to make some tweaks to the language of the AFA/ACC.
617.6 - Google shall not incentivise or otherwise obligate OEMs for not selling smart devices based on Android forks. (Upheld by NCLAT)
Google’s Option - This is straightforward and easy to implement. Now if Google is extending its AFA/ACC to smart devices then it is a little too much. But charging a reasonable license fee for using Android for these smart devices is always on the table.
617.7 - Gooogle shall not restrict un-installing of its pre-installed apps by the users. (Set aside by NCLAT)
Possible Reason For Setting Aside - Note sure why it has been set aside. But for Google charging a license fee was always an option on the table to drive compliance.
617.8 - Google shall allow the users, during the initial device setup to choose their default search engine for all search entry points. Users should have the flexibility to easily set as well as easily change the default setting in their devices in the minimum steps possible.(Upheld by NCLAT)
Google’s Option - Google will have to implement this. But given the branding of Google and the reach and depth of its index, most users will likely end up choosing Google as the search option. But some might end up choosing otherwise, thereby impacting some share of Google’s search market in India. But note, the order does not prevent Google from incentivizing default selection (through financial incentives) on IOS devices.
617.9 - Google shall allow the developers of app stores to distribute their apps stores through Play Store. (Set aside by NCLAT)
Possible Reason For Setting Aside - It is for the same reason as 617.3 was set aside. Allowing the distribution of competitors’ App Store in Google’s Play Store is like an indirect way of asking Google to make its APIs available for all apps which it has not tested and cannot guarantee quality performance on its own Android Fork. Which is too much of an asking.
617.10 - Google shall not restrict the ability of app developers in any manner to distribute their apps through side-loading. (Set aside by NCLAT)
Possible Reason For Setting Aside - It is unfair to expect Google to allow any side loading of apps without passing the responsibility on to the consumers wanting to do so. In today’s world mobile phone is used for 2F SMS authentication for financial transactions. Any apps which get sideloaded and not reviewed by a responsible anchor might end up becoming a huge security risk. It is however okay to sideload apps belonging to a reputed player.
CCI’s Remedies (25th Oct 2022)
In this section, we will discuss the CCI’s remedies for the 25th Oct Judgment, and the various options available for Google for complying with them. Each of the remedies is tagged with the exact clause number of the CCI’s judgment.
395.1 - Google shall allow, and not restrict app developers from using third party billing /payment processing services, either for in-app purchases or purchasing apps. Google shall not discriminate or otherwise take adverse measures aganist uch apps using third party billing/payment processing services in any manner.
Google’s Option - Execute
395.2 - Google shall not impose any Anti-steering Provisions on app developers and shall not restrict them from communicating with their uers to promote their apps and offering in any manner.
Google’s Option - Execute
395.3 - Google shall not restrict end users, in any manner, to access and use within apps, the features and services offered by app developers.
Google’s Option - Execute
395.4 - Google shall set out a clear and transparent policy on data that is collected on its platform, the use of such data by the platform, and also the potential and actual sharing of such data with app developers or other entities including related entities.
Google’s Option - As per the proposed Data Protection Bill, whosoever is processing data/information will be solely responsible for its upkeep and security. And the same need to be deleted as soon as the purpose is over. Hence, not sure Google will be able to share data/information with others who did not participate in such processing.
395.5 - The competitively relevant transaction/consumer data of apps generted and acquired through GPBS shall not be leverged by Google to further its competitive advantage. Google shall also provide acess to the app developer of the data that has been generated through the concerned app, subject to adequite safeguards, as highlighted in this order.
Google’s Option - As regards consumer data, its protection and sharing will be governed by the Data Protection Bill. For the rest of the data, Google will have to comply with the CCI order.
395.6 - Google shall not impose any conditions (indluing price related condition) on app developers, which us unfair, unreasonable, discriminatory or disproportionate to the servives provided to the app developers.
Google’s Option - This is vague, but Google has to comply.
395.7 - Google shall ensure complete transparancy in communicating to app developers, service provided, and corrosponding fee charged. Google shall also publish in an unambigious manner the payment policy and criteria for applicability of fees.
Google’s Option - This is also vague, but Google has to comply.
395.8 - Google shall not discriminate aganist other apps facilititating pyment through UPI in India via-avis its own UPI app, in any manner.
Google’s Option - Execute
App Fee Structure (% Revenue Share)
Please note that the commission though investigated this matter, but refrained from passing any remedies, and kept the issue open for future deliberations. Extracts are reproduced below (Clause 327, Page 153).
327 - “Based on the foregoing, the Commission is of the view that information available on record is not sufficient to give finding on the menetization model, as sketched supra, foillowed by Google. Therefore, the Commission is not inclinde to give any finding on this aspect……”
But one of the argument’s rationality can be questioned. See Clause 325, Page 152 reproduced below for ready reference.
"… Therefore, the question to be determined is whether it is reasonable and fair for these 3% of the apps to bear the 100% cost of the Play Store…..”
I find the expectation of the Commission of asking Google to charge all app developers (even those who are not making money) strange. How can these app developers (with no cashflows) be asked to pay and subsidize the cost of those who have cashflows?
Also, in this regard, I will like to lay before the readers the following fact - China has no Google but has a fairly competitive app market supported by 7 to 8 app stores. But in spite of this fact, the revenue share for apps (charged to developers) is probably the highest in the world. See below. The full article is embedded in the link.
Summary
Based on the above analysis it appears that the impact of the CCI’s order on Google’s business will be marginal given the unparalleled leverage that Google exercises in the business of Internet searches and Apps. Even if it unbundles its apps under the MADA, it still has many options available (like charging reasonable license fees) for driving compliance. The power of the network effect, and the decision of some big websites to ONLY allow crawling by Google and Bing - will make it impossible for any competing entity to break the dominance of Google in the Search Business.
In my view, even with AI coming in, nothing much will change as regards Google’s dominance. It is purely on account of the powerful model that it can train on the data that it already possesses, which no other company can claim to match. However, if entities hosting such data start to monetize it, then Google (and others) will have a new challenge to deal with. ie they will have to pay these aggregators for accessing their data. Another one will be driven by the Data Protection Bill. It is not clear, how much leverage Google will have in leveraging user data when the current bill seems to have dropped the provision of anonymized data.
Conclusion
Now as regards India, the problem is a little different. It is not about Google’s dominance. It is about the absence of Indian companies’ direct contribution to our app economy (it is still a very small percentage). Hence, whatever concessions that we might manage to extract from Google (through this process of litigation) will only end up largely benefiting the foreign app companies - due to their larger presence in the Indian app ecosystem.
As regards fees (% revenue share) Google has to align it with the industry norms - both in India (Apple, Amazon, etc) as well as globally. As of date, Google’s policy is to charge 15% service fees for the first $1M (USD) revenues earned by the developers each year, and 30% of anything in excess of that value. Also, Google is offering an additional 4% discount to those who opt for a different payment aggregator.
Therefore, it is not clear to me how much additional value the regulators will be able to extract beyond this level. Hence, the options before India are the following - a) Force a market for Indian Developers by Blocking competing Global apps and OS as China has done, b) OR layout out policy incentives so that Indian developers are well equipped to leverage this platform. In other words, if we can’t fight it then do whatever it takes to ride it and become successful at par with our Global Peers. What do you think?