App Developers’ Payments Dilemma: Easier with or without Apple and Google?

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SEOUL South Korean app developers may soon get around the digital toll imposed by Apple Inc. and Google of Alphabet Inc., but initially the changes for businesses and app consumers may be hard to see.

Last week, South Korea passed the world’s first law that prevents Apple and Google from offering only their own in-app payment system. The bill, pending presidential approval, could be enforced within weeks. Once implemented, South Korean app companies can avoid paying fees of up to 30% to tech giants if users choose to pay for them via alternative payment platforms.

South Korea represents the first test of how similar regulatory efforts moving around the world affect the app market.

More payment options could lower prices in South Korea for app-accessible digital content, local business groups and app makers say. But consumers may hesitate at the inconvenience of taking additional steps to purchase items sold within games, digital comics and other online content. Many mobile app companies can opt for the status quo and continue to pay fees to Google and Apple despite the complexity and cost of setting up their own payment platforms. Both companies could charge separate fees to compensate for a drop in revenue resulting from lost fees, industry analysts say.

Graphic by Jerry Lee.

Meanwhile, the two US tech giants have yet to publicly state how they will respond, although they have expressed concern about the negative implications for their app-store operations. Apple has warned of increased fraud and privacy risks. Google said the fees help keep access to the Android operating system free and that the company was reviewing its options.

While South Korean law focuses on in-app payments, efforts in the United States and Europe look at additional areas along with how billing is done. These include sideloading control, when users install apps without going through an app store. Google allows practice, while Apple does not. Regulators have also relied on Apple’s practice of not allowing rival app stores to be installed in its iPhones, and US lawmakers have criticized the two companies for how they exercised their market power in mobile software.

With a population of around 52 million, South Korea’s total app spend ranks fourth globally, behind only the United States, Japan and China, according to Sensor Tower, a US-based analytics company. United, which tracks global spending for Apple and Google app stores.

A year ago, Google said it would begin requiring all developers around the world to use its own payment system for in-app purchases and pay a 30% commission by October. Previously, Google had allowed some developers to circumvent the requirement by requiring users to use alternative payment systems. Google then allowed app makers until March 2022 to comply. It also reduced the commission to 15% for small developers, following a similar move by Apple.

Google’s proposed move sparked immediate backlash from South Korean app developers and local tech giants, including NaverCorp. and KakaoCorp., which would be forced to switch to Google’s in-app payment system. The Korea Internet Corporations Association, which represents information technology companies, predicted that the commission would reduce the mobile content revenue of domestic app developers by about 2 trillion South Korean won per year, or the equivalent of about 1 , 7 billion dollars.

That amount would have been a significant chunk of the roughly $ 6.5 billion earned last year by South Korea’s mobile apps and content industry. About 58 percent of spending went to mobile games, according to the group. Korea Mobile Internet Business Association, about 17% for lifestyle apps, such as news and health care, and about 7% for webtoons or digital comics.

After the bill was passed last week, South Korean President Moon Jae-in’s office, who has 15 days to sign the bill, said the new law will ensure fair profits for local businesses and improve business. mobile ecosystem. South Korean economic groups considered it a victory.

The law addresses content creators’ concerns that the forced use of Google’s in-app payment system would lead to price hikes for digital content that could alienate consumers, said Seo Bum-gang, president of Korea. Webtoon Industry Association.

The law applies to Apple and Google. But it has been called Google’s law for the prevention of abuse of power locally, as about three-quarters of South Koreans use smartphones made by hometown vendors Samsung ElectronicsCo. and LG Electronics Inc. both use Google’s Android operating system and app store.

After the law goes into effect, Google and Apple may decide to allow alternative payment options but prevent app companies from offering aggressive discounts or special offers to users who select external payment systems, said Guillermo Escofet, principal analyst specialized. in digital consumer platforms at Omdia, a market researcher technology company. Such a move would allow Google and Apple to argue that they are liberalizing their payment channels in line with South Korean law, he said.

Under such circumstances, most users would likely stick to app-store billing, Escofet said. This of course would still meet resistance from app publishers.

Google or Apple may find ways to charge fees on purchases made through external payment systems or charge higher fees for new apps looking for listings in one of their app stores, said Kwon Se-hwa, general manager of the Korea Internet Corporations Association. .

Breaking free from the system established by Apple and Google can also be a logistical challenge. It may be costly for some mobile game companies to create an independent payment platform for South Korea by relying on Google or Apple everywhere, said a spokesperson for the Korea Association of Game Industry, a trading group.

Small game developers may not even have the staff or resources to create a separate payment system to replace those offered by app-store operators, the group spokesperson said. Google and Apple, regardless of how users pay, will maintain influence on game makers within app stores, such as distributors and vendors.

Separately, consumers may be resistant to change. Unless the savings are significant, users may not be tempted to leave the app, log into an external website, and re-enter their credit card information, said Randy Nelson, head of Mobile Insights at Sensor Tower.

The Coalition for App Fairness, whose founding members include Fortnite maker Epic Games Inc., Spotify Technology SA, and owner of Tinder Match Group Inc., said South Korea’s new law will spur competition it can reduce since. 15% to 30% apps taxed by app-store platforms.

South Korean law proves that regulations challenging Apple and Google’s app-store dominance are no longer impossible, said John Bergmayer, legal director of Public Knowledge, a US-based public interest group that tracks issues. of technological policy.

The biggest open question is how far it will go, Bergmayer said.

Write to Jiyoung Sohn at [email protected]

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