Google Just Made a Controversial Change and Did Apple a Massive Favor


Last week, Google responded to a new law in South Korea that requires smartphone app stores to allow developers to offer third-party payment systems. Known as the “anti-Google law,” though it also affects Apple’s iOS App Store, the law was intended to help developers avoid paying App Store commissions by allowing them to build their own payment systems for in-app purchases and subscriptions. 

Google’s solution, however, is really quite brilliant–though it’s already controversial. The company will allow developers in South Korea to use alternate payment types to charge users for in-app purchases. It even put in the effort to make it all look seamless and put those payment options on equal footing.

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Where it gets interesting, however, is that Google says it will charge developers 11 percent of transactions when they use a third-party payment processor, instead of the 15 percent fee when they use the Google Play Store. For ebooks, the fee would be six percent, while games will pay 26 percent. Google says the four percent discount is to cover the payment processing fees charged by those services. 

The idea behind the law was to provide developers a way to avoid paying Google (and Apple) altogether. Google seems to have found a way to honor the letter of the law, while making clear that it believes that it is entitled to a cut of transactions on its platform, even if it’s not the one processing the payment.

Apple’s CEO, Tim Cook, echoed that sentiment in his testimony during the company’s trial with Epic Games earlier this year. “We’d have to come up with an alternate way to collect commission,” Cook said. “I strongly believe this is the most efficient way,” referring to Apple’s payment system. 

Apple, for its part, has said it already complies with the South Korean law, though that seems to be subject to interpretation as Apple definitely does not allow third-party payment options within apps. Apple might be counting on threading a very fine needle in terms of what the law considers “unreasonable” commissions.

It’s not entirely clear what pushback Google will get from South Korea, but regulators have already said they expect Apple to explain how it is in compliance, or face an investigation. 

Here’s the thing–Google’s move might be controversial, but it’s also brilliant. More than that, it’s an incredible gift to Apple. 

Here’s why: It’s never a good look to appear that you’re only making changes when you have no other choice because a court or legislature is forcing your hand. That seems to be Apple’s standard operating procedure, but that doesn’t mean it’s the best approach.

It’s much better, especially for a company as large and profitable as Apple, to be able to point in the direction of Google and say “see, we’re changing because we face real competition.” After all, the main complaint against Apple–especially from developers–is that it exerts total control over the iPhone, making it a de facto monopoly for distribution of apps on iOS. 

Apple, however, wants you to think of the larger mobile app ecosystem, where it says it faces significant competition. Following Google’s move and offering a similar compromise would bolster that argument. It would also have almost no effect on its revenue considering that saving four percent would hardly be worth it for most developers to have to set up an alternative payment system. 

There is almost zero chance Apple would have ever made this change solely on its own, but now it should. It should allow third-party payment processing on par with its own. It should cut its commission to 15 percent on the first million–as Google did–for all developers, instead of some convoluted system that requires applying 

Perhaps Apple thinks that it will continue to win the legal challenges, as it did in Epic Games versus Apple, Inc. It might think it can keep congress from passing laws here, and basically ignore laws passed in other countries. It might hope to continue batting away any challenge to its dominance, and there’s a chance it might succeed. 

But, even if that’s the case, that’s not what Apple should do. The right thing would be for Apple to look at what is a relatively minor piece of its business (in terms of revenue), implement a few meaningful changes that earn it the goodwill of its developers, users, and lawmakers, and continue making products its customers love.

That is, to say, the amount it will earn in goodwill by making the change now far exceeds what it will cost the company in lost commissions. And, the cost of changing now will be far less than if it continues to push its luck with lawmakers and regulators. Change is hard, but Apple should thank Google for making it easy to follow. 

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.



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