More from Epic v. Google: everything we learned in Fortnite court
On Tuesday, right before end of day, Epic revealed that it’s never actually formally discussed settling with Google, and Judge Donato ordered a settlement conference before we go to jury verdict.
This morning, the judge got clearer: Epic must file demands by 9AM Saturday. “The demand is going to be all-inclusive, detailed, and specific,” he says.
Google gets 24 hours to respond: “Google will serve an all-inclusive, detailed response... by 9AM on Monday morning,” he adds. The settlement conference will be just four people: Epic Games CEO Tim Sweeney, Google’s “right person to sign an enforceable deal,” and lead attorneys for both parties.
Judge Donato is ordering Epic and Google to have settlement discussions — which Epic lead attorney Gary Bornstein has just revealed have not yet happened at all. Repeat: Epic and Google have never formally attempted to settle this case before now.
“If you win, what are you planning to ask for?” asks the judge — because Epic has not articulated that clearly before now either. (The Verge has also asked Epic and been partly rebuffed.)
Epic says it’s asking for three things: freedom for Epic and other developers to introduce their own stores without restriction, total freedom to use its own billing system, and an anti-circumvention provision “just to be sure Google can’t reintroduce the same problems through some alternative creative solution.”
Judge Donato says the last won’t happen: “We don’t do don’t- break-the-law injunctions... if you have a problem, you can come back.”
He says the first two asks feel like they’re doable in a settlement: “Spotify pays 4 percent or 0 percent and has its own billing... you need to be clear with your client who’s sitting behind you that [settlement negotations are] going to happen.”
(Epic CEO Tim Sweeney is sitting behind him. I don’t see a visible change of expression on Sweeney’s face.)
Google will call Rich Miner, a co-founder of Android, as soon as tomorrow as it begins its case for counterclaims.
The plan is to finish up evidence on Friday the 1st and begin closing arguments on Monday the 11th.
That’s Tucker, showing us a chart which shows us 99 percent of Fortnite dollars come from somewhere else, like PlayStation and Xbox and Nintendo.
You might say — isn’t that proof that Android isn’t working properly for Epic, that Android is stifling its progress? But now that we know Tucker’s defining the product market as facilitating digital transactions, she can say there’s clearly competition between Android and PlayStation and Xbox and Nintendo, all platforms helping Epic get those dollars.
That’s Judge Donato, asking an important question of Google’s economist — and her answer left both of us scratching our heads.
She says her definition of the relevant product market is “facilitation of digital content transactions.”
“When I say facilitation, I mean making sure these interactions between app developers and app users go well,” she adds.
The skepticism on the judge’s face was palpable. He had her clarify again a few minutes later, then moved on.
We’ve seen snippets like this before, but this makes it pretty clear: a slide about “Revenue from Fortnite Android Players by Device Type” shows that from April 2020 through August 2020, only 13.9 percent of revenue came from Android.
Players bought their V-Bucks they used on Android from:
33.8 percent PlayStation 4
27.3 percent Xbox One
13.9 percent Android
9.9 percent PC
8.7 percent Switch
6.5 percent iOS
(The data goes through August 2020 because that’s when Fortnite was booted off the store.)
Taylor, showing us data from research company Kantar that suggests wealthier users, purchasing more expensive phones, are the ones disproportionally switching to Apple.
She also showed us surveys that 87 percent of teenagers went for an iPhone in 2022, and that Meta’s internal research shows 34 percent of its Android monthly active users switched away from Android during the four-year period from 2016 to 2020 and 14 percent just from 2019 to 2020. (She did not show us how many switched from iPhone to Android during that period.)
She’s speaking more slowly and deliberately than anyone who’s taken the stand yet, gesturing with her hands almost constantly, bidding us to remember things we’ve heard earlier, and providing regular analogies. Her lecture style definitely got the jury’s attention. So far, I’m only seeing them look away when there’s a new slide on screen.
The judge doesn’t seem quite as enrapt; then again, he’d warned both parties earlier today about time.
Update: She’s also clearly gunning for Dr. Bernheim, who was a force for Epic the other day. She keeps bringing up how he’s mistaken in one way or another, how some finding “wouldn’t be relevant in Dr. Bernheim’s world” for example.
We now know why Google asked Epic’s economist this question: “You didn’t base your conclusion on any documents created by Apple in the real world, did you?”
Because Google’s economist Tucker did. “Why does it matter to you as an economist that Apple sees Google as a competitor?” Google’s lawyer just asked her.
Her reply: “It matters when you see a competitor that’s not part of this case actually say we’re competing against Google Play.”
Google is now walking through a series of slides and questions that show where they compete — so far, we’ve seen features (one will launch a new feature, the other will match) and pricing.
Catherine Tucker, an economist and MIT professor of management and marketing (and chair of the MIT Sloan PhD program, according to her bio), got any conflicts of interest out of the way early: her research group was last funded by Google 11 years ago, and she’s being paid $1,400 an hour plus a percentage of billings from her staff.
Her conclusions are:
1) In offering a product that facilitates interactions between developers and app users, Google competes with Apple and others
2) The geographic market is the United States
3) Google does not have monopoly power
Those are some major ways to say Epic’s economists are wrong, and she doesn’t stop there: she says Epic turned “a single really easy to understand market into lots of little things... it allows them to carve off things, but in a way which doesn’t make sense.”
It was Google’s last question to its first economist — we’re being introduced to its second now.
Epic’s attorney just asked Google’s economics expert an intriguing theoretical during a long line of questioning: what would it take for a rival Android appstore provider to get the same kind of exclusivity that Google Play has now? What would that kind of competition take?
“An equally effective app store would have to compensate not only for the RSA 3.0 revenue, but also for the loss of all the apps and APIs that come with the MADA?” Google attorney Even asked Google’s economist Gentzkow.
Let me translate: if Amazon wanted to put the Amazon Appstore on a flagship Android phone, one which had opted into an RSA 3.0 contract in exchange for a substantial share of Google Play revenue and includes the APIs that let it be a full flagship Android phone (thanks to a MADA contract), wouldn’t Amazon need to pay enough to offset all those things that Google is providing, which would disappear without those contracts?
Gentzkow was not happy with the question, and clearly wanted to say more, but he basically said yes.
Epic attorney Yonatan Even is flipping through pages of Google’s economist’s report that we haven’t yet seen in court — and flipping some numbers on their head.
If only 19 percent of US devices have ever enabled Unknown Sources, doesn’t that mean 81 percent have never enabled it? Gentzkow says that’s right. It’s as high as 85 percent in Japan and 75 or 76 percent in Germany that haven’t enabled the ability to sideload apps, not once, ever.
He also repeated a successful move Epic used a week ago with a different Google expert, pointing out fully one third of Google’s data on its devices was listed as coming from “unknown” countries as well as devices that weren’t actually phones. He got Gentzkow to admit he simply excluded an entire third of the data that may or may not have been relevant when preparing his charts and conclusions.
It’s so nice to get all these facts and figures out into the open, isn’t it! Gentzkow didn’t resist when Epic asked the question, admitting he makes roughly $1,000 per hour on this case and more.
(The “nearly $3M” is as of March 2023, by the way; Gentzkow says the total is slightly higher now.)
When Fortnite was booted off the iPhone, its revenue tanked, we just saw in a graph— but after Google removed it from Google Play, we see its Android monthly revenue went from roughly $1M to $2.2M to a range of more like $0.5M to $1.75M during peaks. (I say “roughly” and “like” because the data points weren’t labeled but appeared between lines that represented every half million in revenue).
That was measured between April 2020 and February 2021, according to the graph.
We also saw a slide suggesting most Fortnite players bought their V-Bucks elsewhere: between April and August 2020, only 2.8 percent of US users purchased any at all from Google Play, with 40.3 percent opting for other billing systems and 56.8 percent purchasing none at all.
• 99.5 percent of Android app developer revenue comes from purchases that happen after an app has been downloaded — so Google only makes its money back on distribution once a purchase happens
• Other platforms require their own payment system, like Airbnb, Amazon, eBay, Lyft, Uber, Taskrabbit, Roku, Steam, and Walmart
• We saw a slide with 21 different bullet pointed items Google has added to Play to support developers over the years
• In China, where Google is not so active, Gentzkow says app developers face a “fractured app store landscape” with service fees often higher than 50 percent (let alone 30 percent), and users see more fake apps, malware, and have more difficulty finding what they’re looking for
• Only 0.4 percent of the devices capable of running Fortnite (as of November 16th, 2021) were on the RSA 3.0 Premier Tier, and so “RSA 3.0 did not block Epic distribution.”
That’s Gentzkow, pointing out that Epic doesn’t seem to be biting the hand that feeds — it paid $471M to Sony, $260M to Microsoft, and $166M to Nintendo just from January to October of 2020, all platforms that impose a 30 percent fee.
According to the slide, it also paid $60M to Apple, a company it did sue — and $17M to Gearbox during the same period.
While we saw yesterday that big China phone makers are choosing Google’s RSA 3.0 “Premier Tier” — which gives them more money from Google in the form of shared revenue but also requires more compliance in return — Google’s economist suggests most phones have not gone that way.
Outside of China, only 7.4 percent of active Android devices are on the Premier Tier, according to one of the slides Google just presented, and roughly 27 percent of Android activations are on the Premier Tier as of July 2022.
(The latter does seem like a lot to me, though, particularly if you buy one of Google’s common arguments in this trial that it serves billions of people and so even small percentages add up to a lot.)
“Revenue sharing is a way of cutting the price by offering more back to the other party,” says Gentzkow, suggesting that Google’s special deals (presumably with OEMs, since that’s where Google was sharing a cut of Play revenue), were just another way to compete.
If he was referring to OEMs, I don’t quite follow the logic: who was Google competing with there? Google’s not competing to put Android on those phones, since OEMs couldn’t decide to put iOS on a phone instead.
Is Google Play the product that it’s discounting beyond free to pay those developers to carry? And if so, doesn’t that cut against Google’s argument that those developers needed Google Play and other Google apps to compete with the iPhone?
A pie chart from the earliest days of Android — or perhaps before it launched:
Symbian had 49.8 percent of the market, and BlackBerry had 15.9 percent, with 12.9 percent for Apple, 11.1 percent for Microsoft, 7.2 percent for Linux, and 2.1 percent for Palm.
I didn’t quite catch the full point that Gentzkow was trying to make, apologies. Google did point out that all those players have disappeared, save Apple.
We’ve moved on to an argument that Google’s MADA agreements are good for competition because they help Google compete with the iPhone, which helps sell phones, and in turn, helps developer sell more apps. “The more phones are sold the more things are going to be downloaded,” he says.
Continuing the “Macy’s and Nike” analogy where “Macy’s” is simply giving “Nike” a better deal in order to compete with “Galaxy Shoes,” Gentzkow says it’s natural that “Nike” wouldn’t be as likely to open its own store if it’s getting a good deal from “Macy’s” — that’s competition working, he suggests.
“Project Hug offers valuable things to developers in exchange for putting their apps into the store, and it’s natural” to expect the “Nikes” of the world to put their latest and greatest apps on Google Play right away as part of said deal, he argues.
Gentzkow suggests all the things that Google offered developers in its special Project Hug deals were simply the equivalent of giving them a “17% price cut,” and bid us imagine a Macy’s competing with a “Galaxy Shoes” for Nike’s business.
“Macy’s needs to compete for that business by offering Nike a great deal,” he says.
We’re now off for lunch.
“This was like a survey of users,” says Gentzkow, as Google presents a slide suggesting that 65 percent of Samsung Galaxy phone users have tried the Samsung Galaxy Store.
I wonder if Epic will challenge the source of that data and what it tells us. Yes, the Galaxy Store is right on the homescreen, so I suspect some users interacted with the icon, but a single user survey is not great data, and I wonder if the survey asked what they actually did with the store — and why.
(I recently bought a Samsung phone, and the first time I was pushed to interact with the Galaxy Store was when it sent a notification asking if I wanted to update a preinstalled Samsung app. I said yes.)
I feel better about Gentzkow’s arguments that Samsung and Amazon didn’t really produce compelling, consistent experiences and that Google had a substantial first-mover advantage with Play.
“Zero,” says Gentzkow — compared to 68 percent of Android phones in the US and 65.9 percent worldwide as of July 2021.
He says that, according to Google data, there were 3.2 billion monthly app installations outside of Google Play, 189M of them in the US as of May 2021 — and that those numbers went up 58 percent and 88 percent, respectively, compared to two years prior (July 2019, to be specific).
“It’s absolutely true that the number that happens through Google Play each month is quite a bit bigger... but I’m asking has this channel been blocked, do users not have the opportunity to use it,” he says.
“This level [of off-Play installs] shows lots and lots of people go out every month and are able to do this on their Android phones.”
We’re now hearing from Matthew Gentzkow, a Stanford professor of economics who also spent many years at the University of Chicago School of Business and says he publishes in all the top economics journals as well as Science and Nature. He also won an award.
He’s Google’s first economics expert and says he was tasked with answering two questions:
Did Google’s conduct create more value for consumers?
Did it block competition in a way that destroyed value for consumers?
His answers, as you’d expect: yes, and no.
He says that if one company is doing better than two other companies, it might simply mean it’s offering a better value — creating competition, says Gentzkow, not blocking it.
Earlier, we heard Google ask: “Square would charge more than Google would charge for that transaction, right?”
That’s because Google discovered that Square doesn’t have a special lower rate for microtransactions on digital platforms — developers wind up paying quite a bit for 99 cent transactions if they choose Square (not that they necessarily would).
But Epic just flipped that back onto Google with one incisive question:
“Does Square currently have any incentive for developing a schedule for microtransactions while there’s a tie in place that doesn’t allow it to provide microtransactions for digital goods?”
“Absolutely no incentive,” says Tadelis.