More from Epic v. Google: everything we learned in Fortnite court
Judge Donato telling the jury why we’re not going to say out loud what rate Spotify secretly negotiated with Google to use its own billing option alongside Google Play Billing.
Ah well, we tried.
The jury is now getting passed pieces of paper with the numbers on them.
“Our proposal is to price the service fee for devs not using [Google Play Billing] at 5% less than those using GPB — essentially replacement value,” Google wrote in a proposal.
“Of course, as we noted, at a reduction of 5%, we don’t think this solves the problems of any devs who are complaining about price,” reads another line from the same document.
Why? “A key element of this optionality proposal is we don’t want to give any artificial reasons to incent devs to switch off Play Billing.”
Excepting any sweetheart deals, Google wound up launching User Choice Billing at a 4 percent reduction, not even 5 percent. And in an old deposition, Kochikar admitted that devs wound up paying the same effective service fee in the end — apparently because they still have to pay an alternative payment processor in addition to Google’s rate.
“We would like to discuss mitigating that risk by offering 15% rev share to Match Group,” she wrote in one of them.
In another, she wrote that Google’s “value exchange models support the hypothesis that custom deals” like Project Hug would be enough to satisfy developers. It sounded like she was in favor of a “policy change without a public change to the business model.”
Kochikar keeps trying to suggest it’s more complicated than this, that Google looked at multiple factors beyond those “value exchange models,” but Epic lawyer John Hueston is reminding her to just answer the questions.
“During this case, you had your default setting to delete chats every 24 hours, correct?”
“That was the default.”
“And you didn’t take any steps to change deletion settings for your chat software, correct?”
“Yes.”
“Bumble is [average revenue per user] neutral since the enforcement,” one line reads.
“We have seen a decline in payers but an offsetting increase in ARPPU due to the removal of one-day subscriptions and alternative payment methods.”
Watts was also asked if he thought it was a pro-consumer change that Google notified subscribers that uninstalling the app didn’t cancel their subscriptions. He said yes.
We’re moving on to Purnima Kochikar, VP of Google Play Partnerships and formerly Director of Apps and Games.
My story about this morning’s kerfuffle over hiding Spotify numbers just went up, but a good portion of it just happened right after the lunch break: Epic, Google, and Spotify argued before the judge whether “two numbers” that may or may not be key to making Epic’s case should be sealed.
The judge wasn’t having it.
But we did learn that “there is a rate set much, much lower than the rates you’ve been hearing about at trial.”
What is Google trying to hide in its deal with Spotify?
But... was that because it charged more instead of totally absorbing Google’s fee? That’s not clear to me. The experiment was in 2017 and 2018.
It did forecast losses of $40 million to $50 million per year after the forced switch a few years later, though, so I suppose it was eating some.
The actual decline for Badoo on Android was 9.2 percent, it sounds like, but I missed some of the other important context there. One of the hits to Badoo was that Google Play didn’t support one-day subscriptions, Watts testified.
While this video deposition is from August 2022, it seems Google successfully tempted Bumble to try its User Choice Billing afterward.
Google announced three months later, in November 2022, that Bumble would be joining the pilot program to allow alternative payment methods on Android. That has since happened, Google spokesperson Dan Jackson reminds me. We’re asking how much revenue Bumble shares with Google.
Richard Watts, VP of product for revenue at Bumble and general manager of Badoo, was recorded in a video deposition on August 4th, 2022, that’s now playing for the court.
Watts says the apps used to pay 3–6 percent per user transaction with alternative payment methods — compared to 15–30 percent now. He says the web versions count for less than 10 percent of the company’s revenue and claims no alternative Android store is a viable alternative.
“Customers are used to finding apps within the Play Store, and that’s core to our business.” The Galaxy Store “doesn’t have the same scale,” he says.
While Epic was able to point out Paddle charges 10 percent or less for its app payments platform and isn’t allowed on Google Play, Google quickly turned things around:
“Paddle has a financial interest in Epic winning its lawsuit, doesn’t it? If Epic wins, you’d be able to compete to win tens or hundreds of millions of dollars, right?”
“That would be my hope,” says Owens.
Google went on to use Paddle to help advance its argument that app platforms deserve more money than simple payment processors, having Owens admit that it charges more than PayPal or Stripe because it offers more services.
And that Paddle, unlike Google, doesn’t offer parental controls, budgets, and the ability to save payment info from different developers.
Speaking of interesting bits from exhibits the public can’t see until the trial is over:
One internal Google slide titled “Google-wide ROI shows positive contribution of $1.2B” suggested that Google would spend $1.78 billion from 2019–2022 on “Play Risk Mitigation.”
It showed Google spending a projected $95M in 2019, $294M in 2020, $588M in 2021, and $803M in 2022.
There was also a field called “total cost to serve,” where Google would spend a projected $994M over that same period: $50M in 2019; $340M in 2020; $316M in 2021; and $288M in 2022.
The district court’s director of courtroom operations has confirmed this to The Verge. There will be no document dump before the jury has reached its verdict, no giant cache of emails for us to dig through.
I can see some of the exhibits in the courtroom as they’re entered into evidence, though, and I’ll do my best to highlight any particularly interesting bits for now.
Specifically, Paddle founder Christian Owens, the latest witness on the stand, who is describing how he created an alternative platform for billing.
Epic will likely try to use Owens to show how easy it is to stand up such a system and, thus, that Google doesn’t deserve so much money for Google Play. But we haven’t gotten that far yet.
In fact, even the August 2019 document had two different models, “CPI” and “LTV,” and one model suggested that even Tinder’s value was not negative.
Google took $83M in revenue share from Tinder that year, while providing $98M in value under one estimate and $54M in value in the other.
Marchak also says the model has had “numerous evolutions” since 2019 and that while Tinder was likely paying 28 or 29 percent in 2019, it would be paying 15 percent today due to Google’s reduced fee for subscription services.
In a document titled “Tinder Play Value Estimate,” Google’s director of Play partnerships bolded this phrase:
“Tinder is now deriving only 10% of the revenue share value versus the 30% they pay.”
Google alleges Tinder was deriving just 10 percent “value” under Google’s model, while paying 30 percent.
We’re now looking at emails where Marchak tells his bosses at Google that “this seems to justify Tinder’s decision” and where he suggests they use his model of negative value to justify giving Tinder a better deal.
“This is so negative we think we need to use this internally to justify giving Tinder a 15 percent deal or better?” Google’s lawyer asks.
“Yes, we think about the value we’re creating for developers all the time,” answers Marchak.
King, Machine Zone, NCSoft, Aniplex, DeNA, Com2US, CyberAgent, Webzen, Colopl, and — I think it’s Playa or Playla, but it’s hard to make out on the screen — these developers all appear in an internal August 2019 document as receiving less value compared to the 30 percent Google charged ’em.
Google estimated the average value the “top 100 most negative” devs were getting was just 19 percent. Simple math based on other slide deck numbers suggests the 100 devs overpaid $1.43 billion per year — Epic’s attorney had Marchak try it out on his own calculator in the courtroom.
Google will try to argue these calculations later turned out to be wrong.
The jury wasn’t there when I entered the courtroom — but Google and Spotify lawyers were, and they’re asking Judge Donato to seal a document that would reveal the terms of Google’s “User Choice Billing” deal with Spotify which lets the music app bypass Google’s billing system in exchange for a still-substantial share of revenue.
This surprised Judge Donato: “Right now, Google is allowing users to post its own billing system?”
It also surprised me: Google doesn’t have a standard rate for User Choice Billing? It’s making special deals for certain companies? “Disclosure of the Spotify deal would be very very detrimental for the negotiation we’d be having with these other parties,” argues Google attorney Glenn Pomerantz.
Epic v. Apple has come and gone, but now it’s Google’s turn to face the Fortnite maker.
Verge senior editor Sean Hollister is reporting from the courthouse, but I sat down with David Pierce earlier this week to discuss what all this could mean for the Play Store.
Technically, Google’s Marchak is still under oath, as Epic continues to get him to say (clearly against his will) that 6 percent is the amount Google thought was the break-even cost of payment processing on Google Play.
We won’t see big-name witnesses like Google’s or Epic’s CEOs tomorrow, but we did get a small preview of the weeks ahead: after Epic finishes making its main case, both parties will call their expert witnesses on app distribution, payment processing, profit margins, and computer science (re: security fears of sideloaded apps).
We may also not get document dumps during the case: exhibits will be filed after the jury verdict, Epic lead attorney Gary Bornstein said.
Intriguingly, our next witness, Michael Marchak, led an internal project at Google to quantify how much value developers got from Google Play. We’re looking at an internal document about an idea to convert that value into dollars and compare it to Google’s fee.
The “current model,” as of this August 2019 document, was that Google Play provided value by helping users discover apps, spend money on them, and deliver downloads at scale.
Marchak is repeatedly attempting to say this is an early model. Epic’s lawyer is repeatedly shutting him down.
Judge Donato is annoyed.
Google’s witness wasn’t in the courtroom at the time they were called to the stand and took a couple minutes to get there.
He also told lawyers that if he sees any phones on his side of the bar, they will be confiscated. (No phones are allowed in this courtroom at all, though nobody has been taking them away from us on entry.)
Earlier today, Judge Donato let Google say the word iPhone — and it opened the door for Epic’s attorney Lauren Moskowitz to point out what isn’t in the document Google used to justify spending hundreds of millions of dollars on addressing the “contagion effect” of game developers abandoning the Play Store.
What isn’t in the document: Apple. It’s not listed in the “Competitors Aggressively Pursuing Gaming” section. It’s not anywhere.
“Competition with Apple is not being discussed when we’re talking about contagion risk, right?” asked Moskowitz.
“Yes, contagion risk is talking about developers getting their content off Google Play,” Koh admitted. Does that change the conversation around market definition?