More from Epic v. Google: everything we learned in Fortnite court
➡ Tucker compared Google’s fee to fees of app stores on other platforms. “When game console platforms charge 30 percent, their margins are much lower.”
➡ Tucker “uses list prices for commissions,” suggesting that Amazon charges 20 to 30 percent when it actually charges more like 10 percent and the Galaxy Store charges as low as 13 percent, suggests Bernheim.
Bernheim says Google’s economist Tucker didn’t appropriately consider switching costs between Android and iPhone — and not necessarily because it’s hard to switch.
Rather, because a 50 cent increase in prices to the end user (“that’s about 50 cents for the average smartphone user over the life of their phone,” he says) wouldn’t be enough to overcome the switching costs that do exist, given people only switch phones every 2.7 years on average.
Bernheim shows us the chart Google used to downplay RSA 3.0 was showing active Android devices — including devices that had already been sold.
He also says that graphs that show no change after RSA 3.0 are flawed: “Of course you don’t see any change, the competitors are pretty insignificant; it might become significant, Google starts its conduct, and then nothing happens, you stay at this very low level.”
As far as the Macy’s example, he says Macy’s isn’t dominant in its market, and we treat dominant companies differently.
On rev-share: “If you are sharing profits with a competitor you are disincentivizing competition and that’s what the antitrust laws are designed to prevent.”
And he claims that Professor Tucker’s proposed market definition is far beyond what makes sense. “You can’t put transactions that satisfy different needs for different buyers in the same market,” he tells Judge Donato, additionally saying he’s not sure what to make of Tucker’s idea that a licensing arrangement between Google and an OEM is not a transaction.
Epic’s expert Bernheim argues that Google’s expert Gentzkow “ignores four critical aspects of Google’s conduct,” including:
1. Google impairs competition without preventing it entirely
2. Google’s conduct targets comeptition as it emerges
3. Google is dominant
4. Google shares its Play profits with its competitors
“When push came to shove, he talked about whether competition is prevented” rather than impaired, says Bernheim.
The upshot of that: Bernheim believes Epic doesn’t need to prove Google actually blocked competition entirely. In his opinion (for Epic), Epic only needs to show there were no good alternatives to Google Play and Google Play Billing. It doesn’t need to show there were no alternatives at all.
For example, says Bernheim, Gentzkow presented a chart titled “Was Fortnite Blocked?” showing that revenue tanked on Google Play after the app was kicked off the store, but didn’t tank for Android phones that got Fortnite a different way.
But “If off-Google Play was a good substitute for Google Play, you’d see when one drops, the other goes up commensurably.” That didn’t happen: demand stayed stable outside of Play, according to the bar graph we just saw. “There’s no indication that any of the people here are substituting to off-Google Play.”
“Google’s objectives in taking the actions that affect the way the ecosystem operates have the objective of maximizing Google’s value. They do not have the purpose of maximizing the total value of the platform to all parties,” he tells Epic lead attorney Gary Bornstein.
“Because there’s competition, Google can’t extract as much because there’s a smaller share,” he says, showing us a pair of pie charts: one where Google has a $35 slice of a $50 pie and one where Google has a $10 slice of a $100 one.
(The $100 pie is supposed to represent competition in Android; the small pie “impaired” competition.)
He also says Google’s comparison of Android to the old Symbian OS is flawed because phones from rival manufacturers used different versions. “Each had their own versions of Symbian and each was incompatible with the other.”
We’re almost done with evidence in Epic v. Google. Google’s last witness has departed, and Google lead attorney Glenn Pomerantz says that “Google rests.” But Epic is calling Dr. Douglas Bernheim back to the stand once more — for a rebuttal to the other expert witnesses, one of whom kept calling him out.
He says he will point out basic errors in their analyses.
That’s Google Play boss Sameer Samat, in an old video that Epic presented to the jury. I didn’t catch the date, but a fellow reporter says the accompanying slide was dated 2020.
“Google could not achieve its financial goals without Play,” he added. “The work you do in this one room alone was really mission critical.”
And we’re breaking for lunch. See you in 30 or so.
This doesn’t entirely land for Epic because it’s also trying to argue that Google’s “User Choice Billing” is not a real choice, but...
Epic just showed us a document from 2022 titled “GPB as Platform of Choice.”
It asks one key question: once developers and users have more choices for billing systems, “what are we doing to make GPB the platform they *want* to choose?”
It suggests that “for developers, we must show demonstrable & indisputable ROI” and “we must also connect directly with users and give them a compelling case to check out with Play Billing based on trust, convenience & value.”
“In other words, we’ll need to compete,” asks Epic’s attorney.
Correct, says Loew.
The document mentions two Google codenames that have something to do with alternative check-out options: “Halla” and “Everest.” I suspect “Everest” is Google’s “User Choice Billing” based on the context of the document, but I can’t be sure.
We are back to CHATS! At one point, Loew’s boss said the above to her in a Google Chat, after she mentioned she was “managing a ton of India specific stuff for Payments / Subs.”
We’ll never know what she would have said, I guess!
Today, in court, she seemed amused by her boss’s language.
“If I want Candy Crush, I go to Google Play, I type it in, and I download the app... the Google Play store did not help me discover the app, did it?” asks Epic.
“But in that case Google still takes 30 percent of Candy Crush’s revenue even though it didn’t help me discover the app, correct?”
Loew says both things are correct. She also agrees with Epic’s attorney that a theoretical competing Android app store could charge lower service fees, offer better discovery, etc., etc.
Apple only allows certain categories of app, like “reader” apps, to go consumption-only (meaning the developer can let people download it from the app store and let the user access content they paid for elsewhere, like Netflix videos or V-Bucks).
She points out that Google allows games to be consumption-only apps.
She also says developers can communicate any way they want with their customers outside of the app.
Inside the app, she confirms, Google does not allow developers like Down Dog to communicate other ways to pay — but Google argues that has a benefit for developers and users:
“If users have a purchase intent... we believe we convert quicker if they can do it in the moment without friction.”
Loew says the goal was to “incentivize people to try lots of apps in the store,” so Google didn’t want to charge users per download.
And “if we charged the developer afterwards we’d have to invest in an invoicing system and a collection system,” she says.
Google examined lots of payment models, she says, but found them more convoluted.
“This way when a user pays, everyone gets paid.”
Loew says that physical gift cards, for instance, have to be printed, distributed to all 950,000 retail locations around the world, and Google has to pay the processing fees.
Google has to monitor payment laws around the world at federal, state, and local levels — some cities have specific taxes, and Vermont has “a very specific rule for subscriptions,” she says.
“Does Google bill users for these services it provides?” No, says Loew.
Then there’s fraud prevention, too.
Google isn’t yet showing how much it has to spend on these things, and... wouldn’t other giant payment processors that charge less have to do these things, too? But I get it — Play isn’t free to run.
That’s a footnote from a internal document titled “Google Play Billing Partner Benefits” that will not be entered into evidence — so you’ll only see it if reporters in this courtroom describe it for you.
Let’s give it a go! The first page we’re seeing shows all the different features Google Play Billing offers from “Setup” to “Retention” to “Insights”:
setup:
play billing library
new test instruments
faster renewal testing
flexible billing frequency
acquisitions/conversion:
extensive fop reach
free trials
introductory pricing
local pricing
subscribe & install
retention:
renewal decline recovery
grace period & account hold
real-time developer notifications
subscription restore
subscription pause
retention offers
insights:
acquisition report
retention report
cancellation report
user cancel survey
Page three shows Google Play offers credit / debit card support in 150-plus countries, direct carrier billing in 58 markets with 180-plus carriers, gift cards at 950,000 locations in 32 countries, and offers PayPal in 20-plus countries, and there’s a map that shows Google offers UPI in India, as well as E-Wallets and Mobile Money in some places.
This will wind up becoming very relevant when we get to final jury instructions — because they explicitly ask the jury to consider whether Google has a two-sided market when it’s deciding this case.
What does that mean?
Loew says that Google serves its developers and its users.
“Are Google Play Store and Google Play Billing separate products?” Another question that the jury will explicitly decide, according to the tentative jury instructions (pdf) the court submitted last night.
“No they are not,” she says.
“Mr. Ben reached out to you in the context of OCV needing technical support from Google related to app removals, is that correct?” asked Epic’s attorney.
OCV did — and received help from Google.
But we didn’t see evidence OCV any help that a normal app developer wouldn’t get. OCV’s CTO testified that he didn’t get any special benefit or service for his testimony, wasn’t told anything about the case when it asked him to testify, and doesn’t own any Google stock personally (not that it was alleged he did).
In a September 2022 deposition, he’s talking about how his company uses Google’s Android emulator and analytics features, among others, to help his clients, without Google directly charging him for those tools. He passes along the analytics to his clients, he says, so they can see how their apps are performing.
He said earlier that OCV primarily builds website for clients in the law enforcement and public safety sectors — police, fire, public health, clerk of courts.
One of OCV’s apps is HCPH Overdose Rescue, we just saw — it’s an app that explains how to administer Narcan.
Epic is countering by asking Beaty whether OCV could have decided just to make apps for Android users instead of also building them for iOS (presumably to show Android and iOS don’t compete for the same users).
It “wasn’t really a consideration for us because we wanted the widest reach possible,” he says.
We saw that Epic isn’t even trying to suggest it didn’t breach its contract with Google, appears to be formally conceding that as well, and now Judge Donato just suggested that it may not be contesting the damages either.
During a jury recess, the judge noted that Epic didn’t seem to be challenging the amount of damages Google’s expert calculated, beyond the payment processing fee. Perhaps the jury won’t need to decide an amount because Epic will simply concede a few hundred thousand dollars to Google.
That’s likely peanuts for Epic, at least compared to Epic’s legal fees for this trial.
There was also a suggestion we might wrap up early today.
“Obviously we see it as a package and part of the 30 percent platform fee on IAP. I think Google sees it the same, and it’s part of the expectations of a partnership,” says Burak, the Tilting Point head of business.
Tilting Point suggests its revenues skyrocketed after adopting a strategy of helping developers publish on the Play Store, quadrupling from under $50M in 2019 to over $200M two years later.
But Epic is pouncing on that, in a line of questioning designed to make Burak look biased — Epic gets Burak to agree that the revenue stream from Google is critical to his business, and points out how Tilting Point is in the business of brokering developer relationships with Google and how Tilting Point needs to maintain a strong relationship with Google itself to do so.
Burak says “correct” in response to each of Epic’s questions and agrees that Google asked him to testify today. I would think the jury knows by now that every witness has been called by one side or the other, but hey.
One thing Google hadn’t quite driven home yet is how its free-to-use Google Play developer tools help developers, and Tilting Point chief business officer Asi Burak is here (in a taped deposition from 2022) to explain.
He says that in general, the lifetime value of a user (LTV) on the Google Play Store is much higher than on, say, a Samsung store, but is implying that it’s not just because of Google’s market share.
Google “provides tools for me to understand how effectively I’m doing it and how effectively they convert to install the apps, the games, and how effectively I can convert them after on to be payers,” he says.
The tools help him help developers compare performance to the leading apps (anonymously) in each game genre on the store and “fine-tune” the “stream of players.”
While the jury gets to award damages for Epic’s breach of contract, Dr. Gregory Leonard was (briefly) here to argue how much they should be. And yes, he was compensated for this, he says.
(Basically, when Epic launched its game on the Google Play Store and bypassed Google’s payment system, it breached its contract, and anybody who bought V-Bucks from Epic using Epic’s Direct Pay system didn’t pay Google’s fee.)
Leonard has a doctorate from MIT in economics but says the calculation is pretty simple:
Epic received $1,329,770 in revenue through Direct Pay (during the short period that the hotfix was live)
Google had a 30 percent service fee
So Google lost $398,931, he concludes.
The only thing Epic asked him to clarify was whether he subtracted the transaction fees from that amount — and if he was aware Epic paid Google $3.3 million during the same period. It’s not clear where the $3.3 million number came from.
Epic’s CFO admits he’s not aware of any.
Has Epic even considered paying for preinstallation?
“I couldn’t answer the question.”
And yet, he agrees that Epic paid developers hundreds of millions of dollars to make their games exclusive to the Epic Games Store on PC.
“Is there anything wrong in your view with Epic paying hundreds of millions of dollars to developers to get them to launch exclusively in the Epic Games Store?”
He says no.
We’re now hearing a taped deposition of Epic CFO Randy Gelber from September 2022, and we’re hearing an interesting question indeed — one that cuts both ways if you’ve been following each party’s narrative so far.
Gelber replies:
We believe those to be competitive markets and we believe that the fee, their cost structure, is entirely different than a mobile app store.
How is the cost structure different?
Well, they subsidize hardware, so they sell their hardware, as far as I can tell from widely published reports, at a loss, and so the fee needs to cover that. Mobile apps are typically low in size and so their costs are higher, and I think their customer service costs are higher because people don’t call Google about apps, they call the developer generally...
There are “multiple competitors on console,” he says.
In 2017, Apple’s Carson Oliver forwarded an email about this Google Play feature as described in this Verge story: “Google now lets apps display sale prices in the Play Store”.
“We should have done this two years ago,” said Oliver.
“Even today, 7 years later, Apple still has not implemented this feature int he Apple App Store, has it?” asks Epic’s attorney. Oliver starts to say no, because it has to do with paid apps (and presumably is no longer needed to compete with Google as free-to-play apps are the norm), but gets cut off. He says no, Apple has not.
In 2018, Apple also internally forwarded this Android Police story about how “Google Play Store shows you the streaming apps that have the movie or show you’re searching for.”
Apple’s Matt Fischer, head of the App Store, wrote, “I’ve always wanted the ability to search for content within apps (specific movies, music, etc. ) and show the relevant search results.”
“Apple has not adopted a flat 15 percent fee for all subscriptions across the board starting in year one, yes?” asks Epic’s attorney, pointing out how Apple didn’t quite join Google in doing so.
“Google was going to charge 15 percent for subscription transactions starting in year one of the subscription... Apple still has not adopted that policy itself, has it?”
Apple’s Oliver had to agree. He also agreed it sounded correct that Google didn’t implement a subscription discount policy until a year and a half after Apple, a point that Epic has continually attempted to drive home during this trial, as evidence the companies didn’t feel competitive pressure from each other.