Google’s attorney suggested that eBay — which employed Prof. Tadelis at one point — needs to have an anti-steering provision because otherwise the buyer and seller could connect outside eBay’s platform and eBay would not get paid.
Tadelis agreed.
Out of the blue, Google’s attorney Kyle Mach asked this question: “You don’t think a case of this magnitude should be decided on back of the envelope calculations, do you?”
Incredibly, Tadelis seemed to know what he was talking about: “That is one of many pieces of evidence in my reports.”
I checked the live transcript, and this exchange seemed to be a complete non sequitur. What... were they talking about? It came right after a statement about how much Tadelis is getting paid.
Tadelis’ replies are getting amusingly snippy, by the way. Mach asked if Google “might have to charge fees for the other services it doesn’t charge for today.”
“It might not,” Tadelis replied. Then Mach and Tadelis went back and forth with “it might?” and “it might not” several times.
Epic’s economist Steve Tadelis concedes that Google would get paid nothing to distribute apps if developers choose alternative payment processors — all other things staying the same.
(Historically and currently, Google only charges when a developer charges for an app or an in-app purchase, something it’s brought up repeatedly during the trial — it’s the “we only get paid when you get paid” argument, and I personally find it moderately compelling.)
Google’s making a host of other little points right now, alleging that Braintree is only available in a handful of countries, Square isn’t available in some big countries like Germany and India, PayPal fees vary across countries, and Tadelis gets paid $1,200 an hour plus a revenue share of his own. (Yes, another paid-to-be-here card played by Google, though Tadelis tells me afterward he wasn’t paid by Google to present his research but, rather, to testify. I’ll try to figure out the nuance later, but he’s not contesting he was paid for his work.)
“Square would charge more than Google would charge for that transaction, right?” asks Google attorney Kyle Mach.
We’re looking at a chart from Tadelis’ report that shows that for a 99 cent in-app purchase, the second most common price set by developers, there are definitely worse options than Google.
Braintree and PayPal would eat 52.1 percent of that transaction, and Stripe and Square would take 33.2 percent — unless you went with one of their micropayment rates instead, which work out to low as 14.1 percent for a 99 cent transaction via PayPal and 10.1 percent for Stripe. (Tadelis admits he couldn’t find a micropayment rate for Square.)
At $4.99, the most common in-app purchase price, the highest effective rates of alternative payment processors are 13.3 for PayPal (or 6.8 for its micropayment fee) or 12.4 percent for Braintree. Others are quite a bit lower.
Google’s lawyer asks: “Had you included the Samsung Galaxy Store in this chart, it would look quite different, right?”
We’re now looking at Tadelis’ bar graph again — the one that unfavorably compared Google’s nearly 30 percent fee to the 6–10 percent fees of payment processors — but now with Apple and Samsung’s stores added. Those bars reach much higher than Stripe and PayPal’s, of course, making Google’s look more normal.
Google once again makes its point: stores aren’t just payment processors. They have additional value. Tadelis concedes they’re not exactly the same but says it depends on what you’re using them for.
We just saw an internal document where Google attempted to use game theory to figure out what would happen if it decoupled Google Play Billing from Google Play app distribution and decided to compete with other payment processors itself.
It included a graph that suggested many developers would change to a rival payment processor right away — “some large developers would take advantage of billing optionality no matter the price,” wrote Google — but that most others wouldn’t pick Google until or unless it offered a substantial discount.
Tadelis showed us that Google’s User Choice Billing, which nominally offers a mere 4 percent discount (though secretly goes far lower), wouldn’t come close to the place on the graph where it would convince developers to pick Google.
Tadelis says User Choice Billing is not a good deal, and Google knows it.
I wish I could show you a picture of the graph since it’s difficult to describe. No cameras in the courtroom; we should get a copy after the trial concludes.
It’s Google’s turn to question Tadelis now.
We’re looking at a demonstrative slide titled “Web Browser Payment Solutions Services Are Not Substitutes,” showing the many steps it can take to buy digital goods on the web instead of through an app.
He says internet companies know “very well” that any amount of friction in this payment process leads to serious drop-off and that he’s seen it firsthand: “Both at the times when I was at eBay and at Amazon, there were many projects that dealt directly with friction.”
Epic asks if app developers could use links in their apps to speed things up. Sure, says Tadelis, but Google doesn’t allow that. Epic puts Google’s anti-steering provision on-screen:
“In-app user interfaced flows, including account creation or sign-up flows, that lead users from an app to a payment method other than Google Play’s billing system as part of those flows.”
Anti-steering is the one place Epic won a tentative victory against Apple, BTW.
I haven’t seen enough of the docs myself in court to say for sure — only a taste — but Epic’s economist is telling us about Google documents that show the company feared its Play Billing would be displaced.
“Google was well aware that severing the tie would put price pressure on payment solutions they could provide,” he says. We saw a brief snippet of a document showing a multi-step process where other payment providers would rise up to fill a mandatory Play Billing vacuum.
He says another chunk of the document showed that Google saw benefits in “laddering up,” or using its power to become dominant in a subsequent area — like how Netflix’s DVD business became a launchpad for its streaming business, which became a launchpad for its own TV and movie productions, he says.
“What would you expect to happen to price to consumers if the tie were severed?” asks Epic’s lawyer, referring to a hypothetical world where Google didn’t require its 30 percent Play Billing fee.
Tadelis says that “savings from the reduced fees would naturally be passed onto the users.” As anyone who’s lived through inflation-as-excuse-for-price-gauging will tell you, that seems a little optimistic?
Judge Donato picked up on this instantly, pausing the testimony to ask a question of his own: “Let’s say in a hypothetical world, Google eliminated all fees. Why do you expect a user would see any benefit in that, in the price a user pays for an app?”
Tadelis suggested that if he opened a pancake shop and suddenly the cost of milk and eggs drop, he’d make more profit right away — but if he drops the price a bit, he can sell even more goods and make a wider margin.
“Macroeconomic analysis shows that some of that will optimally be passed on to consumers,” he says. The judge seems satisfied, at least from where I’m sitting.
“Most of the value of the charges happen at 30 percent, not a 15 percent.”
“If the developer that’s charged 30 percent is selling a million dollars of product and the developer charged 15 percent is selling $1 of product,” then the fee is closer to 30 percent on average, he says.
(In 2021, after Epic filed its lawsuit, Google reduced its cut to 15 percent for a developer’s first $1M in annual revenue. Some companies pay far less than 15 percent, though — even as low as zero.)