158085 Google and Spotify's secret deal that gives Spotify a financial edge

Google and Spotify’s secret deal that gives Spotify a financial edge



In early 2022, multiple companies joined forces to challenge the “app store tax” imposed by Google and Apple. Epic Games, the brains behind Fortnite, is currently battling Google in court. They claim that the Google Play Store is a monopoly. Epic is demanding that Google permit payment processing from sources other than Google and reduce the burden of paying nearly 30% of earnings to the tech giant. Recent disclosures from Google’s attorney, Glenn Pomerantz, show that Google has been playing favorites in regard to its app store fees. Pomerantz disclosed Google has a secret agreement with Spotify, enabling the music streaming giant to pay less than other apps.

This legal battle is the culmination of numerous companies urging Apple and Google to slash the fees they levy on app revenues. Google unveiled a pilot program with Spotify in early 2022, named User Choice Billing, that allowed circumvention of Google Play billing on Android. With this, apps gain the flexibility to handle payments independently. Currently operational in 35 countries, Bumble was the second major app to join the program. However, the exact amount Google still pockets from User Choice Billing remains unknown.

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Initially, developers were led to believe that User Choice Billing would lower rates by a flat four percent

During the Epic Games vs. Google trial, Google’s attorney pleaded with the judge to withhold the Spotify figures in an upcoming exhibit, citing potential harm to ongoing negotiations with other parties. Pomerantz emphasized, “Disclosure of the Spotify deal would be very, very detrimental for the negotiation we’d be having with those other parties.”

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Epic Games’ attorney countered, asserting, “There is a rate set much much lower than the rates you’ve been hearing about at trial, and that is going to be an important part of what you’re going to be hearing about.” The exact figures, however, have yet to be publicly disclosed.

Epic initiated the lawsuit before the User Choice Billing program kicked off but remains adamant that the program is a “sham.” They contend, “The economic terms of the proposal that we are aware of based on public information — in our view, this is not a real option for developers.”

Reports indicate that Bumble, the second major adopter of User Choice Billing, did not secure any secret agreement with Google. Their Q3 2023 earnings call revealed, “As a percentage of revenue, cost of revenue was 29 percent versus 27 percent in the year-ago period, mostly due to higher App Store fees as a result of compliance with the Google Play mandate.”

As the Epic vs. Google lawsuit unfolds, the jury will determine whether Google’s fees are monopolistic and unjust. However, it should not be shocking that big tech players are making behind-the-scenes deals. Unfortunately, it leaves smaller developers stuck with the high fees set by Google.

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