[New Wave] Will the App Market Operator Who Promised Not to Be Evil Impose a 21st Century Salt Tax?

In September, Google announced that it would expand the mandatory in-app payment policy, which previously applied only to game applications, to all apps in its app market and impose a 30% commission fee. This has sparked strong opposition from domestic app developers and internet companies. These companies argue that an increase in commission fees will ultimately lead to higher service charges, increasing the burden on consumers and acting as a factor that hinders overall ecosystem development.

In-app payment refers to all transactions made to purchase app-related items, products, or content while running the app. According to Google's newly announced policy, when users purchase paid content within an app, the practice of not allowing other payment methods and forcing the use of payment methods approved by the app market operator has come under scrutiny. The policy is scheduled to be implemented from January 2021 for newly registered apps and from October 2021 for existing apps.

The background of Google's in-app payment policy lies in the global app market revenue comparison: Google Play's revenue is $35 billion, whereas Apple's App Store has achieved $67 billion in revenue. Compared to Google's global OS market share, the app market revenue is only about half that of Apple’s, suggesting that enforcing in-app payments has emerged as a strategy for Google to expand its revenue.

The biggest issue is the forced payment method. Google holds a 76.5% share of the domestic mobile OS market. Based on this mobile OS share, it holds a 63.4% share of the app market. The market dominance is sequentially transferred from mobile OS share to app market share, and then to the app payment market. This raises significant concerns about potential violations of fair trade laws. The U.S. House of Representatives has also published reports expressing similar concerns.

From the user perspective, the restriction on the choice of payment methods is problematic. Google claims to provide users with a simple and secure payment environment, but there are concerns about the inconvenience caused by app bypass payments as alternatives to in-app payments, as well as whether improvements have been made to ease user difficulties during procedures such as refunds. From the business perspective, the expansion of the scope of businesses subject to in-app payments restricts content providers’ choice of payment methods and excludes other electronic payment providers from entering the market. Additionally, the gaming industry, which was the first to face the 30% commission rate, has seen increased payment amounts and a proliferation of in-game advertisements, causing significant inconvenience to consumers, which also needs to be considered.

Moreover, the 30% commission rate was unilaterally determined by the app market operator without a reasonable basis. Unlike typical price negotiations, the app market operator, which controls the app market, set this rate unilaterally without negotiation with content providers, which is problematic. Compared to other payment methods, credit cards charge 2.7%, bank transfers 1.4%, and mobile payments 3-6%, making the 30% rate excessively high. In the "Epic Games vs. Apple and Google injunction ruling," a U.S. court recognized the excessive and anti-competitive nature of the 30% commission rate.

During British colonial rule, India imposed a tax on salt, a vital daily necessity. The British controlled the production and sale of salt in India, preventing Indians from collecting naturally produced salt from Indian seas and forcing them to buy only British salt. India, suffering under the salt tax, eventually organized resistance. The outcome is well known.

This is a past that app market operators, who repeatedly claim not to be evil, should reflect on. The National Assembly and government should also consider the efforts of platforms for innovation and the unfair transfer of market dominance and urgently contemplate regulations.

Kim Yonghee, Professor, Department of Business Administration, Soongsil University