Google's newly updated policy that levies a mandatory 30% fee on payments made within its applications has invited severe backlash from startups, industry experts, and internet stakeholders in the Indian ecosystem. The policy that was earlier started to be applicable from January 2021 has now postponed to April 2022 after protests.

Alphabet-owned-Google enjoys a monopoly in the Android market and is explicitly enforcing its power to stifle competition. Apple has historically taken a 30 percent cut on in-app purchases. However, this policy is under pressure due to legal action by Fortnite creator Epic. To be sure, 30% is an exorbitant commission rate for all businesses and not only for micro-enterprises and startups. Further, the figure, on the face of it, is calculated without context and seems to be in stark contrast to the 1-2.5% commission levied by external gateways.

So why is the Indian ecosystem pushing against Google's policy?

Over 70 percent of all Android devices run in Google’s own ecosystem, which comes with Google apps pre-installed. There are hardly any feasible alternatives to Play Store yet. In a country that has over 500 million smart-phone users and growing, Google's policy is unfair and repressive, to say the least.

Most small and medium-sized businesses cannot afford to pay a 30% cut on their services because they operate on low profit margins. The additional cut would force companies to sell digital goods and services at zero margins. The push for such a spike in percent cut would see Google feeding on the bottom line of such enterprises.

Arguably, behemoths like Amazon India, Walmart-owned Flipkart, and others can afford such high fee cuts. However, it renders early-age startups and rookie developers completely helpless. 

This new clarification from Google currently impacts 3% of the apps on the Play Store. But, with approximately 131,600 apps from Indian publishers itself, this will certainly lead to a trickle-down effect in the market. The reason being SAAS module companies in India have a lower margin on the App pricing, so if they have to pay an additional 30% to Google then this increase will directly impact the end customers i.e SMBs. And since most SMBs are still navigating through the setbacks from the pandemic, turning towards digitization was a viable solution that has now come under the scanner given their budget constraints. In the chain of line, a small decision made by big players can cause serious ripple effects on the entire industry.

If the worst-case scenario plays out, some businesses might even have to shut-shop, given that their profit margins will take a direct 30% hit. Others will have to wrap up their operations if they don't achieve break-even soon.

The Ripple-Effect

Google's policy doesn't only impact SMB's and startups. The effect of such a strategy is likely to trickle down to consumers, who will witness a surge in prices of digital goods and services like subscriptions, in-app purchases, and others. Like taxation boils down to end-consumers, the new policy will have a broader impact. Ed-tech companies might raise their course rates, fitness startups will look at higher subscription offerings, and so on.

Experts suggest that those opting out of the Google Play Store model will lose out on the organic growth of users, which adds to revenue. For the California- headquartered tech-giant, this might seem like a win-win. Yet for all the other players in the market, it is a double whammy--either pay 30% out of EBITDA or lose out on business growth. And meanwhile, consumers can prepare to pay more for their in-app purchases: businesses looking to maintain their margins above zero will need to shift these costs over to their clientele.

Identifying Solutions

The Indian-startup ecosystem is collectively deliberating and proposing a viable alternative to the Google Play Store App. These are positive steps towards self- reliance and aligns with 'Make in India,’ but will take time, especially to build to the scale and reliability of the Play Store itself. 

Indian vendors have been quick to adapt: Paytm recently announced that its launching its own “mini” app store for Indian-made apps. It remains to be seen how much of an impact these kinds of steps will have, though.

Also, India has a home-made mobile store app that constitutes (mostly) government-backed applications. According to media reports, the government will also look to expand and build on that particular platform. While such an effort will lead to lower-service charges, how this plays out remains to be seen. 

When a gargantuan internet company like Google, Apple, or Facebook rules on wide-ranging policies, who is responsible for keeping things in check? The government and its regulatory authorities. In fact, several of India’s top startup entrepreneurs met virtually with government officials of ministry of electronics and information technology (MeitY) post Google’s announcement to to escalate their concerns over it.

Anti-trust regulators need to step up and critique the increasingly arbitrary guidelines applied by Google. The Ministry of Information and Technology, should ideally hear out entrepreneurs, collaborate on possible resolutions, and propose the steps ahead. A round-table discussion could translate into framing a neutral-policy that supports both the parties and, ultimately, the consumers.

Therefore, an exhaustive-policy framework surrounding tech-giants and internet monopolies is the need of the hour. It will set a precedent for pertinent issues that are likely to surface often, as India moves digital by the day.