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Oct 16, 2018

Google to charge European phone-makers for App Store

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Google will start charging smartphone makers that want to install its app store and services for devices sold in Europe, changes it says it must make to comply with a European Union antitrust order that brought a record 4.3 billion euro (US$5 billion) fine in July.

Starting Oct. 29, new phone models that install the Play store and a bundle of Google apps, including Gmail, YouTube and Google Maps, must pay a licensing fee, the Alphabet Inc. (GOOGL.O) unit said in a blog posting on Tuesday. Phone manufacturers can choose to add Google’s Search and Chrome browser apps for free or install alternatives.

Key Insights

  • Google Play store is a gateway for Android users to access other popular non-Google apps -- such as Facebook and Snapchat - so manufacturers will have an incentive to pay for the store and the extra Google apps.
  • The Google Play store is the most important feature of the Android operating system because it brings millions of apps that make phones useful. Google used to force manufacturers to preinstall Search and Chrome if they wanted to use the store. That ensured its money-making search and web ads got huge distribution. In Europe, that strategy is effectively over now.
  • Licensing fees paid by manufacturers are likely to be moderate and could be recouped by revenue-share agreements for placing Google apps prominently on a screen.
  • Changes could take months, if not more than a year, to trickle into the market given the length of a development cycle for mobile devices.
  • Manufacturers are no longer prevented from experimenting with phones loaded with different apps or using an operating system based on the Android software but not carrying the Android name.
  • Google will be relying on the strength of its brand to label phones as Android. Expect to see more of the Android green robot stickers at phone stores to highlight the Google-approved models.
  • Google can still make money through its Android mobile operating system as more and more people surf the web on their mobile phones and tablets, and it gets the advertising revenue.
  • Google is also fighting the Android decision in the EU courts, along with an earlier legal challenge to last year’s fine for its shopping service, even as regulators are weighing a third investigation into the company’s advertising contracts.

Market Reaction

  • Shares of Alphabet Inc., Google’s parent company, have dropped about 9 per cent since July 17, the day before the EU announced the record fine. Still, they’re up 6.9 per cent this year, compared with a 4.4 per cent rise in the Standard & Poor’s 500 Index.