Google could stand to lose billions over the next several years due to recent backlash about its Play Store commissions rate, according to Macquarie Research analyst Ben Schachter. The pushback comes on two fronts, the analyst said in a research note. That could result in the company being forced to adjust its rate, resulting in heavy losses in both Play Store revenue and earnings before taxes and interest (EBIT). On the regulatory side of the equation, Schachter cites increasing complaints from developers and government scrutiny of the company’s position as both an app publisher and market owner. In particular, the analyst notes the search giant’s consistent release of new applications across a wider range of purposes and services that compete with others available in the Play Store. That could be seen as a point of conflict since Google arguably has benefits as the maintainer of the very store that it is charging other developers an estimated 27-percent commission to use.
Setting aside fines owed by Google in the EU in response to the company forcing the installation of the Play Store and other services by default on Android, developers could also become a problem. According to Schachter, developers leaving the platform or choosing to distribute games and apps themselves could ultimately pose a threat to Google that’s too big to ignore. Epic Games’ Fortnite is a recent example of a developer choosing to bypass the Play Store with a high-profile title and effectively shows that such a move isn’t impossible for larger developers to accomplish. In addition to lost income from the game’s in-app purchases, Google has had to spend extra resources combating fake applications cropping up on the platform. While that attention to detail and efforts to combat malware are among the primary reasons for developers to continue using the platform, it’s a trend that could spread.
As things currently stand, the Play Store is set to earn Google an estimated $10 billion in 2020. That represents a significant portion of its turnover which is expected to land at around $40.2 billion in that same period. However, if it is forced to make cuts to its commission rate by either or both developers and regulatory agencies, those numbers could drop substantially. For example, Schachter says that at 15-percent, the figures would drop to $5.6 billion in revenue in 2020 and at 5-percent that number falls to just $1.9 billion. EBIT, meanwhile, would be reduced to around $35.8 billion or $32 billion, respectively. Of course, Google isn’t alone in its predicted plight. Apple is effectively in the same boat, according to Schacter and could stand to lose more if it is forced to meet whatever rate Google might choose. Its current commission sits at around 3-percent higher.