Google hits wall in Korea, says will comply with local rule

Korea becomes first country to regulate global tech giants’ business models

Hit by an unprecedented law aimed at curbing their app market duopoly in South Korea, the world’s most powerful tech giants Google and Apple are seeking ways to readjust their profit models within the bounds of the new regulation.

Immediately after the bill passed Parliament late Tuesday, Google released a statement through its Korea office, saying it will comply with the new rule.

“The commissions are used to provide Android for free, while enabling developers to reach customers around the world through various tools and global platforms,” the statement said. “It is a business model that allows customers to use devices at affordable prices and helps both developers and platforms become financially successful. Just as developers incur costs to develop apps, Google incurs costs to establish and maintain the app market.

It went on to say that it is seeking measures to comply with the regulation, while maintaining the business model that “supports a high-quality operating system and app market.”

Market attention is now drawn to what measures Google would come up with to abide by the law. The US IT behemoth said it will announce more details in the coming weeks.

The National Assembly passed a controversial bill that could break the app store duopoly of Google and Apple, in a move watched closely by the world for its potentially radical implications.

The so-called “anti-Google bill,” endorsed by the National Assembly with 180 votes in its favor, amends the Telecommunications Business Act to stop the US-based IT titan from requiring local app developers to use its payment system for in-app sales. It is set to take effect immediately after promulgation.

The legislation was pushed by President Moon Jae-in’s liberal Democratic Party, which holds a parliamentary majority. Its lawmakers took issue with Google’s new in-app commission policy, announced last year, calling it an example of a large platform operator abusing its market dominance.

But the bill was highly divisive, pitting local app developers and IT companies who see the need to regulate global IT titans against conservative politicians and experts who fear a trade dispute with the US government.

Not only local but also global app developers and IT companies hailed the bill’s passage in Korea.

Match Group, an American internet and technology company headquartered in Dallas, Texas, immediately released a statement through its Asia-Pacific office after the passage.

“Today’s (Tuesday’s) historic action and bold leadership by South Korean lawmakers mark a monumental step in the fight for a fair app ecosystem,” the group’s spokesperson said. “The legislation passed today (Tuesday) by the Assembly will put an end to mandatory IAP in South Korea, which will allow innovation, consumer choice, and competition to thrive in this market.”

“We look forward to the bill being quickly signed into law and implore legislative bodies around the globe to take similar measures to protect their citizens and businesses from monopolistic gatekeepers that are restricting the internet,” the official added.

Google and Apple together control 90 percent of the global app store market. The former runs its Play Store on Android, while the latter operates its App Store on iOS.

In Korea alone, Google earned nearly 6 trillion won ($5.15 billion) in revenue from Play Store in 2019, according to a government report published last year.

According to Apple, over 482,000 registered developers in Korea have earned more than 8.55 trillion won to date on its App Store.

Both Google and Apple have faced criticism in countries around the world because they require software developers to use their billing systems, paying commissions of up to 30 percent on all in-app purchases.

Last September, Google sparked criticism across the world when it announced it would expand the payment system starting in October 2021, applying it to almost all digital content ranging from webtoons to music and video, instead of just the gaming segment.

This led to a backlash in many countries. Last year, the European Union proposed the Digital Markets Act, taking aim at the commissions forced by large US tech giants.

Earlier this month in the United States, a bill was introduced to rein in app store companies that hold too much market control, apparently targeting Google and Apple.

Other countries might start to take action soon after the first move by Korea.

“It’s time the US follow suit to reduce Big Tech’s app store influence. I urge Congress to swiftly pass my bill with Senators Blumenthal and Klobuchar that will help ensure fair competition for innovative startups,” said Sen. Marsha Blackburn in a statement.

Responding to the criticism, Google, earlier this year, said it would lower the commission from 30 percent to 15 percent on the first $1 million it earns in annual revenue.

Apple halved the fee rate for developers with less than $1 million in revenue, and announced last week that it would allow developers to inform their customers of other payment options part of a settlement proposal for a group of developers who sued Apple in a class action.

Apple did not release a new statement, reiterating its message last week that said “We believe user trust in App Store purchases will decrease as a result of this proposal.”