In today’s Finshots, we explain Google’s monopoly rent and why there’s a clamour for an Indian app store.

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“Google is the most evil company for businesses…Today they have delisted us again…This will completely destroy our business and make Kuku FM [unaffordable] for the majority of the country, but when [has] a monopoly cared about anything beyond itself.”

Wait…what’s going on?

Well, that’s what the co-founder of Kuku FM posted on LinkedIn on Friday. And he said that because Google chucked his app out of the Play Store! So if you searched for the app you would get a message saying “This app isn’t available” (as of Saturday evening).*

For the uninitiated, Kuku FM is a 6-year-old audio platform that hosts books and podcasts across 7 languages. Anything that’s not music.

But what is relevant to our discussion is that Kuku FM has over a whopping 10 million downloads on the Google Play Store!!!

Now we’re going to make an assumption here. CapTable says that 11% of people who download the app convert into paying subscribers. We don’t know if that number is specific to people who download it from Google Play Store, Apple Store, or even via Kuku FM’s own website. But let’s say it’s an average. So that means Kuku FM likely has around 1.1 million customers who download the app on Google’s Play Store and pay around ₹899 a year for the subscription.

Okay. But why does that matter?

Well, for that we need to understand how Google’s Play store operates.

See, over 95% of smartphones in India run on Android. That’s Google’s operating system. So whether it is a Samsung or a Motorola or an Oppo, it doesn’t matter — they all use Android.

And the thing is because Google owns Android, they have leverage. They simply have to pay a visit to the phone manufacturer and tell them, “Hey, if you want to use Android, then you better preload our suite of apps — the Play Store, Google Maps, YouTube, Chrome…” And voila, these apps end up being preinstalled when you buy a new phone.

So if you want to download an app, you’ll end up clicking on the Play Store more often than not.

But that also means that Google pretty much operates a monopoly. And monopolies are quite detrimental to the interests of consumers. They can set up arbitrary rules as per their whims and fancies — like Google demanding a 30% commission on in-app payments. Or mandating that apps use only Google’s internal billing system.

And in economics, that practice is often called a ‘monopoly rent’.

Think of this as the money that a business makes by virtue of not having efficient competition. It’s the money it makes just because it has the power to charge more. Or it’s money that it makes without creating any further value but by just existing.

To sum up, Google built an operating system that became dominant -> It used that to sweeten its pot by striking deals to promote its own suite of apps -> And it made monopoly rent by controlling distribution.

So in the case of Kuku FM, if you assume that 1.1 million folks pay ₹899 via the app downloaded on the Play Store, Google keeps a cut that could be as high as ₹270. Put together, it’s worth tens of crores of rupees!

And Google calls it a ‘Service Fee’ for giving apps access to its massive Android userbase. That's their position. And they also contest that they are not monopolistic. Samsung has its own app store. So it's not like others can't enter the market. Even you could build one if you wanted. However, despite there being a limited barrier to entry, very few app stores have managed to command the success and influence Google's Playstore has managed. So they'll argue that they're playing fair and if companies want to showcase their apps on Google's platform they'll have to pay.

Anyway, this monopoly rent is a big point of contention in the tech world these days. Antitrust regulators from all over the world have been clamping down on these practices. In fact, a couple of years ago, our own Competition Commission of India (CCI) concluded that Google wasn’t allowing other app stores to flourish. Its tactics meant that only the Play Store featured prominently on all Android phones. And for that and a few other reasons, the CCI slapped a ₹2,200 crore fine on Google.

But that didn’t stop Google from charging the Service Fee. Oh, not at all. They just reduced it a bit and continued with business.

And this brings us to today. Or rather, to the 1st of March.

Out of the blue, Google decided that 10 apps in India — including Shaadi.com, BharatMatrimony, Naukri, and Kuku FM — would be thrown out of the Play Store. The tech giant says that these apps had defaulted on the Service Fees.

And the complaints against Google came thick and fast.

For instance, Anupam Mittal, who runs Shaadi.com, decided to call Google the “new Digital East India Co” and said, “This #Lagaan [rent] must be stopped!” Meanwhile, the co-founder of Kuku FM thinks that the “Indian govt [should] step in and save the start-up ecosystem.”

And maybe the government has heard that. They’ve already called Google for a meeting and they’re saying things like, “India is very clear, our policy is very clear…our startups will get the protection that they need.”

While that’s good to hear, we’re not sure if the government can force Google to mend its ways. After all, no court in the world yet has said that Google should offer their massive distribution for free to the big apps. So what can the government really do?

And sure, you might want to thump your chest and say that the Indian government should create an app store of its own. But we don’t know about that. Because a few years ago the Indian government tried to revive its app store business — something called Mobile Seva. It wanted to promote atmanirbharta (self-reliance). But that idea hasn’t really set the app world on fire. It has been a bit of a dud.

So, is there any alternative?

Well, PhonePe???

Yup, the king of UPI payments launched its own app store called Indus Appstore a couple of weeks ago. And the company will do away with commissions and levy only an annual listing fee instead. But even that fee will be waived till 2025.

Could the timing have been any better?!

We don’t think so.

But that doesn’t mean success is guaranteed. Sure, PhonePe has a massive user base that it can tap into. But it also means getting people to change their behaviour. You need them to require their muscle memory and get them to click on the Indus Appstore icon instead of the Play Store icon. And that may not be easy.

The one thing that could work in its favour though — it’s available in 12 languages. And that could nudge a sizeable number of folks into using it.

But the real kicker will only come if it somehow manages to convince phone manufacturers to preinstall the Indus Appstore on the phones. That could really move the needle. Anyway, it's anybody's guess how all this will pan out. Maybe Google and these companies will reach a compromise. Or maybe the government will introduce regulations aimed at levelling the playing field.

We will have to wait and see.

Until then…

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*Some of these apps are back on Play Store now but without the in-app billing option.