South Korea/Google: potential app store commission change could set a global precedent

South Korean business & finance updates

South Korea’s plan to become the first country to block Apple and Google from automatically charging high commissions for in-app purchases is being pored over by developers everywhere. A ban could supercharge app maker profits. In South Korea, local developers paid more than $1.7bn to app store operators last year, according to industry data.

Lawmakers are considering whether or not the US tech duopoly should be prevented from demanding in-app payments are made exclusively through their mobile platforms. This would limit commissions charged on digital content purchases.

For Google, whose Play Store accounts for more than 80 per cent of the Korean app market, a new law would mean losing out on growing demand for mobile content. Google is estimated to have made $1.3bn in South Korean app store commissions last year. If it lost half of that to local payment rivals it would equal about $650m. It might lose about $500m on fees from non-game content such as web comics, e-books and music.

Spending on smartphone app stores has been growing every year. It got an extra boost from bored phone owners during the pandemic. Taking commissions on in-app payments is a lucrative business for Google and Apple, which dominate the app economy in many countries.

Google’s Play Store reported operating margins of more than 62 per cent in 2019, according to court filings in a US lawsuit. Apple’s App Store had operating margins of almost 78 per cent in the 2019 fiscal year, according to expert witness testimony in a lawsuit with Epic Games, maker of the Fortnite video game.

Gaming companies would welcome any change to app store fees. Shares of Nexon, South Korea’s biggest game-maker, are down more than 16 per cent in the past year amid weak sales and rising costs. Nexon receives a third of its revenues from mobile sales. Lower commissions on sales would boost net income. The same is true for peer SundayToz, which gets more than two-thirds of sales from in-app payments.

For US tech giants, lost revenue from the Korean market is a relatively minor setback compared to the fear that a new law might set a precedent elsewhere. Pricing by local Korean payment rivals could redefine how their services are valued. The days of 30 per cent app store fees could be nearing an end.

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