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Paytm Vs. Google Feud: Is it Time for India to Regulate App Stores?

The 30% cut applied for in-app purchases, and a virtual monopoly in several verticals by Google, has incensed India's entrepr

The Android Play Store by Google took down the Paytm application on September 18, 2020, on allegations that it promotes games that are against the giant’s gambling policy. Google claimed that Paytm Game’s cashback feature called India Cricket League enabled unregulated gambling. Even though Play Store restored the Paytm application on the platform, it started a series of disputes between Indian app developers and Google.

Vijay Shekhar Sharma, the Founder, and CEO of Paytm, a household name in India, reacted offensively against Google practices. A multitude of other startups, CEOs also started considering Google’s policies unfair and monopolistic.

The resentment against Google had been simmering for a long time among app developers and startups. It finally came to the surface when Google made a move against Paytm.

“I think we are focused on some of the bigger questions that this raises, which is that effectively, Google has a monopoly on the Android ecosystem in India, which is 95% of phone users. And they can decide what policies they want to make and how arbitrarily they want to enforce them”

– Madhur Deora (1) – President, Paytm

The Paytm team was stunned, not because of the delisting but because the accusation was about a scratch card-based cashback featuring a cricket game on the app. Notably, Google itself has pursued such features via its payment service app, Google Pay, in the past, claims Paytm.

“Your app contains content that doesn’t comply with the Gambling policy as it offers games with “loyalty” (e.g., engagement or activity) points that (1) are accrued or accelerated via real-money purchases which (2) can be exchanged for items or prizes of real-world monetary value.”

– Google Play Support.

When Paytm removed the offer from its app, the tech giant allowed it back on the play store within a few hours. However, the damage was already done. Sharma was infuriated, and he lashed out at the tech giant, condemning its behavior and stated that it acted as “Judge, jury, executioner, and beneficiary.”

Waging War Against Google

The broader issues underlying this incident aligned many tech startups in India against the US-based search giant. These are the same issues that enraged Epic Games, the developer of global gaming sensation Fortnite. It is the policy of cutting a 30% fee on developers. Notably, Apple also shares the same system.

Some developers have also called it a 30% gatekeeper toll applied to in-app purchases and content-based subscription services. It includes dating, gaming, fitness, etc.

Murugavel Janakiraman, the online tech startup pioneer and the Founder of India’s leading matrimonial site, called, quickly came to support Sharma’s rally against Google. Notably, Murugavel has been waging war against Google for more than a decade.

“It is a death knell for digital companies and payment companies in India. How can companies survive by paying 30% Google tax and Apple tax?”

– Murugavel Janakiraman (2).

Monopolistic Practices in the Tech World

It worth noting that more than 90% of Indian smartphones, 700 million, use the Android operating system of Google. Hence, there are no other alternatives for the startups and app developers of the country.

According to a report, Google Play host over 131,625 apps from more than 26,835 Indian publishers.

However, Sharma got lucky with an ally in the Justice Department in the USA. He filed the most significant anti-trust lawsuit against Aplhabet Inc, the parent entity of Google. The last such case was filed against Microsoft in the late 1990s.

Back in 1999, the tech world saw a crisis of this magnitude for monopolistic practices. It happened when Microsoft’s Windows operating system forced the company’s browser, Internet Explorer to all PC users.

If back then, a person purchased a PC, they needed to use Explorer instead of the popular browser at the time, Netscape. The Justice Department sued Microsoft, and the presiding judge found the company to be guilty.

Coming back to the present day, here are some questions that India’s tech entrepreneurs ask themselves every day.

  • Who has the most significant browser market share across the world?
  • Who has the world’s largest mobile OS share?
  • Who has the largest app store in the world?
  • Who has the largest number of internet searches?
“That’s a big sword that is hanging over the necks of all Indian startups who are innovating for India, that Google can one day decide that they no longer like your app and effectively remove access to it”

– Deora.

The answer to all four questions is Google, as you may have already guessed. It is the ecosystem that entrepreneurs have waged the campaign.

Google’s Gatekeeper Toll

The big question for Google is how much the gatekeeper toll should be? Is 30% a carefully calculated number related to the Play Store’s running and security? or is it merely whimsical?

A former senior App Store executive, Philip Shoemaker, stated that we realize that 30% is way too much. It should be closed to 3%, which is a massive ten times less and in line with what credit card companies charge for transaction processing.

Yet, Google stated that the number of app developers on Google Play with in-app purchases is only 3%. And only 3% of that 3% do not use Google’s billing system. So, in other words, Google believes that it is not a big deal.

However, it doesn’t focus on the fairness issue when discussing the 30% figure. Another report suggests that Apple started the 30% cut, which the company borrowed from its practice of keeping 27 cents from each 99 cent sale of music on iTunes before passing it on to the record companies.

They followed this practice when there were limited payment options and no resistance from content providers. However, the industry is still following it.

“India’s is an emerging startup ecosystem; such levies should not be enforced at this stage because they can severely curtail the growth of the ecosystem. It’s a levy imposed by Google globally, but this one-size-fits-all approach doesn’t work for emerging ecosystems”

– Rameesh Kailasam (3).

There is a lot more sense into why Google and Apple are wedded to a 30% number. Notably, Apple scooped up 19 billion USD of its 63.4 billion USD in sales from digital goods in 2019. Simultaneously, Google gobbled up 10 billion USD of its 33.8 billion USD with the same strategy.

Today, anachronistic and randomly calculated numbers may cause a whole heap of strain for both giants, especially with the illegal winds blowing against them. After all, Epic Games said that the firm could easily earn a profit by taking a 12% cut of in-app widgets from its website.

Angsty of Sharma Against Google

Vijay Shekhar Sharma of Paytm has started an onslaught against the tech giant in India. He has also managed to rally many other providers, including Indian tech and business players like Ola, Domino’s Pizza, Netmeds, among others, to come over to his side.

In a short period, he has also built a “mini-app store” on the official site of Paytm. Most of his cohort has stated that they would seek asylum and fly the unfair guillotine of Google’s 30% blade.

Moreover, Sharma has no intention to charge any fees for the service. We are yet to see how efficient and attractive the proposition is.

Meanwhile, the tech daddy has extended its deadline for Google Play Store Compliance to March 31, 2022, in deference to local concerns and needs. However, Sharma has promptly declared the move as an “admission of guilt.”

If we look beyond whether the cause of Google 30% tax is sufficient to rally against it, there is an underlying reality that is stoking Sharma’s outrage.

Paytm was the leading digital payment provider in India for a long stretch, commanding a higher market share. However, in 2020, as far as digital payments that use India’s UPI, Unified Payments Interface, are concerned, Google Pay has raced with astonishing speed to the top position with a 40% market share. Flipkart’s PhonePe follows it closely. Meanwhile, the percentage of Paytm has dropped to an unbelievable 15%.

It could be the cause behind the great angst of Sharma. However, it is also one of the most potent examples of the case he is making against the tech giant.

Regulation of App Stotes in India

Before we jump more in-depth into the feud between Paytm and Google, it is essential to examine how India regulates app stores like Google’s Play Store.

At present, there are no particular regulations to govern app stores in India. It is essential to understand that app stores offer virtual services such as communication, banking, food delivery, medical, etc. Hence they fall under the Consumer Protection Act, 2019, CPA, and Consumer (E-commerce) Rules, 2020, E-commerce rules.

The reading of these provisions implies that app stores are electronic service providers that enhance the users’ aggregation at a common platform.

In India, the E-commerce Rules define an e-commerce firm as any person who owns, manages, and operates an electronic or digital platform for electronic commerce. These rules apply to all e-commerce firms, whether they are established in India or overseas, as per Rule 2(2) of e-commerce rules.

It enables the authorities to impose statutory obligations on app stores like Play Store, established by Google, California, the USA, and App Store, launched by Apple, California, USA.

“If it is an enterprise that is defined under the competition laws and if it abuses its dominant position, then it can be called up in India. But competition law doesn’t (discriminate) between Indian and international companies. It applies to any company which abuses its dominant position”

– N. S. Nappinai (4).

The e-commerce rules apply to all digital products sold via a digital or electronic network. In the case of app stores, the electronic network is the internet, and the applications are digital products.

Hence, Indian authorities can collectively use the E-commerce Rules and CPA to regulate the application store until specific provisions are brought to govern them.

App Store Regulations in Other Countries

In the USA, there are instances where the consumer protection laws tried the Google Play Store because of the activities like unauthorized billing to in-app purchases made without users’ consent.

Moreover, the US has also introduced specific legislation called the APPS Act of 2020 to regulate mobile apps and app stores’ actions.

There should be similar legislation in India for the regulation of app stores and mobile apps. They should also be applicable to curb excessive power action by app stores over their listed apps, as in the case of Paytm’s delisting by Google.

It would ensure that the app stores have a policy following the nation’s legislation rather than having their systems, which may detriment the listed applications’ interests.

On July 12, 2020, the European Union also adopted the P2B regulations that promote fairness and transparency for business users of online intermediation services.

These regulations apply to online software app services or app stores like Apple App Store and Google Play Store, and Microsoft Store.

It has provisions in which app stores cannot exclude all the goods and services of a user or application to maintain proportionality. It allows for the termination of an application only when it violates multiple or all app store terms and conditions.

Even in such a case, Play Store would not be able to arbitrarily delist the entire app as it did with Paytm in India. Instead, it could only remove a particular feature of the app like the cashback feature, which violated the Play Store’s terms and conditions.

Online Gambling in India

You must realize that the framework of online gaming and its legislative is not uniform in India. The nation’s constitution has empowered the states to make laws related to gambling.

A few states, including Bihar, Haryana, Himachal Pradesh, Chattisgarh, Uttarakhand, Jharkhand, etc., have the Public Gambling Act, 1867. On the other hand, states, including Assam, Andhrapradesh, Daman, Diu, Goa, Kerala, and Haryana, have passed legislation for gambling regulation. Meanwhile, states such as Gujarat and Bombay has legislation that prohibits gambling.

However, it’s worth noting that these legislations are passed concerning physical gambling regulations and not online gambling.

A few states where they have statutes related to online gambling regulation include Sikkim, Telangana, and Nagaland, which consider “game of skill” legal.

Even though it is practically impossible to impede online gambling in India, the authorities must effectively regulate online gambling. They must reconsider the Sports (Online Gaming and Prevention Fraud) Bill, 2018, shelved in the Parliament in 2018 to preserve sports integrity and legalize online gambling.

The Indian courts have thrown some lights to clarify the online gaming position by classifying them as a skill or chance game.

When the High Court of Punjab and Haryana were considering the legality of fantasy sports in the Varun Gumber Case, it held the format of Dream 11 as a game of skill. The High Court of Bombay also reiterated the decision in the Gurdeep Singh Sachar vs. Union of India case.

One can observe that the “India Cricket League” game of Payment has quite resemblances with the format of Dream 11, a fantasy sport that enables users to create their cricket team with real-life cricket players for the upcoming matches.

In the above cases, the court legally recognized and allowed such a format. However, the citing of Google to Paytm’s game as a “facilitator of unregulated gambling” is beyond the legalities considered in the Indian fantasy sports space.

Hence, it can be contended that Google’s actions in this regard are an abuse of its dominant position and a violation of India’s competition laws.

The Exploitation of Google’s Dominant Position

There no doubt that Google is a dominant market entity in the field of technology. Hence, Google’s decision to delist Paytm from its Play Store has raised anti-competitive practices suspicions by Google.

Another attribution to the fact is that the tech giant wants to quash Paytm. It is not only because it is India’s go-to Payment platform but also because it is a significant competitor for Google’s payment application, i.e., Google Pay.

The movement can be considered a violation of Section 4 of the Competition Act, 2020, which prohibits a dominant firm from abusing its market position.

There are other similar allegations made earlier that the tech giant predominately showcases its Google Pay app over other Payment applications in the Indian Play Store.

Such Google’s move would provide its application an unfair advantage over competitive applications, thereby exploiting its dominant market position.

In 2018, CCI fined Google 21 million USD for indulging in a “search bias.” An appeal against the same is pending.

Moreover, in 2019, CCI had also probed into alleged misuse of Google’s dominant status to subdue smartphone manufacturers’ ability to opt for an alternative variant of its Android Mobile Operating System. We are yet to see its order in this regard.

Another fact that must get attention is that YouTube, the company of Google, entrusts massive fees to promote Paytm First Games. With the action, Google contradicts its “gambling policy” by promoting Paytm First Games on YouTube but not recognizing it on its Play Store.

Even though Google has relisted the Paytm First Games, the tech giant’s actions indicate the essence of anti-competitiveness in the market and setting its domination.

As an outcome of the tech giant’s monopolistic behavior, Paytm has launched its mini app store that offers consumers and developers more than 300 app choices. It doesn’t charge any commission or the fee for any application, unlike Google’s 30% cut on the apps.

“I am proud that we are today launching something that creates an opportunity for every Indian app developer. Paytm Mini App Store empowers our young Indian developers to leverage our reach and payments to build new innovative services. For Paytm users, it will be a seamless experience that doesn’t require any separate download and enables them to use their preferred payment option.”

– Vijay Shekhar Sharma.

It is direct head-on aggression by Paytm against Google while aiming to offer better consumer services for app developers by bridging all the service gaps prevailing in Google’s Play Store.

Conclusion: Google’s Monopolistic Behaviour is the Result of Legislative Framework Lacking

The showdown between Google and Paytm is similar to the App Store of Apple and Epic Games faceoff.

Apple and Epics are in a legal battle, which began in August when Epic Games sued the giant for its anti-competitive policies. In response, Apple has filed counterclaims alleging a contract breach and is seeking an unspecified amount for damages.

The launch of the Paytm Mini Store is in line with Atmanirbhar Bharat, self-reliance, the vision of our honorable Prime Minister, Narendra Modi. However, only time would tell how far paytm would compete with tech giant with regards to app stores in India.

When asked by local media if he would take a legal road against the tech giant, Vijay Shekhar Sharma, the Founder and CEO of Paytm, stated that all the options are open.

The lack of legislative framework regarding app stores in India has allowed Google to take advantage and exploit its dominant position. It also arbitrarily delisted applications, including Paytm and Mobikwik, for the same reasons.

There is an essential requirement of a legislative framework in India for effective regulation of applications and application stores. It would facilitate a level market where the app stores like Play Store, App Store, Paytm Mini Store, etc., need to follow the statutory requirements rather than following their policies. It would positively affect the mobile application ecosystem in India.

Moreover, India also needs to create a robust data protection law and make these overseas firms abide by it. There are several questions about the country’s data since there are tremendous threats because of inadequate data protection law and increased penetration of overseas players.