Google India's near-term revenue may remain unaffected despite CCI order

The fines that the Competition Commission of India’s (CCI) imposed on tech company Google for abusing its dominance in online markets may not impact the latter's near-term India revenue, given that three-fourths of the tech company's overall revenue in the country comes from cloud and IT infrastructure services and digital advertising. 

On October 20, CCI imposed a ₹1,337.6 crore penalty on Google, accusing it of abusing its dominant position in the market of Android devices by preinstalling its apps and services. Five days later, the regulatory body also imposed a second fine of ₹936 crore, stating that the company was involved in anticompetitive conduct by forcing app developers to either use Google's own payment tools, or pay the company a hefty service usage fee even if they used their own payment method on the Play Store. The amount, thus, totals ₹2,273.6 crore. 

Last November, the company’s regulatory filing with the Registrar of Companies (RoC) pegged its annual revenue for FY21 at ₹6,386 crore. Of this, 73% came from providing cloud platform and information technology (IT) infrastructure. The Google Play Store is not a major contributor to Google India overall revenue. Even Google Payments India, which handles all payment and billing related operations in the country, reported an annual revenue of ₹14.8 crore in FY21 -- a mere 0.2% of Google India’s total revenue.

Sijo Kuruvilla George, executive director of industry body Alliance of Digital India Foundation (ADIF), said that Google’s India revenues are unlikely to be affected as a result of the CCI order since the company will likely look at alternate avenues to comply with the regulatory body’s recommended remedies. “While most global precedent is of legislative moves, India’s order comes as a regulatory measure to control the market dominance of a technology company. As a result, Google will also likely look for ways to stall compliance — beginning with a stay order on the CCI remedies,” George said.

The CCI recommended a total of 20 ‘remedies’ to Google, including the change of its policies that mandate the preinstallation of the company’s own apps on Android devices, and enable the use of third-party payment instruments by app makers on the platform.

On Tuesday, CCI asked Google to “not restrict” developers from using third party billing and payment services in their apps. So far, developers willing to list their apps on the Google Play Store are required to mandatorily use Google’s own payment instruments to process any in-app purchases.

The regulator also asked Google to “not discriminate” against apps that use their own ways to accept payments for any app-linked purchases made by users, adding that the company “shall not impose any condition — including any price related condition — on app developers, which is unfair, unreasonable, discriminatory or disproportionate to the services provided to the app developers.”

Akshayy S. Nanda, partner and competition law specialist at law firm Saraf and Partners, said that the CCI order leaves room for ambiguity since “there is no clear definition of what conduct could be deemed ‘unfair’ or ‘unreasonable’.” As a result, Google is likely to challenge the order at the National Company Law Appellate Tribunal (NCLAT), before the suggested remedies need to be enforced.

CCI, on its part, has given Google 90 days to implement changes to its policy to accept payments on its Play Store. A Google spokesperson said on Wednesday that the company is “reviewing the (CCI) decision to evaluate next steps,” adding that it has already kept costs low for developers on the Play Store — in order to enable “access to hundreds of millions of Indians.”

However, experts do believe that there will likely be a change in Google’s business model if the CCI order is fully implemented. Prasanto Kumar Roy, a tech policy analyst, said that given Google’s dominant market power in IT services and its digital advertising business, the company may seek to offset its Play Store margins through other channels.

“Google already has a dominant position in Search, and given that its product is also very good, it is well poised to mitigate its revenue strains through other avenues,” he said.

Further, Rameesh Kailasam, president and chief executive of startup industry body IndiaTech, said that one key reason why the company’s in-app payments revenue in India has remained limited is due to the postponement of the implementation of this order.

He added that with the CCI order, Google will not be able to mandatorily implement its revenue share model on the Play Store — something that may impact the company’s revenue in India in the long run.

“Even if you look at the commission that the platform charges for the use of third party tools, a 4% merchant discount rate still means that Google, after October 31, will be forcing any platform selling subscriptions of news, entertainment or gaming services through the Play Store to pay at least 26% of what the service earns — which is often much more than the typical operating margin of an online service,” Kailasam said.

He further added that with the October 31 deadline for implementing Google’s in-app billing policy coming in, it remains to be seen how the CCI order changes the course for the company in India.