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By Tripp Mickle and Sarah E. Needleman 

Alphabet Inc.'s Google is reducing the commission it charges developers that sell digital goods and services through its Play store, a move that comes amid increased regulatory scrutiny of the power tech giants wield through their app marketplaces.

The company behind the world's largest mobile operating system, Android, said Tuesday that it would reduce service fee it collects from 30% to 15% on the first $1 million developers earn from its app store. The reduction, which begins in July, is a slight departure from Apple Inc.'s decision late last year to reduce its rate to 15% for software makers who generate less than $1 million in annual sales.

Google and Apple have built multibillion-dollar digital empires over the past decade by becoming the primary gatekeepers for apps that are downloaded to smartphones and other mobile devices world-wide. Their position of power has drawn criticism from developers large and small over the amount of money that tech companies are able to siphon from them. Those complaints have triggered lawsuits as well as regulatory probes in multiple countries.

By reducing its take of app sales, Google estimates that 99% of developers would see their fees cut in half. It said that every developer, regardless of size, is eligible to benefit, adding in a blog post that it considered the reduction to be "a fair approach that aligns our success with that of our developer ecosystem."

Some software makers panned Google's decision. Tim Sweeney, an outspoken critic of app-marketplace operators as chief executive of "Fortnite" maker Epic Games Inc., described the move as a "self-serving gambit."

Were the reduction implemented last year, it would have lowered Google's take of Play store sales of $11.6 billion by an estimated $585 million, according to Sensor Tower, an app-industry research firm. Its parent company Alphabet reported $182.53 billion in revenue last year, mostly from advertising.

The concession to developers is the latest in a series of changes the search giant has made as it faces regulatory pressure in the U.S. Google recently enabled hotels and travel companies that aren't paid advertisers to appear in travel-booking links through its platform after making similar adjustments for airlines on its flight-booking engine and online-retail listings in its Shopping tab.

The changes coincided with a Justice Department investigation into the company's business practices, culminating with an antitrust lawsuit filed last year. Separate suits have been brought by Texas and Colorado. Google has said that the Justice Department's suit is deeply flawed because consumers aren't forced to use its services, which are largely available at little or no cost.

The debate over app-store fees intensified last year after Epic Games launched a public campaign against Google and Apple by adding a payment system inside "Fortnite" that circumvented the typical 30% cut due for digital purchases. Google and Apple retaliated by kicking the combat game out of their stores, an action that led Epic to file an antitrust lawsuit.

Apple declined to comment on Google's change.

A spokeswoman for Epic said Google's move doesn't address the root of its beef with the company. "Whether it's 15% or 30%, for apps obtained through the Google Play store, developers are forced to use Google's in-app payment services," she said. "Android needs to be fully open to competition, with a genuinely level playing field among platform companies, app creators and service providers."

Last year Epic and several other companies formed a nonprofit to pressure the major app-store operators to make changes to their marketplace rules. Founding members of the Coalition for App Fairness also include Spotify Technology SA and Tinder owner Match Group Inc.

A Google spokesman declined to comment further on the timing of the change. "As a platform, we do not succeed unless our partners succeed," the company said in its blog post.

Both Google and Apple have defended their app-store fees, saying they help cover expenses related to user privacy, security and other services.

Google's decision to apply the lower fees as developers book sales on the Play store contrasts with Apple's approach. To secure the lower 15% rate, the iPhone maker requested developers apply to a program to show their earnings in 2020, a process that will give it insight into annual business growth of the apps in its store. Had Apple implemented that change last year, it would have reduced its $21.7 billion take of app sales by about $595 million, Sensor Tower estimates.

The companies also have different approaches for app distribution: Apple requires iPhone and iPad users to download apps exclusively from its App Store, while Android device users can access the Google Play store in addition to other app marketplaces.

Apple has said it prohibited third-party app stores so it can vet apps and protect iPhone users from malware and other software issues.

Roughly $38.6 billion was spent in the Play store last year, while the App Store generated $72.3 billion, according to Sensor Tower. Their combined revenue increased by 30% during a year when people around the world were spending more time at home due to restrictions related to the pandemic. Being able to collect a portion of sales through the growing app marketplaces has been lucrative for the companies in recent years.

A trial date for Epic's lawsuit against Google in the U.S. hasn't been set. Apple and Epic go to trial in early May over the "Fortnite" maker's anticompetitive claims.

A similar complaint filed by Epic against Apple in the U.K. was dismissed last month. However, the U.K.'s competition authorities gave Epic permission to pursue a case against Google over how "Fortnite" was pulled from the Play store.

Epic last week also launched legal proceedings against Google in Australia over its app-store policies.

Google has shown a willingness to adjust its business practices in its home market in ways that it chose not to do during a decade of regulatory challenges in Europe.

Between 2017 and 2018, the European Union imposed $9 billion in fines and orders to change its business practices, but the efforts largely failed to dent its power and influence. Those orders followed findings that Google preferenced its own product ads at the top of users' search results and that Google required smartphone makers to place its search engine and Chrome web browser on their devices to have access to its Play store.

Tim Higgins contributed to this article.

Write to Tripp Mickle at Tripp.Mickle@wsj.com and Sarah E. Needleman at sarah.needleman@wsj.com

(END) Dow Jones Newswires

March 16, 2021 16:21 ET (20:21 GMT)

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