Will Google destroy Indian entrepreneurship? Many tech startups think so

The 30% fee applied to in-app purchases as well as a virtual monopoly in many significant verticals by Google has incensed Indian entrepreneurs.

Vijay Shekar Sharma, CEO of payments company Paytm, practically a household name in India, has declared war on Google for practices that he, in addition to a multitude of other tech startup CEOs, consider to be unfair and monopolistic. 

The spat has now become India's latest tech feud.

Resentment against Google has long been simmering but out-and-out hostility finally came to surface when Paytm was taken off Google's Play store for what the search giant said was a violation of its policy due to Paytm engaging in sports betting.

Sharma and Paytm were stunned, not just to be notified by a perfunctory email, which was then followed by a delisting, but because the accusation was about a scratch card-based cashback feature linked to a cricket game on the app, not unlike what Google itself has pursued via its own payments service in the past, according to Paytm.

Google stood its ground, however. 

"Offering cashbacks and vouchers alone do not constitute a violation of our Google Play gambling policies. Our policies don't allow online casinos or support any unregulated gambling apps that facilitate sports betting, including daily fantasy sports in India," it responded in an emailed statement.

When Paytm suspended the offer from its app, it was allowed back into the app store a few hours later, but by then the damage was already done. An infuriated Sharma lashed out at the search giant, condemning its high-handed behaviour where he said it acted as "judge, jury, executioner, and beneficiary".

THE UNKINDEST CUT OF ALL

Underlying this incident, of course, is a larger issue that has aligned many of India's tech startups against Google. It's the same issue that enraged Epic Games, the maker of global gaming sensation Fortnite -- namely, it's the policy of levying a 30% fee on app developers, a policy shared by Apple as well.

This 30% gatekeeper toll, as some have called it, is applied to in-app purchases as well as content-based subscription services like games, dating, and fitness. What doesn't get taxed are things like clothes, groceries, or airfares.

Sharma's rally against Google was quickly supported by online tech startup pioneer Murugavel Janakiraman, founder of India's leading matrimonial site, bharatmatrimony, now called matrimony.com, who has been waging a campaign against Google for over a decade.

"It is a death knell for digital companies and payment companies in India," said Janakiraman. "How can companies survive by paying 30% Google tax and Apple tax?" he added. 

Over 90% of India's 700 million smartphones use Google's Android operating system so there's really no alternative. According to a Financial Express report, Google Play hosts 131,625 apps from more than 26,835 Indian publishers.

But luckily for Sharma, he at least has an ally in the US Justice Department who, just a week ago, filed the biggest anti-trust lawsuit against Google's parent Alphabet since the one against Microsoft in the late 1990s.

The last time the tech world saw a crisis of this magnitude surrounding monopolistic practices was back in 1999, when Microsoft's Windows operating system forced Internet Explorer, the company's browser, to all PC users.

If a person bought a PC back then, like 95% of the population did, they would in all probability have used Explorer instead of the hottest browser at the time, Netscape, which has since become a vaguely nostalgic but foggy memory.

The Justice Department sued Microsoft and the case's presiding judge eventually found the company to be guilty. The judge then ordered for its breakup. However, this never happened and the final result was more or less toothless.

Coming back to the modern day, here are some questions that Indian tech entrepreneurs are faced with every day: Guess who has the biggest browser market share in the world today? The largest mobile OS share in the world today? The largest app store in the world today? What about the largest number of internet searches?

The answer to all four, as you may have guessed, is Google. This is the ecosystem that entrepreneurs have begun railing against.

Meanwhile, for Google, the big question is how much should a gatekeeper toll be? Is 30% a carefully calibrated number that is related to the running of the Play Store's infrastructure and its admittedly enviable security around payments? Or is it simply arbitrary?

"I think we're realising that 30% is way too much," Phillip Shoemaker, a former senior App Store executive, said in a recent New York Times article. 

Shoemake said it should be closer to 3%, which is a humongous 10 times less and something that is more in line with what credit card companies levy for processing transactions.

Yet Google has said the number of app developers on Google Play who offer in-app purchases are only 3% of the total, and only 3% of that 3% -- in other words, a minuscule amount -- do not use Google's billing system. In other words, Google believes it's not such a big deal.

That, of course, doesn't really address the issue of fairness when discussing the 30% figure. Another NYT report goes into detail that it was actually Apple that pioneered the 30% cut, which borrowed that number from its practice of keeping 27 cents from each 99 cent sale of a song on iTunes before passing on the rest to record companies.

This was a time when there were limited payment options and therefore not much resistance from content providers, but somehow, this has since become industry practice.

It makes total sense that both Apple and Google are wedded to that 30% number, considering Apple gobbled up $19 billion of its $63.4 billion in sales from digital goodies last year while Google scarfed up $10 billion of its $33.8 billion using the same strategy. Imagine what would happen to stock prices and options packages if that pie were to be sliced by half.

But today, this allegedly anachronistic, arbitrarily-calculated hangover of a number may cause a whole heap of trouble for both Google and Apple, especially with the ill legal winds that have begun to blow against both companies. After all, Epic Games has stated that it could easily earn a profit by only taking a 12% cut of in-app widgets from its own website.

Back in India, Paytm's Sharma has started an onslaught against Google in India. He has rallied many other service providers, including stalwarts of the Indian tech and business landscape such as Ola, Netmeds, and Domino's Pizza amongst others to come over to his side. 

In a short period of time, Sharma has built a "mini-app store" on Paytm's site, where most of his cohort have said they intend to seek refuge and escape the unfair guillotine of Google's 30% blade. He also intends on charging no fees for the service. How efficient and attractive of a proposition this is remains to be seen.

Meanwhile, Google has extended its deadline for Google Play Store compliance to March 31, 2022 in deference to "local needs and concerns", which Sharma promptly declared to be tantamount to an "admission of guilt."

Looking beyond whether there is sufficient cause to rail against Google's 30% tax, there is an underlying reality that is undoubtedly stoking Sharma's ire. Paytm was, by a long stretch, the leading digital payments provider in India not so long ago, commanding a lion's share of the market.

But in 2020, as far as digital payments that use India's unified payments interface (UPI) are concerned, Google Pay -- which started operations just last November -- has raced with breathtaking speed to the top position with 40% of the market, followed closely by Flipkart's PhonePe. Meanwhile, Paytm has dropped to an unimaginable 15%.

This must cause Sharma great angst, but it's also probably the most powerful example of the case he is trying to make against the big daddy of search.

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