On August 31, South Korea’s National Assembly became the first legislative body in the world to directly challenge Google and Apple’s control over their app markets. The new amendment to the “Telecommunications Business Act” prohibits app store operators, such as Google and Apple, from forcing their own payment system for all in-app purchases. The amendment not only requires these tech giants to allow more payment options, which will allow developers to avoid the high fees set by both companies, but it also prohibits discriminating against or penalizing developers who decide to seek other options.
Google and Apple argue that fees help maintain security for consumers and developers, and by allowing different payment system, consumers are vulnerable to fraud and privacy violations. Google has revised their policy to lower the fee to 15 percent for an app developer’s first $1 million in annual revenue and have delayed their roll out plans, but it did not prevent the National Assembly from moving ahead with the legislation.
So why was South Korea the first country to pass this law? How would this affect the app markets in both South Korea and globally?
Given South Korea’s current investment in the mobile market and political atmosphere, this was not a surprise. Home of Samsung, one of the world’s top smartphone makers, South Korea has one of the most active mobile markets in the world with 95 percent of the population owning a smartphone. Although South Korea might be a small market for Google and Apple globally, the two companies control more than 90 percent of the 10.66 trillion won ($9 billion) app market in South Korea, and that share continues to grow.
In-app purchases are the most profitable revenue model for South Korean app developers, worth an estimated 4.8 trillion won in 2020. According to 42Matters, an internet research firm, 9 percent of apps published by Korean developers use in-app payments to monetize their products, which is double the average amount of 4 percent. That’s why legislation was widely supported by local developers when Google announced it was going to be more tightly enforcing the exclusive use of its payment system – which takes a 30 percent cut from in-app purchases.
In addition to the strong mobile gaming industry, South Korean digital platform companies are looking to expand in digital content such as music, webtoons, and the growing e-book industry. If Google’s 30 percent fee were implemented, Korean companies would have to pay between 88.5 billion and 156.8 billion won ($76-$135 million) additionally per year.
Aside from its booming digital content market, South Korea has had a long history with Google regarding anti-trust issues. The law was dubbed the “Anti-Google Law” and should be understood as part of a broader sentiment about the need to constrain Google’s gapjil (abuse of power). While YouTube is the most used app in South Korea, the South Korean government and Google have clashed on many public policy issues such as Google’s tight control over Android OS, the limitations on Google Maps in South Korea, and network fees. With the Moon administration in South Korea devoted to anti-trust actions, including breaking up tech giants, oversight over Google is not a new development.
Following the August 31 legislation, South Korea’s anti-trust regulator also fined Google 207 billion won for forcing Android device makers to sign an “anti-fragmentation agreement (AFA),” which prevents them from developing their own operating system and thus monopolizes Google’s control over all Android devices. As Google plans to appeal this decision, the legal battles between Google and the South Korean government will continue.
Given this context – and with the ruling Democratic Party having the overwhelming majority in the National Assembly – it’s no surprise that the latest legislation passed easily, with 180 votes out of 188 parliamentary members who attended the plenary session.
With the new law, South Korean developers can now choose which payment system to work with. South Korea already has a booming mobile payment market, with popular options such as Naver Pay, Kakao Pay, Samsung Pay, and Toss leading the “wallet-less society.”
Besides the economic benefit from this change, there is a symbolic importance in developers having more options and control over what payment system they work with. Most importantly, developers now also have more direct access to their consumers’ data and information instead of Google and Apple gatekeeping them.
Globally, Google and Apple have many legal battles and hurdles ahead of them, including in the European Union, Australia, Netherlands, and the United States. In the U.S., lawmakers are considering legislation similar to what was passed in South Korea.
One of the most covered cases, Epic Games vs. Apple is one of the biggest ongoing legal battles. Just last week, a U.S. federal court in Oakland ruled that Apple was not unfairly monopolizing the mobile game industry and Epic should pay the penalty for violating its developer agreement. The court, however, also ordered Apple to remove its anti-steering rules and allow developers to provide external links or other ways to make in-app payments. Although the verdict was not what Epic Games wanted, it gained a partial victory in changing the rules for the future.
Meanwhile, when Epic Games tried to get back in the App store following the South Korean law, Apple rejected them, signaling there will be a bumpy road ahead to implantation of the new legislation.
This legislation was another reminder for global companies that no matter how small their Korean market might be, South Korean regulators and public policy debates should not be overlooked. Last October, a Google Korea executive told the National Assembly the new payment policy would affect less than 100 local developers, yet the legislation was still passed and now will cost Google millions of dollars.
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