Google Will Start Charging Phone Makers for Europe App Store

(Bloomberg) -- Google will start charging smartphone makers that want to install its app store and services for devices sold in Europe, changes it says it must make to comply with a European Union antitrust order in July that brought a record 4.3 billion euro ($5 billion) fine.

Starting Oct. 29, new phone models that install the Play store and a bundle of Google apps, including Gmail, YouTube and Google Maps, must pay a licensing fee, the Alphabet Inc. unit said in a blog posting Tuesday. Phone manufacturers can choose to add Google’s Search and Chrome browser apps for free or install alternatives.

The Google Play store is the most important feature of the Android operating system because it brings millions of apps that make phones useful. Google had forced manufacturers to preinstall Search and Chrome if they wanted to use it, restrictions that the EU found unlawful. It gave the company a deadline of next week to stop. The changes put an end in Europe to a strategy of ensuring these money-making search and web ads get huge distribution.

Google argues that the advertising revenue generated from the Search and Chrome apps “helped us fund the development and free distribution of Android.” Ending the deals with manufacturers that pushed those two apps out to all Android phones means the company now plans to monetize Android with the paid licensing agreement, which only affects phones shipped to Europe.

The shares of Alphabet Inc., Google’s parent company, rose $24.88, or 2.3 percent, to $1,127.32 at 3:04 p.m. in New York trading. They’ve climbed about 7 percent this year, compared with a 4.8 percent increase in the Standard & Poor’s 500 Index.

EU Order

The European Commission said it was Google’s responsibility to get in line with the order and it will monitor the effectiveness of the company’s moves.

“It is for Google to decide exactly how to comply with the commission’s decision,” EU spokesman Ricardo Cardoso said in an email. “The decision does not require Google to charge for any of its apps or for the Play store."

The Google Play store is a gateway for Android users to access other popular non-Google apps -- such as Facebook and Snapchat -- so manufacturers will have an incentive to pay for the store and the extra Google apps.

Licensing fees paid by manufacturers are likely to be moderate and could be recouped by revenue-share agreements for placing Google apps prominently on a screen. Changes could take months, if not more than a year, to trickle into the market given the normal development cycles for mobile devices.

The overall impact on Google will probably be negligible, according to Brian Wieser, an analyst at Pivotal Research.

“Changing the nature of the arrangement with handset makers might make some difference, but at the end of the day, Google is still the best provider out there," Wieser said. "Maybe one day some upstart in search will find it had a way into the market because of this, but Google will also continue to refine its products.’’

Phone Experiments

Under the changes just unveiled, manufacturers are no longer prevented from experimenting with phones loaded with different apps or using an operating system based on the Android software but not carrying the Android name. This may not harm Google if it relies on the strength of its brand to label phones as Android. That may mean more of the Android green robot stickers at phone stores to highlight the Google-approved models.

The Developers Alliance, an app industry group that’s supported Google in the EU probe, said Google’s move to obey the EU and allow other versions of Android be sold more widely risked creating diverging devices that don’t work together.

The company is also fighting the Android decision in the EU courts, along with an earlier legal challenge to last year’s fine for its shopping service, even as regulators are weighing a third investigation into the company’s advertising contracts.

©2018 Bloomberg L.P.