More from Epic v. Google: everything we learned in Fortnite court
Google alleges Tinder was deriving just 10 percent “value” under Google’s model, while paying 30 percent.
We’re now looking at emails where Marchak tells his bosses at Google that “this seems to justify Tinder’s decision” and where he suggests they use his model of negative value to justify giving Tinder a better deal.
“This is so negative we think we need to use this internally to justify giving Tinder a 15 percent deal or better?” Google’s lawyer asks.
“Yes, we think about the value we’re creating for developers all the time,” answers Marchak.
King, Machine Zone, NCSoft, Aniplex, DeNA, Com2US, CyberAgent, Webzen, Colopl, and — I think it’s Playa or Playla, but it’s hard to make out on the screen — these developers all appear in an internal August 2019 document as receiving less value compared to the 30 percent Google charged ’em.
Google estimated the average value the “top 100 most negative” devs were getting was just 19 percent. Simple math based on other slide deck numbers suggests the 100 devs overpaid $1.43 billion per year — Epic’s attorney had Marchak try it out on his own calculator in the courtroom.
Google will try to argue these calculations later turned out to be wrong.
The jury wasn’t there when I entered the courtroom — but Google and Spotify lawyers were, and they’re asking Judge Donato to seal a document that would reveal the terms of Google’s “User Choice Billing” deal with Spotify which lets the music app bypass Google’s billing system in exchange for a still-substantial share of revenue.
This surprised Judge Donato: “Right now, Google is allowing users to post its own billing system?”
It also surprised me: Google doesn’t have a standard rate for User Choice Billing? It’s making special deals for certain companies? “Disclosure of the Spotify deal would be very very detrimental for the negotiation we’d be having with these other parties,” argues Google attorney Glenn Pomerantz.
Epic v. Apple has come and gone, but now it’s Google’s turn to face the Fortnite maker.
Verge senior editor Sean Hollister is reporting from the courthouse, but I sat down with David Pierce earlier this week to discuss what all this could mean for the Play Store.
Technically, Google’s Marchak is still under oath, as Epic continues to get him to say (clearly against his will) that 6 percent is the amount Google thought was the break-even cost of payment processing on Google Play.
We won’t see big-name witnesses like Google’s or Epic’s CEOs tomorrow, but we did get a small preview of the weeks ahead: after Epic finishes making its main case, both parties will call their expert witnesses on app distribution, payment processing, profit margins, and computer science (re: security fears of sideloaded apps).
We may also not get document dumps during the case: exhibits will be filed after the jury verdict, Epic lead attorney Gary Bornstein said.
Intriguingly, our next witness, Michael Marchak, led an internal project at Google to quantify how much value developers got from Google Play. We’re looking at an internal document about an idea to convert that value into dollars and compare it to Google’s fee.
The “current model,” as of this August 2019 document, was that Google Play provided value by helping users discover apps, spend money on them, and deliver downloads at scale.
Marchak is repeatedly attempting to say this is an early model. Epic’s lawyer is repeatedly shutting him down.
Judge Donato is annoyed.
Google’s witness wasn’t in the courtroom at the time they were called to the stand and took a couple minutes to get there.
He also told lawyers that if he sees any phones on his side of the bar, they will be confiscated. (No phones are allowed in this courtroom at all, though nobody has been taking them away from us on entry.)
Earlier today, Judge Donato let Google say the word iPhone — and it opened the door for Epic’s attorney Lauren Moskowitz to point out what isn’t in the document Google used to justify spending hundreds of millions of dollars on addressing the “contagion effect” of game developers abandoning the Play Store.
What isn’t in the document: Apple. It’s not listed in the “Competitors Aggressively Pursuing Gaming” section. It’s not anywhere.
“Competition with Apple is not being discussed when we’re talking about contagion risk, right?” asked Moskowitz.
“Yes, contagion risk is talking about developers getting their content off Google Play,” Koh admitted. Does that change the conversation around market definition?
Google’s attorney Michelle Park Chiu showed the court an email where Epic explicitly agreed it would “submit an updated build [of Fortnite] that fully complies with Google’s policies and restrictions,” one that would explicitly use Google’s payment platform and remove all other payments.
Obviously, that didn’t last. We’re here in court today because Epic then secretly shoved its own payment mechanism into the app.
But Chiu also found a way to tug on the heartstrings — by letting Koh explain how “betrayed” his Google team felt after pulling out all the stops to get that twice-rejected Fortnite app ready for Epic’s all-important in-game Travis Scott concert on April 23rd, 2020. He said they managed a two-month task in just under two weeks.
“A lot of developers agitate over this, but is there a threat that ABK will go off Play despite what they have to lose via King’s revenue?” asked Google strategic partnerships development manager Johan Heurlin in an email.
Koh replied: “It’s not clear how real of a risk this is. Apparently ABK in the past mention[ed] that they can build their own platform and generate higher cash flow. Again, not sure how realistic this is. They do have Battle.net and a large audience network with their King titles...”
Former Google Play games bizdev boss Lawrence Koh said there was nothing stopping Riot Games from creating a competing app store. He told Google’s lawyer there was nothing keeping Riot from launching games on other platforms either.
He says Google believed it “could make [Riot] the next big gaming phenomenon” since it hadn’t yet released any of its games on mobile.
Epic wanted Koh to say he was worried about the rise of competing app stores on Android, and he wouldn’t go that far.
Google’s lawyer Michelle Park Chiu is asking if perhaps he was worried about consumers choosing a different phone — say, the iPhone — if he didn’t strike deals with developers to retain the games on Google Play.
“That was certainly a concern, yes.”
As for sim-ship: “We were worried consumers would move to other gaming platforms to find that great games content.”
That was actually Google’s question to its own former head of Google Play Games bizdev, and Koh’s answer came with a laugh:
“No, never.”
Google is spending its time normalizing concepts like contractually obligating developers to “sim-ship” their games. “We stuck to making sure they were launching their games on Google Play at the same time as every other platform and making sure they were at the same quality,” says Koh.
A spicy dig from Epic attorney Moskowitz, who has just passed her witness to Google.
Koh admitted he spoke about Project Hug over chat with colleagues but said he didn’t remember if he turned on chat history. He says “everything substantial” was done in Google Docs.
While the agreement itself doesn’t seem to state that Riot can’t build its own app store — only that it has to simultaneously ship games on Google Play, keep its games on Google Play, and offer feature parity — Koh’s own emails seem to suggest that Google specifically made the deal to prevent Riot from creating a competing store.
A paragraph from Koh begins: “Our current investment package for Riot was motivated by 2 objectives: 1) have Riot choose Play vs. launching their own Android store.”
Later in the same email: “In my view, it’s because of objective #1 that we’re paying a higher premium in the first year as Riot builds up their business on Play.”
Koh continues to say it was about keeping games on Play, not blocking competing stores.
“Google made this investment to secure those titles on the Google Play Store,” says Koh. Epic lawyer Moskowitz was trying to get him to say Google spent the money to block a competing Activision app store from emerging — and Google certainly did believe Activision was threatening that app store, according to documents we’ve seen.
“Activision has told us they will build their own mobile store,” one line reads.
But Koh says Google was only worried about losing the games, not someone else gaining them, and we haven’t seen any obvious evidence yet to the contrary.
Google estimated that it would lose $243M a year in revenue if ABK removed its games. Its brand King makes Candy Crush, in case you’re unaware.
I would not say Epic’s close to proving it yet, but Koh did testify both Activision Blizzard and Riot had signaled they were looking into building their own app stores and that King (part of Activision Blizzard) agreed not to ship their games on any other platform before Google Play and with feature parity.
We’re also seeing emails between bizdev leaders at Google about how Activision was trying to negotiate $20M via YouTube and $100M of credits, plus many more millions of dollars for exclusive rights to stream all of Activision’s esports including the Overwatch League and Call of Duty League — $50M for year one of that, $60M for year two, with an option for a year three.
Ryan Wyatt, head of YouTube gaming, seemed skeptical in an email about the size of that deal, saying Activision didn’t yet generate $20M a year for YouTube.
And now we’re going on lunch break.
According to the internal Google document, the Play bizdev team wanted to invest $575 million in game developers at risk of “contagion” through 2022, giving them a mix of “3-year credits,” “ad investments,” YouTube and esports deals, and co-marketing valued at hundreds of millions of dollars.
It also wanted to hire 59 new employees to manage these deals. With Samsung specifically, it wanted to “initiate gaming collaboration discussions, including direct financial value to Samsung of up to $250M through 2022.” We’ll hear about this more as Project Banyan.
It’s not clear from these documents alone if Google approved the first ask. Google has already said Banyan never happened.
Epic wasn’t the only company that Google was worried about setting off a “contagion effect.” The document we’re looking at shows the Samsung Galaxy Store was asking for 20 percent rev share, rather than 30 percent, and that OnePlus was asking for 20 percent as well — and also offered third-party billing options for a 5 percent rev share.
Koh confirms that Google internally referred to those with a lower than 30 percent fee as “agitators.”
Google planned to target developers who were discontent with Google’s 30 percent rev share and had the capabilities to “go-it-alone” on Android, according to the document.
Lawrence Koh, who ran Google Play’s games bizdev, is getting quizzed about a document that seems to show Google running scared.
If I’m reading it correctly, Google was forecasting that 100 percent of top game developers would defect from Google Play by 2020 and that the “contagion effect” would consume an increasing percent of Google’s app store revenue every year, including 6 percent ($630M worth) in 2021, and 7 percent (over $800M) in 2022, for a cumulative total of $2B by the end of that year.
“Project Hug,” to be specific, the one where Epic alleges that Google paid off game developers to stick with the Play Store.
Lawrence Koh, former director of games business development at Google from 2019–2020, is now on the stand answering questions from Epic about Hug and a presentation titled “Boosting Top Game Developer Support & Securing Play Distribution on Samsung Devices.”
Lopez couldn’t.
“We’ll never know that,” Moskowitz replied.
And with that, Epic seems to have thoroughly made its point that Google may have destroyed evidence. Not that it did — but that it might have.
The court is going on a short break.
Lopez says some employees are in substance abuse recovery groups, for example. Most of Google’s questions about their own information retention policies seemed to be about how they work, though. I may have missed the point there.
Epic lawyer Moskowitz is asking tough questions again: “[The legal hold] required employees to take affirmative steps to retain chats, and you didn’t take affirmative steps to ensure they did so?”
“That’s right,” he says.
Google’s chats czar is looking a little dodgy right now! Moskowitz asked: “You concede that business chats were destroyed while Google was under a legal obligation to preserve evidence?”
Lopez repeatedly said he didn’t know, couldn’t know, and wouldn’t speculate on what was inside them — even though he admitted earlier that Google employees absolutely use them for business, and after we’d seen Google employees turning off Chat History. “It’s quite possible that those chats contained substantive business information, right?” He wouldn’t say.
Google’s turn to talk to him, and perhaps make the decision not to retain employee’s personal chats seem reasonable.
Epic’s attorney Lauren Moskowitz is on a roll here, with Lopez agreeing again and again that Google technically had the ability to force Chat History on for every conversation — but didn’t.
“Google did not change its normal retention policy for chats, even when it was on a legal hold to do so?”
“That’s right,” answered Lopez.