Why Google Will Stop Calling Freemium Games ‘Free’ in Europe

Source: Play.Google.com

In a couple of months, free-to-download “freemium” apps will no longer be labeled “free” in the Google (NASDAQ:GOOG)(NASDAQ:GOOGL) Play Store — at least within the European Union.

Thousands of smartphone users with children have complained that it’s too easy for kids to play mobile games and then inadvertently charge a credit card with numerous purchases of new levels, new characters, and other in-app upgrades offered by free games. The European Commission last year requested that Google, operator of the Play Store, and rival Apple (NASDAQ:AAPL), which runs the iOS App Store, change how these games are marketed to consumers.

A Friday statement released by the European Commission said that Google will be making “a number of changes” to how it represents games that offer in-app purchases to consumers. The Play Store will not use the word “free” in connection with such mobile games, which are free to download but offer paid upgrades within the game. Google will also revise guidelines to prevent app developers from marketing games to children, and will change the Play Store’s default settings to require that payment is authorized before every in-app purchase unless the user changes the settings.

The changes will be implemented by the end of September. The European Commission had expressed concern over the ways that Google and Apple represent freemium apps and games that offer in app-purchases — purchases which the Commission acknowledges as “a legitimate business model.” In December, the Commission made several requests of Apple, Google, and the Interactive Software Federation of Europe.

The changes requested of Google’s Play Store and Apple’s App Store by the European Commission are as follows:

  • “Games advertised as ‘free’ should not mislead consumers about the true costs involved;
  • “Games should not contain direct exhortation to children to buy items in a game or to persuade an adult to buy items for them;
  • “Consumers should be adequately informed about the payment arrangements for purchases and should not be debited through default settings without consumers’ explicit consent;
  • “Traders should provide an email address so that consumers can contact them in case of queries or complaints.”

Officials met with representatives from Apple and Google to ask the companies to more closely regulate freemium apps and to prevent apps from misleading consumers or being marketed directly toward children. When asked by Re/code, Google declined to say whether the changes will be implemented outside of Europe or if they will include apps other than games. The Wall Street Journal referred to “a person familiar with the matter” who said that “Google is studying whether it will change the way it labels games globally, or just in Europe.”

While the commission praised Google’s willingness to amend its policies, it noted that Apple had not been as cooperative and has not yet committed to implementing changes to its App Store’s policies: “Although, regrettably, no concrete and immediate solutions have been made by Apple to date to address the concerns linked in particular to payment authorisation, Apple has proposed to address those concerns.

“However, no firm commitment and no timing have been provided for the implementation of such possible future changes. CPC authorities will continue to engage with Apple to ensure that it provides specific details of changes required and put its practices into line with the common position.”

In a statement emailed to Re/code, Apple didn’t directly address the European Commission’s concerns but noted that its “strong, intuitive and customizable” parental controls “go far beyond the features of others in the industry. But we are always working to strengthen the protections we have in place, and we’re adding great new features with iOS 8, such as Ask to Buy, giving parents even more control over what their kids can buy on the App Store.”

The Wall Street Journal reports that games are the most lucrative type of apps available on the Play Store or the App Store, and the two top-grossing apps on the Play Store are free-to-download games “Clash of Clans” and “Candy Crush Saga.” Users can download and play the games for free but can easily purchase upgrades and virtual goods within the games.

Freemium apps account for 98 percent of Play Store revenue, with Apple’s freemium app revenue not far behind, at 95 percent of the App Store’s revenue. A move to stop labeling freemium apps as “free” represents a potential loss of revenue both for Apple and Google’s app stores and for app developers. Users are more willing to download free apps, and not marking free-to-download apps as “free” could impact download rates, as well as the rates of subsequent in-app purchases.

Google, Apple, and Amazon (NASDAQ:AMZN) have faced regulatory scrutiny and legal action over their handling of in-app purchases. Apple settled a U.S. Federal Trade Commission complaint by agreeing to refund $32.5 million in inadvertent in-app purchases by children, and in May, a class action lawsuit was filed against Google on similar grounds. The FTC sued Amazon last week, alleging that it allowed children to spend millions of dollars on inadvertent in-app purchases.

The European Commission’s successful pressuring of Google — and its as-yet unsuccessful pressuring of Apple — demonstrates Europeans’ level of skepticism over the intent of the tech giants. European authorities have made several moves, particularly in regards to Google, in order to ensure the best interests of consumers and take a proactive approach to regulation of Google’s operations.

The Commission notes that national authorities are responsible for enforcing compliance with local laws, and legal action is still possible:

  • “Member States enforcers and the European Commission have also invited the associations of online game developers and platforms to reflect on concrete measures that they could take to address the issues raised in the common position, including the possibility for guidelines or standards incorporating the CPC position.
  • “Enforcement, including possible legal action, is in the hands of the national authorities which will now consider how to address outstanding legal issues.
  • “The European Commission and Member States will continue to monitor the issue and in particular the extent to which the engagements made have addressed in practice the concerns raised in the CPC position.”

It seems that in removing the word “free” from freemium apps, Google goes beyond the commission’s requirements. And while that means developers are likely to see fewer in-app purchases and accrue less revenue from freemium games in the near future, it indicates Google is looking to improve its relationship with regulatory bodies and ultimately with consumers, who will benefit from the better mobile games and clearer monetization strategies that the policy could encourage.

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