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Business Management Review | Friday, March 11, 2022
Alphabet will allow Spotify to run its billing from its Google Play downloads.
FREMONT, CA: Recently, Alphabet stated that Spotify would be able to handle direct invoicing from clients who choose to be billed by Spotify. It would be able to cost them for their Spotify membership if they downloaded the Spotify Android app in the future. There's no reason to believe that any modifications to Google Play's standard 30 percent revenue cut (15 percent on the first USD one million in revenue) will affect GOOG shares.
On the other hand, the European Union passed the Digital Markets Act (DMA). Under the DMA guidelines, similar things will happen with Alphabet and other "gatekeeper" tech corporations. According to the Wall Street Journal, this is one of the more comprehensive pieces of technological legislation to take effect next year. It will compel Alphabet and Meta Platforms to allow non-direct charging in the app ecosystem, online shopping, and online advertising. The DMA will also impact search rankings since it will prevent Google and companies like Amazon from putting their own items and services higher in search results than those supplied by smaller competitors.
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The Spotify acquisition will have little impact on the company's revenue. Google Play is only a tiny part of Alphabet's "Google Other" earnings. "Google Other" revenue was USD 8.161 billion in the fourth quarter of 2021. This equates to 10.8 percent of overall revenue.
However, Devices and Services, YouTube subscriptions, and hardware income were included. Another revenue increase was driven by YouTube first, then the Google Play app, in-app purchases, and then wearables and phones. So, even if Google Play accounts for up to 40 percent of overall revenue, its impact on sales is still less than five percent. Furthermore, this move may result in a decrease in Google Play's "take” revenue. Assume that all "take" revenue reduces by one-third, from 30 percent to 20 percent, resulting in a 10 percent loss in 4.3 percent of sales, or around 0.43 percent of sales. Higher growth in bottom-line sales might readily compensate for this.
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