Google CEO Sundar Pichai says the company isn't backing down from the challenge that 'Fortnite' poses to the Android app store business (GOOG, GOOGL)

Sundar Pichai

Google is holding the line on its app store economics.
On Monday, CEO Sundar Pichai said his company was sticking with its current revenue split with developers — which is a 30% cut on app sales and in-app purchases.
Pichai was responding to an analyst question about alternative app distribution channels — a not-so-subtle reference to "Fortnite," which famously circumvented the Google Play app store in protest of the revenue split.
Epic Games, the creator of "Fortnite," has been trying to rally the video game industry around the idea that the 30% cut is too excessive. But Pichai says that Google sees a fair "value exchange" in what Google Play provides to developers for the cash.

Google is holding the line on the economics of its app store.

In an earnings call with investors on Monday, Google CEO Sundar Pichai said his company was sticking with its current revenue split with developers — which is a 30% cut of app sales and in-app purchases.

"I think there’s a value exchange there and it’s been the industry standard," Pichai said during the call regarding the Google Play's fee. Apple's App Store also has a 70/30 revenue split with app developers.

Pichai's comments came in response to a question from a Wall Street analyst on how Google is approaching a landscape where developers are finding ways to circumvent the traditional app stores, and that revenue split — especially on Android.

While the analyst didn't mention it by name, one of the main companies shaking things up is Epic Games, which skipped the Google Play store when it released "Fortnite" on Android last year. Instead, the company brought the game directly to users, such that it doesn't have to pay that 30% cut to Google.

Analysts estimated that Google lost out on as much as $50 million in revenue, just from not having "Fortnite" in the Google Play Store — and if more developers follow in Epic's footsteps, the problem could get even worse for Google.

"The 30% store tax is a high cost in a world where game developers' 70% must cover all the cost of developing, operating, and supporting their games," Epic Games founder and CEO Tim Sweeney told Business Insider last August.

"On open platforms, 30% is disproportionate to the cost of the services these stores perform, such as payment processing, download bandwidth, and customer service," Sweeney also said.

Judging from his response to the question, Pichai feels differently, and that Google thinks 30% is a fair shake for what the Google Play store provides to Android app developers.

Android isn't the only place where Epic Games is making waves, either. In December, the "Fortnite" creators launched its own Epic Game Store, which only takes a 12% cut of sales, compared with the 30% that the leading Steam PC games store took for many years. While Epic Game Store is only on PC, at least for the time being, it's already winning support from game developers.

Still, Pichai leaves some wiggle room for Google to change its policies in the future, should Epic succeed in shaking things up on Android and beyond.

"We’ll continue down that path," Pichai said on Monday regarding the company's current cost structure. "But obviously we always adapt to where the market is."

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