Apple Takes Risk By Telling Chinese Chat Apps to Disable ‘Tip’ Functions

Apple has told several Chinese social networking apps to disable
their “tip” functions to comply with App Store rules,
according to executives at WeChat and other companies.

The tip functions in Chinese messaging platforms are free to
use and allow people to send authors and other content creators
monetary tips through transfers to mobile wallet accounts.
However, according to
The Wall Street Journal
, Apple has decided that tips
are equivalent to in-app purchases – similar to buying games,
music, and videos – therefore Apple is entitled to a 30 percent
cut of every transaction.


WeChat on iPhone

The move by Apple appears to be a way to eke out additional
revenue from Chinese iPhone users as part of a broader effort to
increase its market share in the country. According to research
firm IDC, Apple’s market share in China dropped from 16 percent
in Q1 2015 to 9 percent in Q1 2017, while the iPhone has
fallen to fourth place
behind Chinese brands Oppo, Huawei,
and Vivo.

On the other hand, Apple’s App Store revenue in China overtook
its U.S. App Store revenue in 2016 and became
the biggest App Store market in the world
. Making the tip
function an in-app purchase in China’s wildly popular chat apps
would seem to be a sure-fire way to increase Apple’s revenue.
However, Apple’s pressure on messaging platforms like WeChat is
a risk and threatens to alienate huge Chinese companies.

Some social-networking apps have likened Apple’s tactic to
arm-twisting, according to The Wall Street Journal.
Apple is said to have told chief executives at two companies
that if they refuse to make the change, updated versions of
their apps won’t be made available and they could be kicked out
of the App Store. “We don’t charge anything as the platform,
but Apple gets 30 percent for doing nothing,” one of the
executives reportedly fumed.

The annoyance stems from the way the tipping culture is viewed
in China. Chinese app developers see tipping as fundamentally
different from in-app purchases because users only tip
voluntarily as a mark of appreciation when they consume
content. But the biggest worry for Apple could be whether the
Chinese government decides to intervene and side with the
tippers.

One executive says his company is talking to the Ministry of
Industry and Information Technology, a regulator, about whether
Apple is imposing unfair rules by turning tipping into in-app
purchases. MIIT says it isn’t involved. The People’s Bank of
China, which regulates electronic payments, didn’t respond to a
request for comment.

Apple has
suffered
at the hands of Chinese state regulators before. But
Apple also risks frustrating China’s biggest company Tencent
Holdings Ltd, the developer of WeChat, which has 938 million
active monthly users. The messaging service works almost like an
operating system all of its own, boasting multiple mini-apps that
allow users to pay bills, book hotels, browse media, and more,
without ever having to leave the chat platform. The nature of the
system itself could be a threat to Apple’s app revenue, while
WeChat is arguably more important to Chinese smartphone users
than any individual phone brand – iPhone included.

WeChat is in talks with Apple to try to find a new solution to
the tipping problem and come to an alternative agreement,
according to people familiar with the matter.

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