Whenever Apple releases new products, rumors that it is unable to upgrade "killer" applications such as WeChat and Tiktok become rampant.
On the evening of September 2nd, in response to online rumors that "iPhone 16 may not support WeChat", a reporter from Beike Finance of the New Beijing News called Apple's official hotline. The Apple China technical consultant who answered the call stated that the third party's discussion on whether the iOS system (a mobile operating system developed by Apple) or Apple devices can continue to use WeChat, including whether WeChat can continue to be listed and downloaded on the Apple App Store in the future, requires mutual communication between Apple and Tencent to determine the situation in the future.
He stated that Apple is currently in active communication with Tencent to confirm whether Tencent will continue to provide software download rebates to the Apple App Store in the future. However, he also mentioned that WeChat, as a relatively popular software, both parties will make certain compromises for their own benefits, so there is no need to worry for the time being. Whether WeChat, which everyone is concerned about, can still be downloaded and used, needs to be based on official prompts. We cannot make any judgments on third-party messages, and the above explanation is for reference only, "said the technical consultant.
As of the time of publication, Tencent has not responded to this rumor. But in the previous Tencent Holdings Q2 earnings analyst conference call, Tencent's Chief Strategy Officer James Mitchell answered this question, "Regarding WeChat mini games on the iOS platform (commission issue), the company is in discussions with Apple, hoping to achieve this goal on an economically sustainable and fair basis," Mitchell said.
The discussion is ongoing, but if there is no progress, the current situation will continue. If there is progress in the discussion, it will bring incremental benefits to us, game developers, and Apple, and will provide a better experience for Apple users, "Michelle said.
Michelle also stated that there is a natural tension between the gaming industry and app stores, fundamentally due to the fees charged by app stores for games and other forms of digital content. The gaming industry believes that a 30% commission is a very heavy burden.
In the first half of this year, Apple repeatedly pressured Tencent and ByteDance to "plug vulnerabilities" and prevent mini program operators from directing users to external payment systems to avoid the 30% "Apple tax". According to Phoenix, if Tencent and Byte do not fix the vulnerability, the Apple App Store will reject the necessary follow-up updates of WeChat and Tiktok.
Several analysts interviewed by Beike Finance reporters from the New Beijing News mentioned that the reason for the conflict is that many developers are trying to bypass the Apple Pay system in various ways (such as mini programs, shopping carts, etc.) to reduce "Apple tax" expenses. Despite the decline in sales of mobile phones, wearables, home appliances, and accessories, Apple has had to turn its attention to the "Apple tax". But they also speculate that in the long run, Apple may compromise with Chinese app developers and consumers after the loosening of the EU's "Apple tax".
Apple's' tax rate 'in China is the highest in the world
The so-called "Apple Tax" refers to the fact that within the Apple App Store, apps with an annual revenue of over $1 million will receive a 30% commission on their digital content consumption, while small and medium-sized developers with an annual revenue of less than $1 million will receive a 15% commission. But the tax rates vary for different regions, as follows:
Apple App Store's "tax rates" for applications in different regions. Image | New Beijing News Beike Financial Mapping.
According to Apple's guidelines, all sales of digital content products must go through its system, and its review team may reject update requests for applications that violate these guidelines.
On short video or other shopping platforms, some digital content products purchased through the "shopping cart" are not subject to the "Apple tax". Therefore, consumers who purchase virtual services such as video membership and online storage membership through channels outside of the App Store are usually cheaper, equivalent to a 30% discount, than purchasing directly on the Apple App Store. Similarly, if some small game and mini program developers make payments by jumping outside the application, they can also bypass the "Apple tax". Therefore, Apple's challenge to the above-mentioned applications is precisely hoping that they can plug this "loophole" and make up for Apple's losses.
The 'apple tax' is an important source of income for Apple. According to data from market research firm Sensor Tower, Apple is able to collect approximately $22 billion annually from application developers through commissions. Apple has previously stated in its report submitted to the European Union that if the commission it receives from the App Store decreases, the company's business, operating performance, and financial condition may be significantly adversely affected.
According to Apple's financial report for the third quarter of fiscal year 2024 (as of June 29, 2024) released on August 1, service revenue including "Apple taxes" and subscription services increased from $21.21 billion to $24.21 billion, a year-on-year increase of over 14%. In that quarter, Apple's revenue was $85.78 billion, with service revenue accounting for over 28%, making it the only growing business among Apple's three main businesses. It is worth noting that Apple's service revenue has continued to grow in the past decade, from $4.8 billion in the first quarter of 2015 to $24.21 billion today.
Ma Jihua, a senior analyst in the telecommunications industry, mentioned that the App Store is a core part of Apple's business model, and the "Apple tax" is its main profit model. "Relaxation" is extremely reluctant for Apple. Once it is released, it will definitely have an impact on its business model
The Game between Chinese Apps and Apple Store
In fact, it is not uncommon for app stores to charge channel fees similar to the "Apple tax". Horizontally compared, the commission ratio for game sales on the Sony PlayStation platform and the commission ratio for developers on Google Play Store are both 30%. In China, some mobile phone manufacturers have formed a "hardcore alliance" to collect revenue sharing fees through their own app stores.
More than two months ago, Tencent's "Dungeon&Fighter: Origins" mobile game announced that due to the expiration of its contract, it will no longer be available on some Android app stores starting from June 20th, mainly including "hardcore alliance" manufacturers such as Huami OV. This is Tencent's first mobile game to be removed from the Android channel.
The seemingly passionate act of "lifting the table" actually hides a business game behind it. Apple hopes to increase revenue and reduce expenditure by closing "loopholes", but this will also increase the pressure on revenue and profits of domestic Internet application developers.
Since the beginning of this year, Apple has continuously increased its efforts to contain the "Apple tax" and "loopholes" in Chinese applications. In January 2024, Apple announced that it will support developers to add cloud games, mini games, and mini programs to Apple's in app purchasing system. However, app developers who provide corresponding services must fulfill their review responsibilities and ensure that every experience provided in the app is required to comply with all App Store review guidelines. This indicates that Apple will impose an "Apple tax" on mini programs, games, and other related content.
In June 2024, Tiktok requires developers to pay through Tiktok's official virtual currency, "Tiktok Diamond" (formerly "Diaoyin"). It is not allowed to use developers' customized virtual currency and props for payment. Illegal applets will face punishment such as closing payment, restricting cash withdrawal, restricting search, and removing applets from the shelves. Guiding users to apps, customers, Tiktok accounts, web pages, Android payment, QR code payment and other behaviors will also be considered as violations.
But the fact that can be seen is that the "apple tax" at the international level is being lowered. Since 2022, Europe, America, Japan, and South Korea have all been reducing channel taxes. The EU's "Apple Tax" has been lowered to 17%, while South Korea's "Google Tax" is only 26%. Japan passed the "Specific Smartphone Software Competition Promotion Law" on June 12 this year, which explicitly reduces taxes on Japanese apps.
Li Sanxi, director of the Digital Economy Research Center of Renmin University of China, believes that under the influence of the "Apple tax", Apple phone users often pay higher fees for using various apps than Android phone users. Nowadays, this approach is facing severe regulatory challenges on a global scale. To cope with regulatory pressure, Apple has adjusted its strategy in the United States, European Union, Japan, South Korea, and other places, not only reducing Apple's tax rates, but also adopting a more open attitude, such as opening up third-party payments. However, in China, an important market for Apple's revenue, Apple still maintains the world's highest "Apple Tax" rate and the strictest lockdown strategy, which to some extent damages the interests of Chinese consumers and the living space of developers. I believe that Chinese regulatory agencies will also take corresponding measures. Ultimately, Apple may adopt a strategy similar to that of the European Union in China, making compromises with app developers and consumers, "said Li Sanxi.
Associate Professor Wang Sheng from the School of International Finance Law at East China University of Political Science and Law stated that Article 22 of the Anti Monopoly Law prohibits operators with market dominance from "selling goods at unfair high prices". Apple charges a 30% "Apple Tax" in China, suspected of abusing its market dominance. At present, Apple users in China pay app developers a 30% commission, which is significantly higher than the commission rates in the United States, the European Union, and South Korea, as well as the commission rates for non gaming apps in domestic app stores. This is in line with the definition of "unfair high prices" in Article 14 of the 2023 National Administration for Market Regulation's "Regulations on Prohibiting the Abuse of Market Dominance". He suggested that individual consumers and developers in China have the right to protect their legitimate rights and interests through legal means.