Will WeChat and TikTok also be subject to Apple tax? Targeting the ecosystem of mini-games and short dramas
2024-08-07
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Apple is reportedly considering imposing an "Apple tax" on WeChat and TikTok.
Recently, according to foreign media reports, Apple is increasing pressure on Tencent and ByteDance, requiring the two companies to cooperate in plugging payment loopholes in WeChat and Douyin. It is understood that developers can use similar loopholes to bypass the Apple ecosystem and divert users to external payment systems, evading the 30% commission fee usually charged by Apple.
According to reports, Apple warned Tencent in early May that it would refuse to provide WeChat updates in the future if it did not remove the ability of developers and users to bypass the Apple ecosystem, and warned TikTok again in June.
The outside world interpreted this as Apple's mandatory "Apple tax". In response, The Paper reporter verified with several industry insiders that the news was true. However, Tencent and ByteDance did not respond.
An industry insider revealed to The Paper that Apple's pressure on Tencent and ByteDance is largely aimed at the booming mini-game market. For TikTok, Apple's target is not only mini-games, but also the short drama business that has been very popular in recent years, which was also the hardest hit area for evading the "Apple tax" before.
Previously, whether it was small games or short dramas, developers used various methods to bypass Apple's payment system and "Apple tax", which has become an industry practice. Taking small games as an example, users can go through the game's own customer service center entrance and enter the customer service conversation page to recharge, thus bypassing Apple's own payment system.
According to a reporter from The Paper, Apple, WeChat and TikTok platforms are still in a game of bargaining, and the three parties have not yet reached an agreement.
The so-called "Apple tax" refers to the channel share: the mobile app store gets the profit from the game users' recharge by taking a cut. The Apple App Store's share ratio is about 30%, which means that after users download the game on the iOS App Store, for every 1 yuan recharged, 0.3 yuan goes into Apple's pocket.
According to foreign media reports, an Apple spokesperson cited its guidelines, saying that all sales of digital goods must go through its system and that its review team may reject application updates that violate the policy.
"Apple's forced pressure is mainly to relieve its own revenue pressure." Zhang Jun, the operator of the popular mini-game "Sheep and Sheep" and former CEO of Baozou Games, told the reporter of The Paper, "Apple's own revenue in China has declined, while the mini-game market is growing rapidly, and the channel parties hope to get a piece of the pie."
Mini games are expected to become a 60 billion-level market. According to the "China Game Industry Report from January to June 2024" released by the Game Working Committee, the total revenue of the mini game market in the first half of this year was 16.6 billion yuan, a year-on-year increase of 60.5%. The actual sales revenue generated by in-game purchases of mini games was about 9.1 billion yuan, a year-on-year increase of 81.56%; the advertising monetization revenue was about 7.5 billion, a year-on-year increase of 40.75%.
According to third-party data, the scale of China's mini-game market will exceed 40 billion yuan in 2023, and is expected to exceed 60 billion yuan in 2024. For mini-program games alone, the market revenue will exceed 20 billion yuan in 2023, a year-on-year increase of 300%.
In contrast, Apple's third-quarter performance in Greater China was disappointing, with revenue falling 6.5% year-on-year to $14.73 billion, below analysts' expectations of $15.26 billion.
However, the "Apple tax" is being questioned globally, and Apple is also caught up in antitrust investigations.
In March this year, the European Union fined Apple 1.84 billion euros for allegedly abusing its dominant position in the music streaming app distribution market. In order to avoid the regulatory risks brought by the EU's Digital Markets Act, Apple also announced that it would implement a new "Apple tax" policy in the EU from March, reducing its commission from 30% and 15% to 17% and 10%.
Earlier this year, Apple announced the launch of new options for streaming game services and applications worldwide, supporting developers for the first time to list cloud games, mini-games, and mini-programs and connect them to Apple's payment system.
In March this year, the US Department of Justice filed an antitrust lawsuit against Apple, accusing the technology giant of engaging in monopolistic behavior that harmed the interests of consumers, developers and competing companies.
The U.S. Justice Department said Apple maintained its monopoly in the smartphone market not simply by staying ahead of the competition but also by violating federal antitrust laws. Apple's strategy relies on exclusionary, anti-competitive behavior that harms consumers and developers.
According to the lawsuit, Apple's alleged monopolistic behavior includes restricting the development of super apps, which are applications that allow consumers to access information, social media, mobile payments, music, photos, and movies. The lawsuit also alleges that since 2017, Apple has arbitrarily imposed exclusivity requirements, unnecessarily and unreasonably restricting mini programs and super apps.
Developers and game manufacturers generally expressed opposition to Apple's pressure on WeChat and TikTok.
Huang Yimeng, CEO of X.D. Network, commented on a social media platform: “Although Apple has not dared to directly remove WeChat and TikTok from its app store, it can block new version updates and not allow them to pass the review. This is the evil of a closed platform. As long as users are not given the right to freely install software, the platform can always hold the app to extort taxes. Today it can ask for 30%, tomorrow it can ask for 50%. Everything is decided by the closed platform itself.”
Pan Xiaoxu, chairman of Yishijie, a well-known small game company, said: "Developers need the platform to provide enough space. If you take 30% and he takes 40%, what will the developers have left?"
Chen Dongsong, secretary of the board of directors of Mingchen Health (002919.SZ), a listed company on the A-share market for small games, told The Paper that Apple’s request for Tencent to cooperate in blocking WeChat’s ecological services from bypassing Apple’s in-app purchases was actually due to the fact that they could not reach an agreement on the revenue sharing behind the scenes. “As a channel provider, Apple’s commission is indeed high for suppliers in mainland China. As a developer, from a cost perspective, we hope to reduce the corresponding fees.”
It is worth noting that regarding the issue of channel revenue sharing, Tencent executives responded to this issue in the earnings call at the end of 2020. Tencent executive James Mitchell said: "In many cases, channel distributors get a larger share of revenue than developers. For those small and medium-sized game companies, they may not be able to survive in this market environment. The company has been advocating to reduce the revenue share of channel distributors to a more reasonable level. There have also been some game development companies that simply bypass traditional channel distributors and look for new channels. We are impressed and highly praise these practices."
At that time, Tencent President Martin Lau said: "The revenue sharing ratio that Tencent negotiates with channels is not just a number, but we hope to build a cooperative relationship in a fairer way. If the channels really bring in new users, it will be more valuable. I think we are entering an era with a more detailed division of value for all parties, which is fairer and healthier."
The Paper reporter Fan Jialai and intern Zhang Yujia
(This article is from The Paper. For more original information, please download the "The Paper" APP)
