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Recently, Apple was exposed to be considering imposing an "Apple tax" on WeChat and TikTok. According to media reports, Apple is increasing pressure on Tencent and ByteDance, requiring the two companies to cooperate in plugging payment loopholes in WeChat and TikTok. If the ability of developers and users to bypass the Apple ecosystem is not eliminated, WeChat updates will be refused in the future. In June this year, TikTok was warned.

The so-called "Apple tax" refers to the 15% to 30% commission that Apple charges for digital content consumption on all apps on the App Store. Whenever an Apple user pays to download an app through the Apple App Store or purchases digital goods/services within an app, Apple will withhold part of the transaction amount as a "toll" and then transfer the remaining funds to the corresponding App developer.

So far, Tencent and ByteDance have not responded to this. At the same time, the reporter of "Daily Economic News" also contacted Apple to verify and understand the situation, but as of press time, no response has been received.

There are thousands of small game and app developers that create content in apps like WeChat and TikTok. As the popularity of these small games soars, developers are starting to make money by selling value-added services within the games. Some developers are trying to bypass Apple's payment system to get higher profit margins.

In fact, the "Apple tax" and the "Android tax" have always been a "mountain" weighing on game manufacturers. However, there are also certain differences between the two. Zhang Shule, a senior analyst in the game industry, said in an interview with the reporter of the "Daily Economic News" that the difference between the two lies in the "Apple tax" commission, which is mainly controlled by Apple. It is derived from the "commission ratio" of the game console platform starting from the Nintendo Famicom, which is relatively customary, but all Apple mobile phone applications cannot bypass it; on the contrary, the "Android tax" may be divided in half, and the main controller is various mobile phone manufacturers. Although the ratio is higher, if the game manufacturers are extremely confident in their products, they can abandon the channel to bypass it, such as the "Genshin Impact" that year, which did not use traditional channels for distribution.

“Apple tax” is an important contributor to Apple’s revenue

Currently, the "Apple tax" has been criticized, causing dissatisfaction among a large number of developers and users.

According to the Beijing News, "During the '618' e-commerce promotion this year, some users found that on short video, payment and e-commerce platforms, membership products such as videos and online storage could not be purchased with Apple phones. Even when the anchor was explaining the product, the product link on the Apple iOS side disappeared instantly." The report also stated that not only various members could not use Apple phones to purchase some products, but many knowledge bloggers also encountered similar problems in course sales. A knowledge payment practitioner revealed: "This time it is not the platform that is suppressing knowledge payment, but the issue of Apple's digital product 'tax rate' on the e-commerce platform." This makes it impossible for consumers to purchase through preferential recharge methods, and they can only return to Apple's App to purchase "tax-inclusive" digital products.

In January 2024, Apple announced that it would support cloud games, mini-games, and mini-programs launched by developers to access Apple's in-app purchase system, but App developers providing 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. In other words, Apple will impose an "Apple tax" on mini-games and mini-programs.

For many application developers, the "Apple tax" will increase operating costs, which puts some small developer teams or individual developers under great pressure; for consumers, the level of Apple tax will directly affect their payment costs. In fact, some Apple users pay more than Android users when purchasing virtual goods such as audio and video memberships, content subscriptions, and cloud storage memberships.

In January 2021, consumer Jin sued Apple Inc. and Apple Computer Trading (Shanghai) Co., Ltd. (hereinafter referred to as Apple Shanghai) in court, requesting that the two defendants immediately stop abusing their dominant market position, including but not limited to stopping the unfairly high price of charging 30% commission on the transaction amount through "in-app purchases"; stopping the forced bundling, limiting transactions, and refusing transactions that require "in-app purchases" to be paid only through the IAP system. Secondly, compensate the plaintiff for economic losses and reasonable expenses of 100,000 yuan, including the price difference of 219 yuan for Jin's purchase of four App memberships in the Apple App Store and the Android App Store.

Apple's move would also stifle smaller tech companies, including app developers and hardware makers.

In March this year, the U.S. Department of Justice, together with attorneys general from more than a dozen states and regions, filed a civil antitrust lawsuit against Apple. It is reported that the indictment is 88 pages long and mainly targets five areas where Apple is suspected of abusing its power. Among them, one of the most concerned is that the U.S. Department of Justice believes that Apple restricts the development of "mini programs" on the super application platform.

Super apps are platform applications that can be developed as "mini programs" using programming languages ​​such as HTML5 and JavaScript. Because "mini programs" use standard programming languages, they are cross-platform, meaning they work well in any web browser and on any device. Users don't have to download a bunch of separate apps to access different features, and developers don't have to push separate app updates for Android and iOS because these programs run within the app rather than on the phone itself. The low threshold for development and low cost make it popular not only with small and medium-sized developers, but also with large companies that provide users with lightweight services through mini programs, which complement the deep services of apps. However, Apple sees it as a "major obstacle" to increasing iPhone sales, because if someone benefits from using super apps, it will reduce dependence on a single ecosystem, such as Apple's.

Currently, the most popular mini-program application is the WeChat platform, and this type of application is also being imitated by foreign companies such as Facebook, Twitter, Uber and Snap. However, the super application ecosystem has failed to become popular in the United States. The US Department of Justice believes that Apple’s suppression is one of the reasons.

Antitrust investigations against Apple in many regions around the world have forced the "Apple Tax" to loosen. In fact, in recent years, Apple has been sued or investigated by governments in many places, including the European Union, the United States, Japan, South Korea, and India. Among them, the "Apple Tax" in the European Union has dropped significantly since March this year, with commissions reduced from 30% (standard enterprises) and 15% (small businesses) to 17% and 10%. In January this year, the App Store's policy in the United States was also adjusted to officially support third-party payment methods. Apple's commission rate was reduced from the previous 30% (15% for small businesses) to 27% (12% for small businesses). In South Korea, Apple's commission rate is 26% (11% for small businesses).

However, as of now, the "Apple tax" rates that Apple charges to standard corporate and small developers in the Chinese market are 30% and 15% respectively, which are always the highest levels in the world and have not been adjusted to date.

In addition, "Apple tax" has become an important contributor to Apple's total revenue.

Apple's third-quarter results released last week, ending June 29, showed that the quarter's revenue was $85.8 billion, a year-on-year increase of 5%; net profit was $21.448 billion, an increase of 8% from $19.881 billion in the same period last year. Specifically, iPhone revenue was $39.296 billion, a year-on-year decrease of 0.9%; while revenue from the service department has set a new record for several consecutive quarters. In the third quarter, the business achieved revenue of $24.213 billion, a year-on-year increase of 14%, and the gross profit margin of the business far exceeded that of hardware products such as iPhone and iPad.

In the past decade, Apple's software service revenue has continued to grow, from 6.43% of revenue in the first fiscal quarter of 2015 to 28.22% in the third fiscal quarter of this year. In contrast, revenue from iPhones fell from $51.182 billion in the first fiscal quarter of 2015 to $39.296 billion in the third fiscal quarter of this year, and its revenue share narrowed from 68.61% to 45.80%.

Mini game hurricane

This time, Apple's intention to "take action" against Tencent and ByteDance is related to the rapid development of small games in China.

In the first half of 2024, the domestic mini-program game market reached 16.6 billion yuan, a year-on-year increase of 60.5%, a growth rate far exceeding the industry average. Behind this phenomenon is that mini-games, with their lightweight, low-cost, and high dissemination efficiency, have quickly occupied users' fragmented time and become the new favorite of mobile Internet.

The rapid growth of the mini-game market is due to several key factors.

First, mini-game platforms such as WeChat Mini Games provide superior revenue sharing ratios and advertising incentive policies, lowering the entry barrier for developers. Second, technological advances, such as the maturity of the Unity engine and the increase in the cache limit of mini-games, have significantly improved the quality of mini-games. Finally, the categories of mini-games have moved from light to heavy, incorporating more medium and heavy elements to meet a wider range of user needs.

From the perspective of business model, mini games are also changing from single in-app purchase (IAP) or advertising monetization (IAA) to a hybrid monetization model. The hybrid monetization model combines the advantages of IAP and advertising, can better meet the needs of different users, and enhance the overall business value.

Its industry chain is also gradually improving. Especially for developers and publishers, the bonus period of mini games means a higher share ratio and lower R&D costs, providing impetus for the innovation and development of the industry.

It is worth noting that major platforms have introduced policies to support the development of mini games.

For example, the WeChat platform has launched a series of policies including the "Creative Encouragement Plan", "Preferred Plan", and "IP Cooperation Platform" to encourage developers to create more high-quality mini-game content.

Douyin also released new regulations in early April: for Douyin mini-games that meet the requirements, up to 90% of the in-app purchase revenue from Android users will be shared with developers.

This has, to a certain extent, further exacerbated the delicate relationship between channel operators and gaming platforms.

R&D and channel competition

In fact, Apple's pressure on Tencent and ByteDance also reflects, to a certain extent, the game of interests between game manufacturers and channel operators.

From the perspective of game developers, game companies have invested heavily in development, server maintenance, employee costs, and marketing promotion, so they face high revenue sharing pressure from platform channels. As traffic dividends decrease, companies are beginning to pay more attention to the quality of game content rather than relying solely on channel promotion. For example, the popular game "Genshin Impact" in recent years was not listed on traditional channels, but chose to cooperate deeply with platforms such as Bilibili and TapTap.

Zhang Shule said in an interview with reporters that this kind of interest game has caused many disputes, but most of them have ended in nothing. After all, the bulk of the traffic is in the hands of the channels, and even if the game manufacturers split it in half, it is often profitable. In addition, the quality of most games does not meet the standards of high-quality games, so it is difficult to make up your mind to take a detour. Of course, due to the characteristics of the iOS system, there is no way around it. Although it seems feasible to resist profit sharing through the loophole of mini games, it is just a drizzle for Tencent, and WeChat's support for mini games is the general trend. It should not go head-on with Apple, which occupies half of the smartphone market and has a higher concentration of mid-to-high-end users.

Zhang Yi, founder and chief analyst of iMedia Research, said in an interview with the Daily Economic News that in order to balance the interests of game manufacturers and channel dealers, manufacturers seek a more reasonable distribution method when negotiating the revenue sharing ratio. For example, companies such as NetEase are adjusting their revenue sharing strategies when promoting their best-selling games. Developers also use legal channels to guide users to use external payment systems to circumvent the commissions of platforms such as Apple, although this requires cleverly circumventing platform rules to avoid being banned or restricted.

In addition, in his opinion, improving the quality of game content and user experience and reducing dependence on channel promotion are the directions that many manufacturers are working towards. High-quality content can attract natural traffic, thereby reducing channel costs. In this context, many independent developers adopt a free plus in-app purchase model, attracting users through free basic services, and then making profits through advanced features or props, which usually involves the use of third-party payment channels.

"The balance of interests between game manufacturers and channel operators is a complex and game-filled process. With the intensification of market competition and changes in user demand, both parties are constantly adjusting their strategies to adapt to the environment. Optimizing structure, guiding users to use external payment, improving content quality and exploring new business models are all efforts made by manufacturers to enhance their negotiation capabilities with channel operators." Zhang Yi said.

Daily Economic News