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The battle between Apple and WeChat and TikTok is still escalating. Recently, Apple has been increasing pressure on Tencent and ByteDance, demanding that they make fundamental changes, that is, not allowing users to be directed to external payment systems. From the market point of view, the huge profits made by various platforms have undoubtedly increased Apple's anxiety, but after the "Apple tax" was raised, Apple found it difficult to provide services that matched it. Faced with a situation where each side sticks to its own opinion, perhaps legal intervention will eventually be needed.

Who is making money?

The so-called "Apple tax" refers to channel sharing. The share ratio of the Apple App Store is generally 30%. This also means that after users download games from the iOS store, for every 1 yuan recharged, 0.3 yuan will go into Apple's pocket.

Previously, Tencent said in a conference call that it was negotiating with Apple on the issue of charging for WeChat Mini Programs. On August 19, a Beijing Business Daily reporter contacted Tencent again for an interview, and the other party said that apart from the statement in the conference call, there was no more updated information.

Relying on the monopoly position of the iOS ecosystem, Apple tax has been unimpeded, but many people have bypassed this threshold. For example, in WeChat mini-program games, when users want to recharge, they are often directed to the customer service center of the game development company to make payment. On Douyin, there are similar phenomena with short drama recharges and virtual course purchases.

What worries Apple the most is watching others eat meat while it itself has a hard time drinking soup. Nowadays, whether it is TikTok or WeChat, the chain of small games from development to monetization has become very mature.

Mr. Zhang, a game developer, made a small game called "Jump Jump". He told the Beijing Business Daily that his game mainly makes money by playing advertisements. When the game was first launched at the beginning of this year, the number of ad requests in half a month reached about 13,000 times, the number of exposures reached about 12,000 times, and the number of ad clicks was about 1,000 times. During the period, the advertising revenue exceeded 4,000 yuan.

Mr. Zhang said that although he could not see the platform income, the platform undoubtedly took most of it. Moreover, both Douyin and WeChat had to give comprehensive rankings to games, and those ranked higher would get more exposure. Because the production threshold was not high, his game ranked lower, and now his monthly income has dropped to only about 100 yuan.

Judging from the profit-sharing policy disclosed by WeChat, the platform is indeed quite lucrative. For example, in its 2021 updated policy, the cash-sharing rule for ordinary mini-games is that the platform takes 40% of the monthly turnover, while it is relatively loose for creative mini-games, with the platform taking 30%. Data shows that the number of WeChat mini-game users has reached 1 billion, with more than 500 million monthly active users. However, Apple is not eligible to participate in this feast.

Highway robbery?

Today, the dispute between Apple and WeChat and TikTok has once again brought the highly controversial issue of "Apple tax" to the table. Industry experts believe that it is difficult to sum up the answer to whether Apple is "making money in a legitimate way" or "robbing others on the road" with this income.

Industry observer Major General Ding told the Beijing Business Daily that from the perspective of the mobile game industry chain, it includes technology platforms, distribution companies, channel platforms, and advertising platforms. The party with a more important position in the chain will naturally get more profits. Applications such as WeChat, Douyin, QQ, and Toutiao are both channel platforms and advertising platforms, and their importance is self-evident. In short, if advertisers want their content to be seen by 1 billion people, and developers want their games to be exposed to 1 billion people, there is nowhere else to go except WeChat, Douyin, etc.

Experts said that the crux of the problem is that once users buy an Apple phone, they have to use the iOS ecosystem, and if they want to use WeChat, they have to download it from the Apple Store. From this point of view, Apple does have the right to demand profit sharing, but on the other hand, national-level applications such as WeChat and TikTok are not exclusive to iOS, and their huge user base is not Apple's credit. Naturally, Apple will be unwilling to accept Apple's demands.

For Apple, the "Apple tax" is both a privilege and a habit, and Apple today can no longer do without this income. According to Apple's third-quarter data for fiscal year 2024, its service revenue reached US$24.21 billion, an increase of more than 14% from US$21.21 billion in the same period last year, accounting for nearly 30% of total revenue, and its gross profit margin has exceeded 70% all year round. It should be noted that Apple's hardware gross profit margin is already very high compared to its peers, but it is only around 40%.

Major General Ding believes that the market is not only dissatisfied with Apple's tax collection, but also with its monopoly behavior. It is true that any channel will take a commission, and each brand of mobile phone has its own official store, but in the world outside of iOS, there are more platforms for developers to choose from and more download channels for users. In addition, the current major brands have developed their own underlying systems, but have not set up barriers on the channel sharing issue. In this regard, Apple is not as good as its peers.

How it ended

It is not a good time for Apple to go to war with the big platforms. If the two sides eventually break up, ordinary users may face the dilemma of whether to keep the iPhone or WeChat. Most domestic users may keep the latter.

Judging from the current information, if all parties fail to reach an agreement, Apple will not categorically remove WeChat and TikTok from its App Store, but it may prevent them from being updated in the Apple Store. Then users who want to change their phones will have to consider whether to buy an iPhone.

Today, iPhone sales in China are not optimistic. According to Counterpoint Research data, iPhone sales in China fell 19.1% year-on-year in the first quarter of this year, and fell 3.1% year-on-year in the second quarter, in sharp contrast to the 8.9% growth in the domestic mobile phone market during the same period. Apple also slipped out of the top five for the first time.

The problem Apple is facing can be summed up in four words: "not adapting to the local climate." Liang Zhenpeng, a senior industrial economics observer, told the Beijing Business Daily reporter that Apple's response to the Chinese market is relatively "sluggish" in terms of both hardware and ecology. From the hardware point of view, when domestic brands have launched AI and fought a battle of cost-effectiveness, Apple's innovation has been slow to come; from the perspective of ecology, domestic users do not rely on Apple's native applications. If Apple still wants to obtain high service revenue, it may be difficult to do so.

Comparing markets in different regions, we can see that Apple is stronger in China, and the "Apple tax" in the United States, the European Union, South Korea and other places is lower than that in China. For example, in the United States, the Apple tax for standard enterprises is 27%, and for small enterprises it is 12%; in the European Union, the tax rate for standard enterprises is 17%, and for small enterprises it is 10%.

As for whether Apple will "reduce taxes" on China, it may not be resolved by an agreement between companies, but requires legal intervention. For example, in March this year, Apple was fined 1.8 billion euros for violating EU antitrust rules. The EU required it to make rectifications to comply with the Digital Markets Act, that is, to allow iPhone and iPad users to access competitors' stores and payment systems. It was the EU's intervention that led to the reduction of the "Apple tax."

In the United States, Apple is also facing a lawsuit from the U.S. Department of Justice. According to the U.S. Department of Justice, Apple's specific monopolistic behavior includes selectively imposing contractual restrictions on developers and deliberately interfering with super apps that include multiple functions because these apps may reduce iOS user stickiness. At the hardware level, Apple's restriction on third-party smart watches being compatible with the iPhone is also one of its "crimes."

From the industry's point of view, no matter what the outcome of the dispute between Apple and domestic platforms is, Apple needs to adopt a lower profile and a more localized strategy, and its hardware sales and ecological coverage need to match. How to convince people to pay is still an important issue facing Apple.

Beijing Business Daily reporter Tao Feng and Wang Zhuli