A business dispute is brewing between Apple and Tencent, China’s most valuable company, and it looks like the Chinese government could get involved, the Wall Street Journal reported on Thursday.
Here are the basics: the dominant app in China is Tencent’s WeChat, a messaging program that does a lot more. Users can also use it to order food, transfer money, and play games.
One of WeChat’s features is called “tipping.” If one user likes another’s posts or photos, she can send that person a few yuan from her WeChat account.
Last month, Apple told Tencent it considers tips to be in-app purchases. The iPhone maker takes a 30% cut on in-app purchases, so it was saying it felt entitled to a similar payout from WeChat tips.
Executives at Tencent are furious. “We don’t charge anything as the platform, but Apple gets 30% for doing nothing,” a Tencent executive told the Wall Street Journal. Tencent has even talked to Chinese regulatory agencies, including the Ministry of Industry and Information Technology, according to the report.
Tencent is one company that has the power not to buckle under Apple’s power. And Apple needs the iPhone to remain popular in China to continue growing.
Apple’s sales in the China region in the first quarter of 2017 were down 14% from the same quarter in 2016. That marked the continuation of a downward trend for the tech giant. Its China sales in 2016 totaled $46.5 billion, which was down nearly 24% from the prior year.
Tech analyst Ben Thompson previously identified WeChat as one reason why Apple may be underperforming in China.
For all intents and purposes WeChat is your phone, and to a far greater extent in China than anywhere else, your phone is everything.
Naturally, WeChat works the same on iOS as it does on Android. That, by extension, means that for the day-to-day lives of Chinese there is no penalty to switching away from an iPhone. Unsurprisingly, in stark contrast to the rest of the world, according to a report earlier this year, only 50% of iPhone users who bought another phone in 2016 stayed with Apple.
Apple needs WeChat to continue growing in China. WeChat wants special treatment and rules under Apple’s App Store platform. This is shaping up to be one of the biggest battles between American and Chinese tech giants in recent memory.