HOT TIPS

Apple’s new App Store policies target China’s online tipping economy

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Apple has a tip for China—all online tips must go through Apple before they go anywhere else.

This past week the hardware giant unveiled two new policies that appear directed largely at WeChat, China’s most popular chat app, where peer-to-peer payments, or “tips,” are transferred every day. The rules suggest that Apple’s relationship with Tencent, WeChat’s owner, could grow more tense. And that could ultimately affect the company’s broader fate in China.

Neither Tencent nor Apple responded immediately to Quartz’s requests for comment on this piece.

Apple maintains tight controls on what iOS apps can and can’t do, but for a while, its policy towards tipping on iOS apps remained unclear. One of the new rules, in Apple’s App Store Review Guidelines updated this week, remove any ambiguity. Tipping is now considered an “in-app purchase,” and must go through Apple’s internal App Store payment system:

If you want to unlock features or functionality within your app, (by way of example: subscriptions, in-game currencies, game levels, access to premium content, or unlocking a full version), you must use in-app purchase. Apps may use in-app purchase currencies to enable customers to “tip” digital content providers in the app. Apps may not include buttons, external links, or other calls to action that direct customers to purchasing mechanisms other than IAP.

Tipping in apps is a massive trend in China, where users pay content creators small sums of money as digital “thank you’s” via mobile wallets. It’s common on many of China’s livestreaming apps, as well as on WeChat, which has a grip on China’s online publishing industry much like that of Facebook elsewhere.

Now tipping is only allowed when one purchases virtual coins from WeChat, using Apple’s internal payment system. These virtual coins can then be sent to content creators, usually writers, as donations. For all iOS apps, Apple collects a 30% take on every purchase—whether it’s off-the-shelf from the app store, or inside the app.

There’s not much good data tracking tipping on WeChat, but it’s safe to say it’s popular and the total sums transferred in a year may be quite considerable. The app now has over 938 million monthly users.

According to the China Academy of Information and Communications Technology, 10.7% of WeChat’s users have used the tip feature. Among that group, 37% say they give five to ten yuan ($0.72 to $1.45) every month (link in Chinese, .pdf, pg 32). And since iPhone owners tend to be wealthier than Android owners, it seems fair to assume that they’re doing most of the tipping—meaning Apple has been missing out on a pretty penny. Elsewhere, authors on the microblog platform Weibo received more than $7 million in payments over a year.

It’s not clear if or how WeChat will implement Apple’s policy. A key question will be whether virtual currency tips can be converted back into cash. If not, WeChat’s creative users will likely be upset—not only will their income be cut by a third, it will be useless outside the confines of WeChat’s walled garden.

Other questions abound—now that tips are considered in-app purchases, WeChat must serve as a middleman between the person making the donations and the receiver. Depending on how WeChat implements the policy, WeChat might be responsible for distributing donations after Apple takes a cut. Will WeChat have to count those tips as revenue?

Meanwhile, in-app purchases are taxed in China—will this mark a boon for the government? Will a virtual coin system be cumbersome to use, and cause tip sums to drop? And given how indispensable WeChat is in China, is there any way upset users could really rebel?

This specific policy change comes after an incident in May, in which Apple forced Tencent to remove a button that allowed users to tip publishers on WeChat (though they could still send tips using QR code transfers). That move now looks like a stopgap measure before the recent policy change.

In addition, also this week, Apple released a new policy in its Apple Developer Program License Agreement (accessible only to Apple app developers) that appears to target WeChat’s new mini programs. Launched in January, mini programs are “apps-within-apps” that could potentially pit WeChat against Apple’s App Store. Already, mini programs exist for Didi Chuxing (China’s answer to Uber), Starbucks, and even fighting fake news.

The new restrictions, which say these programs can’t be offered in a “store or store-like interface,” suggests that Apple remains anxious about controlling who gets to make money from iOS.

These anxieties are well-founded. Apple’s revenue from the iPhone is declining, particularly in China. It needs new revenue streams to make up for the sales slump, and that means doubling down on software. As one of the world’s largest consumer markets, China is critical for the company’s long-term growth. And if Chinese consumers are going crazy for tips, Apple will want a piece of the action (especially now, before this craze can spread to the rest of the world).

Despite this, Apple might still tread lightly when it comes to enforcing these policies in China. The Chinese government regularly punishes foreign companies it considers a threat to domestic players, using a mixture of arbitrary law enforcement and bad press. And recent run-ins between Apple and the government suggest that Beijing may well consider Apple a threat—to Chinese smartphone companies, and perhaps even to Tencent.

The same week these policies were unveiled (and the same week China’s controversial Cybersecurity Law went into partial implementation), 22 Chinese individuals were arrested for allegedly selling Apple users’ private data. And right around the time Tencent removed its tip button from WeChat, Beijing authorities stated that Apple was “next on a list of inquiries” regarding pornographic content on livestreaming apps.

Policy is one thing, enforcement is another. And with sales slowing and political pressure mounting, Apple will face a choice—give Tencent a free pass and appear toothless, or crack down on them and run further afoul in the eyes of the government. Neither option is a good one.

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