A turf war might be brewing between Apple and China’s largest internet company

Tim Cook with Tencent founder Pony Ma, right and Xi Jinping, left.
Tim Cook with Tencent founder Pony Ma, right and Xi Jinping, left.
Image: Reuters
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With Apple due to report first quarter earnings May 2, investors will be eying sales figures for China—once its second biggest market, now its third. But it’s also worth seeing if CEO Tim Cook mentions a minor incident in April that pit Apple against Tencent—maker of China’s behemoth WeChat messaging app.

In on April 19, Tencent announced (link in Chinese) that, because of Apple’s strict app policies, iPhone owners would no longer be able to use a beloved payments feature on WeChat, the country’s most popular messenger. The feature, which lets WeChat users give monetary donations to their favorite bloggers, broadcasters, or media personalities by tapping a button and specifying a tip amount, was introduced in August 2015.

Apple forced the removal of the WeChat payments feature due to its long-standing policy requiring all iOS apps use Apple’s internal payment system (typically bound to a credit card) for sales of digital content. Software developers loathe Apple for the policy, as the hardware maker takes a 30% cut of each payment.

WeChat’s digital tipping feature circumvents Apple’s requirement. It funnels cash from from the user to the blogger using WeChat’s virtual wallets system, which remains independent from Apple’s payment system. That, in turn, means Apple does not make money from each donation. WeChat’s payment feature for physical goods, like Starbucks coffee, remains unaffected by the removal, as a coffee doesn’t count as “digital good.”

This might seem like a minor development. After all, unlike in the United States, Apple’s smartphone market share in China was just 9.6% in 2016, according to IDC. Android phones, unaffected by the Apple policy, dominate the market. How much money is Apple really missing out on?

Quite a lot, as it turns out. China’s online media economy is largely centered on WeChat, and donations play an important role. According to the China Academy of Information Informations and Communications Technology, 10.7% of WeChat’s 889 million users have used the tip feature. Of that crowd, 37% say they give five to ten yuan ($0.72 to $1.45) every month (link in Chinese, .pdf, pg 32).

iOS users can still donate to their favorite WeChat personalities using QR codes—a cumbersome method compared to the now-banned button. Some WeChat media personalities are already feeling the effects of the cutoff. Zhou Chong, who writes about psychology and sexuality on her WeChat public account, told an online media trade blog that she was once making over 1000 yuan ($145) a day from donations (link in Chinese). After the removal, she was earning 100 yuan daily. “If I didn’t have advertisements, I probably couldn’t make a living,” she writes.

Apple regularly cracks down on on apps it considers to be violating its terms of service. But its terms of service arguably don’t cover “donations-for-media” schemes like what WeChat does, and there’s some grey area amid the removal.

Section 3.1.1 of Apple’s App Store Review guidelines states “Apps may not include buttons, external links, or other calls to action that direct customers to purchasing mechanisms other than IAP [referring to Apple’s in-house payments mechanisms].” But Section 3.2.2 states:

Unless you are an approved nonprofit, collecting funds within the app for charities and fundraisers. Apps that seek to raise money for such causes must be free on the App Store and may only collect funds outside of the app, such as via Safari or SMS.

Some Chinese bloggers, like Jason Ng, a prominent tech writer in Beijing, speculate that that Apple is gearing up for a larger turf war with Tencent, one that is punishing WeChat for dodging its 30% take. ”The App Store is Apple’s largest entry point. It’s the lifeblood of iOS. Apple obviously doesn’t want others to threaten the App Store, but whether it’s offline or substituting apps, WeChat mini programs will nibble at the App Store’s traffic,” he writes (link in Chinese).

WeChat’s “tip jar” donation system is just the beginning of a foray into building a walled software garden of its own. In January of this year the company launched WeChat “mini programs”—basically, “apps-within-apps” that users download from within WeChat and use up little memory. These programs remain rudimentary, but some observers expect that WeChat is aiming to create its own version of an app store, all within its flagship chat app. This would place WeChat as a competitor to Apple’s App Store—a small but critical source of revenue for the US company.

As with almost anything involving Apple in China, the government’s presence looms. The same day that Tencent announced that the feature had been removed, state-media outlet Xinhua said Apple was ”next on a list of inquiries” from Beijing internet regulators, regarding allowing apps with pornographic content to be distributed in the App Store. The Chinese government regularly takes efforts to punish companies that offer online porn on their websites.

Apple did not respond to Quartz’s requests for comment regarding the feature’s removal, or the government inquiry.

It’s quite likely that these two events—Tencent’s removal, and the government inquiry— are isolated incidents. But the overlap in publicity could be telling. After all, it’s not uncommon for China’s state media to trumpet ‘investigations‘ into Apple’s conduct (sometimes deservedly, sometimes not).

Late last year domestic newspapers reported that local, government-affiliated consumer watchdog group met with Apple executives to discuss a battery-drain problem plaguing some iPhones 6 devices. The hardware maker also found itself in the government’s crosshairs in earlier this year when it removed the New York Times app from the Chinese App Store, due to pressure from authorities. If the government feels that Apple is taking opportunities from Tencent to earn money, such crackdowns could grow more common, not less.

Echo Huang contributed to reporting for this piece.