Apple forcibly collects "tolls", WeChat and Douyin open up "new routes", and a tough battle is about to begin!

The friction between Apple and WeChat and Douyin is essentially a conflict between new and old channels for digital products, especially games. The background of this friction is that Apple charges a 30% commission through its App Store, while WeChat and Douyin circumvent Apple's commission requirements by directing users to other platforms to pay. This practice is regarded by Apple as a violation of the rules of the App Store, so Apple has put pressure on Tencent and ByteDance to make changes. This conflict not only reflects the competition between digital product distribution channels, but also reveals the different strategies and positions of technology giants on business models, user privacy and data security. This friction also reveals the problem of how the technology industry can balance innovation and regulation, freedom and control while developing rapidly. Industry regulators and companies themselves need to play an active role in this issue and jointly promote the healthy development of the industry.
To sum up, the friction between Apple and WeChat and TikTok is not just a business game, but also a profound reflection on the rules of the technology industry, user rights and market order. It requires all parties to show wisdom and foresight to achieve a win-win situation.

Apple’s friction with WeChat and TikTok this time is essentially a conflict between new and old channels for digital products, especially games.

1. The tug-of-war between giants for many years

A few days ago, the news that "Apple threatened to refuse to update WeChat and TikTok" caused heated discussion.

In the past two years, the head-on "blocking" of each other between domestic giants has basically ended. Even Tencent and ByteDance, which have fought countless times, have shaken hands and made peace. Why is Apple now confronting WeChat and TikTok, two national-level software, at the same time?

Because Apple believes that WeChat and TikTok have missed paying part of the "Apple tax".

As we all know, when Apple mobile phone users pay to download APPs or buy video memberships, network disk memberships, game recharges, knowledge payment and other digital content products in the App Store, Apple will take 15%-30% of the money as commission and then transfer the remaining funds to the corresponding APP developers, commonly known as the "Apple tax."

Generally speaking, APP developers will pay taxes obediently on Apple's territory.

However, Apple discovered that on the WeChat and TikTok platforms, some creators of small games and small programs directed users to external payment systems. For example, they placed a payment link from other platforms in the dialog box and guided everyone to purchase on third-party platforms, thus bypassing Apple's 30% commission.

So Apple asked Tencent and ByteDance to "plug the loopholes", otherwise it would not update their software.

This isn't the first time Apple has clashed with either.

The most recent one was during the 618 period this year, when Apple took the opportunity to pressure TikTok to remove digital products such as iOS video memberships, online disk memberships, and knowledge payment sold through live broadcasts. The purchase links in the live broadcasts of many iOS users disappeared instantly, and the anchor suggested switching to an Android phone to place an order.

This will drive some iOS users back to the corresponding APP and purchase more expensive membership services because the price includes the "Apple tax."

Going back further, as early as 2017, Apple had engaged in multiple rounds of battles with WeChat over the commission issue for public account rewards.

Apple believes that the tipping function is also a "virtual payment" and should also take a 30% cut from it, which means that if you tip the author of an article on a public account for 10 yuan, 3 yuan will go to Apple. However, WeChat insists that it does not profit from tipping, and that the tipping money goes to the author, which is a gift between individuals.

Both sides had their reasons, and after unsuccessful communication, WeChat temporarily closed the reward function of the iOS version, which meant "I don't want it and I won't give it to you." The tit-for-tat between the two sparked a lot of discussion at the time, and netizens were wondering who to stand with if they banned each other.

But in reality, national-level software vendors and top mobile phone hardware vendors are more interdependent, and the game is destined not to be high-intensity, and will only be able to maneuver within a limited range. Moreover, WeChat rewards are not a big business, and no public account survives by rewards.

A few months later, a photo of Tencent's core senior executives and Apple CEO Cook was leaked. Although the content of the talks between the two parties was not disclosed, the outside world could feel that both sides had made concessions.

After the public account reward was upgraded to "like the author" and re-launched on iOS, Apple no longer levied taxes. As for the mini program that had just been launched, Tencent also announced that it would not support the virtual payment business on iOS for the time being, in exchange for the normal use of the mini program on iOS.

You should know that mini programs can be seen as operating systems running on WeChat. They are very convenient for users and have low development and customer acquisition costs for developers. They can directly replace some APPs, and replacing APPs means replacing the App Store, which is a major threat to Apple.

The App Store is a huge source of profit for Apple. Taking Apple's latest fiscal quarter data as an example, the revenue from software services represented by the App Store was $24.2 billion, and its gross profit margin was as high as 71%, far higher than the 45% gross profit margin of high-end hardware products. This is tantamount to making money without doing anything.

This is Apple's backyard that no one is allowed to touch.

WeChat announced that its mini-programs would not support virtual payment services on iOS, which has dispelled Apple's concerns.

But this is only temporary.

2. Apple is targeting small games

At the beginning of 2020, WeChat launched a paid reading function for official account articles, but did not engage in too much wrangling with Apple over the "taxation" issue. It directly agreed to Apple's 30% commission as required. Why did Tencent compromise again this time?

In fact, this is a game and tug-of-war between giants. It is not too radical and is quite in line with Mr. Lu Xun’s “window opening theory”:

"This room is too dark, and we need to open a window here, but everyone will definitely not allow it. But if you advocate tearing down the roof, they will come to reconcile and be willing to open the window."

At that time, some analysts believed that WeChat threw out this small fish to show its goodwill to Apple because there were big fish behind it - mini programs and mini games.

Mini programs have grown so fast that the total number exceeded 1 million in 2018, reaching half the size of Apple’s Chinese App Store. Now, WeChat Mini Programs have more than 900 million monthly active users.

Mini programs are considered an operating system within an operating system, opening up a new dimension for the Apple ecosystem.

As one of the mini-programs, mini-games are particularly popular. It was in 2017 when WeChat and Apple were arguing over the reward fees that were not worth much that WeChat launched mini-games. Since then, "Jump Jump", "Synthesize Watermelon", "Sheep", "King of Salted Fish" and other mini-games have become popular one after another.

In 2020, during the epidemic, mini-games entered a period of explosive growth, with the annual DAU reaching 400 million.

As of now, the number of WeChat mini-game users has reached 1 billion, with more than 240 games having quarterly revenues exceeding 10 million yuan, and 70% to 80% of them being run by small teams of less than 30 people.

In addition to WeChat, the monthly active users of Douyin mini-games have also exceeded 100 million. Douyin also has a unique mini-game ecosystem, which allows for large-scale distribution through the promotion of short videos and anchors.

Data shows that in the first half of this year, the revenue of mini-program mobile games was 16.603 billion yuan, a year-on-year increase of 60.5%. The sales of mini-games have maintained rapid growth for three consecutive years.

Many small and medium-sized App manufacturers have also begun to turn to mini-games, and even companies like Thunder Games, Kaiying Network, Palm Games, and Lingxi Interactive Entertainment have already launched mini-games.

Mini games have great development prospects and have attracted the attention of small and medium-sized game manufacturers and users, which poses a challenge to Apple's collection of "Apple tax".

After all, games are one of the biggest pay-to-win projects on the Internet and are also a major tax item.

In the list of the top ten game companies with the highest global revenue in the first half of 2023 released by Newzoo, a well-known foreign game consulting company, Tencent and Sony ranked first and second. Ranked third is Apple, which does not have its own games, but has become the world's third largest game company by relying on the "Apple tax".

Apple also tried to seize the explosive growth brought by mini-games. In January this year, Apple announced that it would support cloud games, mini-games and mini-programs launched by developers and connect them to Apple's in-app purchase system.

You know, Apple previously had great hostility towards cloud games and small games, which was equivalent to giving them a "status", but it also meant that Apple would impose taxes on small games and did not want to miss out on the huge tax source brought by the explosion of small games.

As the two most powerful platforms for mini-games, WeChat and TikTok naturally became the first targets of Apple's crackdown.

3. Game between new and old channels

Apple’s friction with WeChat and TikTok this time is essentially a conflict between new and old channels for digital products, especially games.

For the majority of mobile game manufacturers, the old channels are mainly mobile phone hardware. On the iOS side, Apple charges a 30% "Apple tax", while on the Android side, Xiaomi, vivo, OPPO, Huawei, Honor and other mobile phone manufacturers can receive a 50% "Android tax".

The "Android tax" is higher, but one thing that is better than the "Apple tax" is that it only charges "tolls" for gaming apps. Other apps such as WeChat, Taobao, iQiyi, etc. will not be charged as long as they do not buy resources in the app store for advertising.

Moreover, the Android system is relatively open, allowing users to download from third-party platforms, although it will do its best to impose some restrictions. For example, if you search for Tencent's download platform "App Bao" in the Xiaomi App Store, you will be prompted to use the built-in one, which is safer and more stable.

Even if you download it from the website, there will still be risk warnings when it comes to the installation stage.

But no matter what, Android phones still have relatively weak control over various apps. In comparison, Apple firmly controls all aspects of mobile phone hardware, operating systems, developer tools, app stores, etc., and does not allow other companies to get involved in any of them. This is Apple's closedness.

Of course, closure also brings stricter review of the apps listed, which makes them safer, and with fewer open permissions and interfaces, the apps run more smoothly. This is the advantage of iOS.

The reason why the "Android tax" is dared to charge 50% is related to the strong position of Android phone manufacturers in the mobile game channels for many years.

During the period of rapid deployment of smartphones, mobile gaming was also in a wild period of scrambling for territory. At that time, most domestic mobile gaming users were low- and mid-level players who had just started playing games, rather than advanced core players who had certain requirements for all aspects of the game.

Under the premise that most people do not have high requirements for game quality and do not have clear preferences for game types, it is easy to encounter the situation of "playing whatever is given to them".

At that time, there were no short video platforms such as Douyin, Kuaishou, Bilibili, and Xiaohongshu. The “home page recommendation” of the mobile app store had the largest traffic and the most direct recommendation effect, which became almost the only way to Huashan.

The explosive growth of mobile games of varying quality and short life cycles will inevitably lead to competition in mobile app stores, which are the only way to connect manufacturers and users.

Domestic Android phone manufacturers even set up an organization called "Hardcore Alliance" in 2014, trying to unify the fragmented Android ecosystem in China. They used unified standards to package game installation packages, united to discuss cooperation with game manufacturers, and set a 50-50 profit-sharing standard.

Around 2018, "Hardcore Alliance" reached its peak, with a penetration rate of over 60% among mobile game users, but this was also the turning point of its decline.

The "Hardcore Alliance" has been collecting "tolls" for so many years that game manufacturers hate it. Ding Lei once said, "The share of Chinese Android channels is the most expensive in the world, as high as 50%. It doesn't make sense."

At the same time, buying volume channels such as Toutiao, Douyin, and Kuaishou have emerged. Game manufacturers have placed batch advertisements on these platforms to expose their products over a period of time, guiding players to download and register. More and more game manufacturers have abandoned the traditional channels of the "Hardcore Alliance" and turned to buying volume channels to enter the market.

At the same time, vertical channels represented by TapTap are becoming increasingly popular. TapTap does not even charge any channel fees. Its only source of revenue is the recommendation fees for advertising space, which has attracted a large number of small and medium-sized game manufacturers that are overwhelmed by hardware channels.

And powerful game manufacturers such as Tencent, NetEase, and MiHoYo have also chosen to "hard-fight" the Android mobile phone channel.

When miHoYo initially promoted "Genshin Impact", it bypassed the Android channels and was only available for download on the official website, TapTap and Bilibili.

Tencent announced in June that "Dungeon & Fighter: Origins" will no longer be available on some Android platform app stores.

There are also WeChat and Tik Tok, which have super traffic entrances, carrying many small game manufacturers to bypass the "Hardcore Alliance" and go to their own gold-digging roads.

The ultimate business model is to collect "tolls" at key connection points. WeChat and Douyin will not miss this opportunity, but they have made great progress compared to the "hardcore alliance" that only collects commissions. Tencent's commission is 30%-40%, but this includes a certain proportion of promotion fees, so the total commission is lower. Douyin recently reduced its commission for mini-games to 10%.

IV. A Long Struggle

As a traditional channel party, the "Hardcore Alliance" is actually quite similar to the Ottoman Empire, which dominated the connection point between the East and the West in the late 15th century and collected "tolls" from traveling caravans. It has strong strength. At that time, the Republic of Venice, the representative of the Mediterranean power, fought eight wars with the Ottoman Empire in order to gain control of the trade routes, but failed to pry open the door to the East and the West.

However, attracted by the huge commercial interests, Spain and Portugal chose to bypass the Ottoman Empire's control area and opened up a "new route" from the sea, carrying batches of adventurers to start overseas gold-digging journeys. This was equivalent to giving the Ottoman Empire a dose of chronic poison, and the gates of commercial flow were gradually closed, entering the countdown to decline.

This is a process of the old and new channels growing and declining. However, unlike the "hardcore alliance", Apple has a stronger control over the channels by relying on its unique iOS system and strong position in the world, and it is not so easy to be bypassed.

Simply relying on the two giants may not force Apple to "reduce taxes." It requires joint efforts from manufacturers, industries, and regulators, and it is also in line with the global "anti-Apple tax" wave.

The EU market resisted the "Apple tax" most fiercely. After years of tug-of-war, in March this year, Apple was officially fined a huge amount of 1.84 billion euros.

In order to avoid the regulatory risks brought by the EU's Digital Markets Act, Apple also announced that it will implement a new "Apple tax" policy in the EU from March, reducing the commission from 30% and 15% to 17% and 10%.

In the US market, Fortnite developer Epic Games also sued Apple's App Store for violating antitrust laws by charging a 30% commission, ultimately forcing Apple to make partial compromises and allow users to use links to external websites to purchase products and services within the App using third-party payments.

In addition, countries like Japan and South Korea have followed the EU's example and begun to formulate their own versions of the Digital Markets Act.

At present, China's "Apple tax" of 30% is the highest in the world. Not long ago, the first instance judgment of Jin's case against Apple, known as the "first case of Apple tax in China", was made. Although the Shanghai Intellectual Property Court rejected the plaintiff's request, it determined that Apple had a dominant market position, but did not abuse its dominant market position.

This is already a big improvement in the eyes of the industry, because according to my country's Anti-Monopoly Law, a market share of 50% can constitute a monopoly, and Apple's domestic market share is only about 13%. However, if it is placed in the iOS market, Apple dominates the world, with a market share of 100%, and there are no competitors in the iOS system market, so the court believes that Apple has a dominant market position. However, it is difficult to prove that it "abuses its dominant market position" from the perspective of consumers.

Although Apple won the lawsuit, it was not happy. Not long ago, it filed an appeal with the Supreme People's Court of China, requesting the deletion of the "dominant position" mentioned in the judgment.

When the world examines whether the "Apple tax" is reasonable, Apple may have to make adjustments. This also sends a clear signal to other technology giants that they must exercise self-discipline while making profits. As the key connector between developers and users, they must restrain the urge to collect "tolls" and have the responsibility to maintain the fairness of the platform and reasonably distribute benefits.

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