Apple Inc. has approved a new version of Tencent Holdings Ltd.’s WeChat app for the upcoming iPhone 16.
TakeAway Points:
- The WeChat upgrade for the iPhone 16 by Tencent was accepted by Apple in the midst of ongoing discussions around in-game payments and app store costs.
- Apple presses Tencent to halt “steering” and restrict external payment links in order to receive a part of WeChat minigame transactions.
- Apple faces diminishing revenue and a smaller market share in China; as a result, its tough posture there runs the danger of alienating important players in the industry.
WeChat update for iPhone 16
This approval comes amidst ongoing negotiations between the two companies regarding changes Apple has demanded to China’s most-used social media platform. The latest WeChat update, submitted by Tencent this week, includes new features within the Instagram-like WeChat Moments and live-streaming functionalities.
The approval is expected to quell speculation in China about a potential dispute between Apple and Tencent over app store fees, which could have led to WeChat being barred from the latest iPhones. The core of the disagreement lies in Apple’s insistence on receiving a cut of transactions that occur through WeChat’s mini-games platform. Apple has asked Tencent to block links to external payment services within these mini-games and to stop developers from using the platform’s built-in messaging to direct gamers to other payment portals, thereby avoiding Apple’s usual 30% cut. Apple had also requested the disabling of in-game messaging entirely, but Tencent has rejected this as too drastic.
While Tencent has resisted these demands so far, discussions with Apple about a potential compromise for future updates are ongoing. Apple representatives declined to comment, and Tencent did not respond to emailed queries.
Revenue-Sharing agreements
Tencent is currently negotiating a revenue-sharing deal with Apple to allow it to accept payments in mini-games via Apple’s system. James Mitchell, Tencent’s chief strategy officer, mentioned this to analysts following the company’s latest earnings report. Apple has long maintained strict control over its app ecosystem to ensure quality and security globally. However, its aggressive stance in China this year, including warnings to both Tencent and ByteDance Ltd. about in-app spending policies, risks alienating creators in a crucial market.
Nearly 1.4 billion people in China use WeChat for various activities, from paying bills to booking cinema tickets, with many of these payments exempt from Apple’s fees. However, in-app content and other online entertainment, such as mini-games, remain subject to iOS charges. Unlike in the US, Apple holds a smaller market share in China, having failed to make the top five in smartphone sales last quarter. Chinese companies like Tencent and ByteDance continue to dominate internet content, including games and video, and have the power to levy their own commissions on creators. Apple reported a 6.5% decline in Greater China revenue for the June quarter, highlighting the challenges in its largest market outside the US.
Mini-games and methods of payment
The popularity of mini-games has surged, leading developers to monetize them by selling in-game items. Many developers have found ways to accept payments without using Apple’s system to improve their margins. This practice, known as “steering,” involves guiding players off major platforms, and Apple has been pushing Tencent to close these loopholes.
Apple’s upcoming “Glowtime” event on September 9th is expected to launch the iPhone 16, which will include the approved WeChat update. The event is anticipated to showcase new features and enhancements, potentially impacting Apple’s stock performance. BofA Research maintains a “Buy” rating for Apple, with a price objective of $256, citing the event as the start of a new software-driven iPhone upgrade cycle.
