
Apple's decision on “tips” may undermine its prospects in China - whatami
https://www.bloomberg.com/view/articles/2017-06-20/apple-gets-greedy-in-china
======
yladiz
I have never used WeChat Pay or the tipping function, since they're both only
available in China, but I really don't like that this article essentially says
that this issue is "iPhone vs WeChat" for Chinese citizens, because it really
isn't. Tips are used by about 10% of WeChat users, and a large percentage only
tip a few RMB per month. This is absolutely not on the scale of the actual
WeChat Pay, even if this article implies it; it does mention that WeChat
processed $1.2 trillion in transactions last year, but that's not tips, and I
think it's disingenuous to not directly mention that.

The removal of tips happened a few months ago, and it has definitely affected
people who rely on those tips in mainland. For example, in a Quartz article
about this topic[1] it mentioned that one blogger went from making 1000 RMB to
100 RMB per day from tips after this policy was put into place, because even
though iPhone users make up a small percentage of total phones, they generally
have a lot more disposable income (having an iPhone is a status symbol).

It's really not as cut and dry as this article makes it seem because of that.
Wealthy Chinese like iPhones because of the status and don't want to give it
up if they don't have to, and Tencent probably makes a cut from being the
middleman of the tipping feature, so Tencent is also probably annoyed at the
loss of a revenue stream as well. However, Tencent will never remove WeChat
from the App Store, and neither will Apple, for various (and obvious) reasons.
There are likely negotiations going on, and there may be a pseudo Apple Pay
system to handle tipping like this in China.

Also, nitpick: I don't think it's fair to say that Apple Pay is an "answer" to
WeChat Pay. They may do the same thing (facilitate payments to merchants) but
they do it in very different ways, and I would imagine a big reason it's not
bigger in China is due to the pervasiveness of WeChat Pay (which works with QR
codes, not card readers).

1: [https://qz.com/973359/apple-aapl-may-be-gearing-up-for-a-
gia...](https://qz.com/973359/apple-aapl-may-be-gearing-up-for-a-giant-turf-
war-with-chinas-biggest-internet-company-tencent/)

~~~
jpatokal
Tencent is the 10th largest company in the world, making it larger than (eg)
Samsung, and they already have their own OS as well (Tencent OS), which is an
Android fork. I expect it's a matter of time before they either arm-twist
Apple into compliance, or Apple becomes irrelevant in the Chinese market when
better integrated and shinier alternatives leave it in the dust.

~~~
ttflee
Up until now, no known Chinese companies has ever achieved any phenomenal
success in developing an operating system for the mass market from scratch.
Most of them have a small team to hack and maintain forks of existing open
source OSes. Alibaba tried to sell their Android replacement[1] but perhaps it
has not reached any tipping point yet.

[1]
[https://en.wikipedia.org/wiki/Yun_OS](https://en.wikipedia.org/wiki/Yun_OS)

~~~
nf05papsjfVbc
There are some stellar smartphones designed and made in China. I'm certain
similar things were said about their smartphone ambitions. It's only a matter
of time before smart, dedicated and focused people achieve what they are
after.

------
mikestew
30% of app cost and IAP wasn't enough, so Apple wants 30% of tips as well? In
summary, 30% of any money flow that even slightly involves the use of iOS?
Even Visa and Mastercard aren't that greedy. I'm an Apple apologist way more
than is healthy, and this leaves even me wondering, "sure that's the hill you
want to die on?"

~~~
pentae
My team runs a paid chat app for Instagram models to monetize their fan base.
Apple did a 180 on their own IAP rules and called us to insist we could not
use the App Store without charging with IAP. Their app store rules clearly
state that content, not peer to peer payments or something 'done by a person'
(like spending time to chat with creepy dudes you wouldn't normally give the
time of day to over a DM) does not fall under IAP. It's "Content" and "It
takes place inside the app" so too bad. We were paying out the models 70% at
the time. In short, they are enjoying all the profits we had earmarked for
ourselves and now make 3x what we do from our app.

Google on the other hand have (so far, touch wood) left us alone to handle our
own processing and helps offset our incredibly thin margin from iOS.
Unfortunately, iOS represents almost 80% of our gross revenue.

~~~
philfrasty
curious: what's the app called?

------
tsunamifury
This is the tipping point Jobs was afraid of: The AppStore rules were created
to ensure no single developer could become the portal that wrestled control
over the user experience from the OS the way Chrome did for windows.

Now both operating systems are being subsumed by messenger apps as the vast
majority of the experience, thus earning the future value and trust of users.

~~~
samstave
> __ _no single developer could become the portal that pulled control over the
> user experience form the OS the way Chrome did for windows._ __

Can you expand on this??

How did chrome wrest the user experience?

~~~
sdm
Not really chrome -- it didn't exist yet when this started to happen. But web
applications in general. And the whole Web 2.0 movement. As people spent more
time in browsers and those browsers became more standards compliant it
weakened MS' dominance and let others, like OS X, start to compete. As
developers, especially for in house applications, saw it was much cheaper to
publish to a common platform rather than have to worry about local installs
they changed where they were spending money. The browser effectively killed
MS' complete dominance.

~~~
pfranz
I'm confused (and have never really heard this theory). Is there anything to
support this from Apple or Jobs?

Plan A (at least publicly) was that web apps were the only apps on the iPhone.
Were these rules and the App Store a reaction to that or would have Apple kept
web apps crippled in Safari?

~~~
tsunamifury
Initially Jobs was against all apps, and wanted just mildly useful webapps
running in their crippled JavaScript engine. Then they allowed apps but with
many UX restrictions like no drawing UI outside the view etc. Nothing that
could infringe on the core interaction models of iOS.

------
vitaminbandit
Idiotic play by Apple.

First, Apple's losing market share in the Chinese smartphone market and it's
not simply due to cheaper phones. Apple was/is primarily a status brand, but
what's the status advantage in having an $800 iPhone vs an $800 Samsung? There
isn't one and everyone is starting to recognizes that.

Second, WeChat runs everything in China. Every. Thing. It's your WhatsApp,
your Skype, your Yelp, your OpenTable, your Venmo, etc. Every cent that Apple
tries to take out of WeChat "tips" is not a cent that it's snatched from
another faceless corporation, it's a cent out of the hands of individuals who
rely on those tips. It's money leaving the hands of individuals and going into
the largest market-cap company in the world. Is it a surprise that people are
going to be pissed?

Apple should be careful not to overplay its hand. China has already banished
major American companies (Google + Facebook) for not playing by its rules and
it could easily position itself to do the same to Apple.

~~~
Cookingboy
Yep, let's imagine if the Chinese government bans Apple products tomorrow in
China, what happens?

Instantly we'd see Apple's stock crashes by 40%, wiping out over $300B in
market cap, if not more, in a single day. AAPL is a heavily weighted member on
the Dow, and it will trigger a chain reaction that will crash both S&P 500 and
NASDAQ.

Apple pissing off the Chinese can literally trigger a US recession in the
short term.

The silver lining is that WeChat/Tencent != Chinese Government, and I think
Apple isn't crazy enough to be pissing off the CPC yet.

~~~
Retric
Apple does not make nearly as much money in china as you seem to think. More
importantly 1/3 of their stock price is from cash on hand. Further one company
even AAPL taking a 3-10% hit is small potatoes.

Second if China suddenly dumped AAPL manufacturing most companies would
quickly pull out of Chinese manufacturing which would destroy their economy
and likely result in civil war within a decade. Banning products has no such
risk.

~~~
Cookingboy
>Apple does not make nearly as much money in china as you seem to think.

I don't know how much you think Apple makes from China, but I know it's a bit
more than 20% of their total revenue as of last quarter. It's almost as much
as the entire Europe combined.

>Further one company even AAPL taking a 3-10% hit is small potatoes.

3-10%? AAPL goes down like 5% all the time on a _rumor_ that they may miss
their iPhone shipment forecast, if the Chinese government bans AAPL products
tomorrow you think they'd only go down 3-10%?

>Second if China suddenly dumped AAPL manufacturing most companies would
quickly pull out of Chinese manufacturing which would destroy their economy
and likely result in civil war within a decade. Banning products has no such
risk.

What? You don't just pull out of China for manufacturing. Where are you gonna
go? In fact Apple can't even pull out of China for manufacturing in a short
amount of time. That's right, Apple would still make iPhones in China even if
the Chinese government bans them from selling it there.

Additionally, why would anyone care about what the Chinese government do to
Apple? Did Yahoo or Microsoft leave China after the CPC banned Google?

~~~
Steko
> a bit more than 20% of their total revenue

So why do you think half of Apple's market cap would disappear?

> Where are you gonna go?

Anywhere? Apple has $200B in cash, they could have factories in Manhattan if
they wanted to.

> Did Yahoo or Microsoft leave China after the CPC banned Google?

Google hadn't made investments on the scale Apple has. Lots of investment
would be scared off by China effectively nationalizing Apple's massive capital
investments. A more immediate impact would be the retaliation against Chinese
exports to the US.

The whole thought exercise is ridiculous, why is China going to risk it's own
economy and stability for WeChat tips?

~~~
bengale
This is what I think Apple is hoarding cash for, they'll want to move a shit
load back to the US if they can get the tax break for it and then I think
we'll see them spend big on automated manufacturing in the US and, to some
degree, Europe.

------
em500
This is not a battle that Apple can win. Removing WeChat from the AppStore
would cost Apple far more than it would cost Tencent and they both know it, so
that is no credible threat.

~~~
shykes
Is that true even when taking into account the possibility of WeChat wanting
to expand globally? If that's the case, being shut out of iOS seems like it
would be an unsurmountable obstacle.

~~~
Inconel
Isn't iOS marketshare outside of the US and Europe essentially non-existent?
Even in Europe iOS is far less prevalent that the US. I imagine most of
WeChat's global expansion would be centered around other parts of Asia,
South/Central America, Africa, and the Mid East.

------
kyle-rb
Apple only charges its 30% fee for digital content, and specifically not for
physical goods, like things you buy from Amazon.

So are tips considered digital content, even though you receive nothing in
return? Or is Apple adding a 3rd class of transaction that specifically covers
tips?

------
elicash
I can't tell from the article. Are "tips" being used as something mandatory in
order to receive a good/service? Or are they things that are optional for
receiving those goods/services?

~~~
dilemma
Tips are literally tips. For example, you read a blog post from someone's
official account and tap 'tip' to give a few rmb in appreciation of the
writing.

------
ant6n
A more descriptive title would be nice. Something about Apple demanding 30% of
within-app revenue from WeChat.

~~~
sdm
The thing is it's not "within-app" revenue. Tencent doesn't make any money
from the tips; it's completely passed through. If Tencent were directly
profiting from the tipping process it would be understandable. But tipping in
WeChat is essentially a transaction between a send and receiver that is just
facilitated by Tencent. This is akin to Apple asking for 30% of all
transactions made by Venmo rather than just 30% of Venmo's fee.

~~~
elicash
So I know Uber just announced tips for drivers will be allowed in-app. Will
Apple be taking 30% of Uber drivers' tips?

~~~
briandear
An Uber ride is a “physical good” so to speak. So no. Really, people ought to
read the Apple IAP docs, including the author of the story and perhaps the
folks at WeChat.

A “tip” is really a payment for a virtual good – a blog post, a video, etc.
It’s not the same as a person-to-person money transfer. Framing it like it’s a
person-to-person money transfer transaction is ridiculous. It’s a payment for
a virtual good no matter how one parses it. No content, no tips from consumers
of that content. Apple doesn’t take any percentage when I use my Chase app to
send a Quickpay to someone.

Without the content, would the transaction have occurred? No. So that “tip” is
just a voluntarily payment in exchange for some virtual good. The fact that
these content creators make a business out of selling their content via
“tips,” and there is really no legitimate argument against Apple’s 30% fee
unless one wanted to challenge the overall concept of the IAP itself. WeChat
doesn’t have to allow IAP and users don’t have to use Apple if they aren’t
happy with it.

However tipping functionality is hardly going to influence a consumer’s
purchase choices.

------
faragon
My bet: WeChat will accept Apple requirements.

~~~
tqkxzugoaupvwqr
Can you explain how you get to that conclusion? WeChat seems to be an integral
part of Chinese society. If WeChat keeps ignoring Apple, what can Apple do?
Pull the app from the App Store and risk people migrating to other phones that
have WeChat? I bet that Apple will not take 30% of tips going through WeChat.

~~~
Steko
> WeChat seems to be an integral part of Chinese society

WeChat is integral but the tipping feature is used by a small fraction of
users and isn't relevant to WeChat's bottom line.

------
logicallee
Can someone who knows this situation summarize not just this article (which I
did open, it's very short) but the entire context here?

------
phaser
Why is WeChat not an operating system already? At the very least an Android
distribution with a WeChat shell.

~~~
wmf
If they're already on every phone in China, what would that get them?

~~~
thaumasiotes
Other companies wouldn't be able to randomly remove popular functionality.

~~~
dingdongding
Facebook tried that. Did it work? No.

------
bitmapbrother
Apple really isn't in a position to negotiate or bully TenCent. They have 16%
market share in China (as of Apr, 2017) and any attempt to threaten TenCent by
removing WeChat from the China App Store would backfire spectacularly.

~~~
adamlett
Be careful when drawing conclusions based on market share. _Usage share_ is
the more relevant statistic, although unfortunately more difficult to measure.
Apple's usage share is almost certainly significantly higher than their market
share, because iPhones are premium devices that get used for many years,
whereas many Android phones are cheap devices with a significantly shorter
lifespan as useful devices.

~~~
bitmapbrother
You can also buy many premium Android phones at half or a third of the price
of an iPhone depending on the specifications you want. I also don't know where
you get this idea that cheap Android devices have a significantly shorter
lifespan. These phones don't just suddenly die or expire by a certain date. I
have an old Galaxy S2, a phone released in 2011, that works well to this day.

~~~
adamlett
I get the idea because it's a measurable fact.

Yes, in principle you can keep using your phone for as long as it is able to
turn on. In practice cheap phones have worse built quality, often ship with
versions of Android that are obsolete on arrival and/or do not receive
updates. And in general, items that cost more are better taken care of. In the
aggregate all of these mean that cheaper phones have a shorter expected
lifespan than iPhones.

------
wilbeibi
iPhone already dropped 26% sales in 2016 at China, let's see what it would be
like this year.

------
gigatexal
It's simple: keep taking a cut otherwise WeChat will make iOS irrelevant in
China like the article said "...as WeChat becomes more like an OS..."

------
tinus_hn
Ultimately if Apple allows WeChat to be the app platform they lose the ability
to differentiate themselves from their competitors. That said the hype around
WeChat sounds like a too good to be true dream for marketing people. I
wouldn't be surprised if it all suddenly blew over.

------
foobarbazetc
Yup. This was a very poor decision on Apples part.

Sort of a huge misunderstanding of culture.

------
quantum_state
Apple has been known to be a greedy company when it comes to vendors etc. ...
feel it's on the wrong side of time ... many other brands are catching up ...

------
egypturnash
The one thing I feel is missing here: what percentage of tips is WeChat
currently taking?

------
omarforgotpwd
Why can I send money to my friends via FB messenger or Snapcash without apple
taking a cut, but the same thing is not possible for WeChat? Something doesn't
add up here.

~~~
cynix
You can transfer money in WeChat without Apple taking a cut too. This is not
what the dispute is about.

The dispute is about buying virtual currency with IAP, to be gifted to
streamers, bloggers etc. It's no different from buying virtual in-game
currency or items, and therefore Apple would like to treat them the same as
all other IAP and take their 30% cut.

------
yvsong
Apple will win this battle. WeChat is tightly monitored by the Chinese
government for any sensitive info, and heavily censored. It's losing appeal.
The problem has grown more and more serious recently since there is a hot
political war going on, and messages published on Twitter and YouTube are
propagated on WeChat. The YouTube attack on 6/16 is part of the war.

Generally Uncle Donald is right on trade. China's great firewall is a major
trade barrier. China's Internet industry does not have foreign competition.
Uncle Sam should be much tougher on trade deals.

~~~
XiaomiFan
Funniest comment I've ever read on HN, well done.

Tencent has the power to singlehandedly kill off Apple in China, as a Chinese,
I really wish they had the balls to do it.

~~~
luminati
[https://news.ycombinator.com/item?id=14065072](https://news.ycombinator.com/item?id=14065072)

Pick one.

~~~
teacup50
I'm sure you're aware of the notion of a "Chinese Canadian"

