Apple’s success in China has been hard-won. Maintaining a foothold is getting harder as it clashes with local tech giant Tencent in multiple arenas.
China can be a challenging market for foreign companies, but Apple has fared better than most. Its revenues in greater China have nearly doubled since 2013. Its mainland App Store is the world’s largest by revenue, according to research firm App Annie. Still, the American giant is falling short of its aspirations. For example, the retention rate of iPhone users in the US and Britain is over 80%, but only 50% in China. This year Apple’s first-quarter results showed a 14% drop in total sales in greater China compared with a year ago, marking the fifth consecutive quarter of decline.
Globally, Apple’s services have wide appeal, and the difficulty of switching to devices outside the iOS ecosystem works in the company’s favour. In China, the former has underperformed, and the latter has been a hindrance. iTunes has not caught on, and the government blocked iBooks. Neither Apple’s messaging service nor its cloud storage services has been a hit. Its mobile payments service, Apple Pay, has only 1% of market share on the mainland.
Now there’s a growing rivalry between Apple and local tech giant Tencent, China’s most valuable company. Tencent is the maker of WeChat, the app that nearly everyone in the Chinese mobile market uses for everything from social media to ride-hailing and payments. As Bloomberg describes it, WeChat “has transformed into a lifestyle, the ‘one app to rule them all’.” WeChat allows users to download other apps, cutting the App Store out of the loop and taking Apple’s revenues.
WeChat’s influence is growing as it transforms into a mobile operating system in its own right. It is also coming into increasingly direct competition with Apple. As Matthew Brennan of tech consultancy China Channel put it, “There is a war going on”.
The biggest-yet point of contention between Apple and Tencent has to do with payments. WeChat’s peer-to-peer payment system, WeChat Pay, has been a huge success. Last year $1.2 trillion in mobile payments were made through WeChat. Since 2015, WeChat Pay has allowed users to “tip” content creators through the app, rather than using Apple Pay. It’s since become big business for millions of writers, musicians and other creatives, and Apple is fed up. In April it called on WeChat to shut down tipping, and the two continue to wrangle over Apple getting a share of the tips.
Tech industry watchers are buzzing about what will happen next. Apple is investing heavily in stores and research labs on the mainland, The Economist reports. It also plans to include China in the first wave of its highly anticipated iPhone 8 launch, expected this fall. Tencent is firing back. There is speculation that it could even launch a WeChat phone, making it completely independent of the iPhone. In this showdown, Tencent has the home court advantage.
