TMTPost -- Apple Inc. is said to press  Tencent Holdings Ltd. and ByteDance Ltd. to block a payment loophole for in-app purchase of games under two Chinese internet giants’ popular businesses--Tencent’s social media WeChat and TikTok’s Chinese version Douyin.

Credit：Apple

Apple has asked Tecent and ByteDance these months to close payment loopholes that allow users of WeChat and Douyin to enjoy external services like playing games, ride-hailing through links in mini-apps, which effectively circumuvents Apple App Store’s standard 30% commission, Bloomberg reported, citing people familiar with the matter.

Apple was reported to warned Tencent in May that it may reject essential WeChat updates unless the developer eradicates links that mini-game developers use to accept payment off Apple’s platform. Months later, Apple reportedly demanded Tencent to disable a key in-game messaging feature that also diverted users. Tencent hasn’t compromised due to concern that Apple’s proposed change would have negative impact on user experience. The Shenzhen-based company did agree to close a loophole that enables proliferation of web links that developers were circulating with a WeChat update in early July. Apple also asked ByteDance in June that it would approve future updates to Douyin until it plugs simiar payment loopholes, according to the report.

Neither Tencent nor ByteDance commented on the report. An Apple spokesperson cited its guidelines that the sale of all digital goods must go through its system, and that its review team may reject app submissions that violate that policy.

The report about Apple’s seeking to close in-app commission loophole is true, multiple industry insiders confirmed to Chinese digital news media outlet The Paper earlier this week, despite absence of Tencent and ByteDance’s response. One of the insiders told the media that Apple's pressure on Tencent and ByteDance largely targets the booming mini-game market. For Douyin, Apple’s move does not only hit mini-games, but also the short drama business that has been very popular in recent years. The business was also the hardest hit area for evading the so-called “Apple tax", which meas the commission fee Apple charges for the use of its App Store and in-app payment system.

Apple, WeChat and Douyin have not reached an agreement yet, The Paper learned. “Apple's forced pressure mainly aims to ease its own pressure on revenue,” said Zhang Jun, the operator of the popular mini-game "Sheep and Sheep" and former CEO of a Chinese game developer Baozou Games. “Apple's revenue in China has declined, while the mini-game market is growing rapidly, so (Apple), the distributor hopes to get a piece of the pie.”

Bloomberg noted handling in-app purchase is a lucrative business for Apple, and its increasing pressure on Tencent and ByteDance to make fundamental changes to popular apps in China may inflame tensions in the world’s largest smartphone market, where Apple has experienced decline in sales amid competition from Chinese vendors including Huawe Technologies Co.  

Apple said last month its revenue for its third fiscal quarter ended June 30 grew 4.9% year-over-year (YoY) to $85.78 billion , beating Wall Street expectation of $84.46 billion following a 4.3% YoY decline three months ago. iPhone sales that quarter edged down 0.9% YoY to $39.3 billion, still better than analysts’ projection of $38.95 billion. All the major markets but China reported positive growth during the April-June period. Revenue from Americas, Europe and Japan that quarter climbed 6.5%, 8.3% and 5.7%, respectively, while Greater China, which includes mainland China, Taiwan, Hong Kong and Singapore, brought $14.73 billion, representing a 6.5% YoY decrease. Analysts anticipated revenue in the third largest market for Apple fell 3.2% YoY to $15.26 billion. In the previous quarter, $16.37 of Apple revenue came from Greater China with an 8.1% YoY fall, still topped estimates of $15.87 billion with a YoY decrease of 11%.

Apple CEO Tim Cook expressed optimism about sales in China. “If you look at iPhone in particular for Greater China, the install base set a record,” Cook said on a call with analysts after quarterly earnings, “And so we continue to be confident in the long-term opportunity in China. I don’t know how every chapter of the book reads, but we’re very confident in the long term.”