Apple orders Chinese social networks to stop 'tip' functions that break App Store rules

A number of social networking apps allow users to 'tip' each other using mobile wallets, providing content creators with a source of revenue. Typically, these tips are conducted outside of Apple's system, with the services offered to users for free as a way to increase user engagement.

According to executives of messaging platform WeChat and other companies, the Wall Street Journal reports Apple wants the practice of providing tipping services through external mobile wallet accounts to stop in China. Instead, the companies have to stick to App Store rules regarding transactions, treating them as in-app purchases and providing Apple with its 30-percent cut.

Two company executives speaking to the report allege Apple told them that a refusal to disable the function could prevent updated versions of the apps from being made available to users, and could force Apple to pull the apps from the App Store entirely.

This switch to using a payment processing platform that takes a fee for the transaction is a sticking point for the companies involved. "We don't charge anything as the platform, but Apple gets 30 percent for doing nothing," one of the executives complained.

One company is said to have started talking to the Ministry of Industry and Information Technology about the matter, questioning if Apple is being unfair in imposing the rules over tipping. The regulator told the report it isn't currently involved in the disagreement.

Part of the problem is a differing cultural view of tipping itself, with Chinese developers seeing it as different to making a purchase. Tipping is thought to be a way to show appreciation for content, usually offered after the user has consumed it, rather than before consumption as with sales.

Conducting tip transactions outside of Apple's platform will certainly be seen as a missed opportunity to earn revenue, in what is already a major market for the company. In April, an App Annie report claimed China is the biggest iOS App Store market, earning between $5 billion and $6 billion in revenue, including $2 billion in in-app purchases in the fourth quarter of 2016, a number that could have been higher if Apple were able to tap into tipped funds.

Apple may have to be cautious when dealing with one of the biggest firms that provides tipping facilities, the Tencent-owned WeChat, partly due to its size. WeChat has 938 million monthly active accounts, the majority of which are in China, with approximately half of its users spending 90 minutes per day in the app.

WeChat does more than offer tipping and messaging between users, as its "mini-programs" within the main app can be used to provide extra services to third-party companies, without the user needing to leave WeChat to go into another app. As part of this, users can pay bills and purchase items, including food at a restaurant, all from within WeChat.

The mini-apps effectively turns WeChat into its own separate ecosystem, potentially threatening Apple's App Store and related services, though WeChat denies this to be a major issue. As for missed revenue, report sources claim WeChat is talking with Apple to find a solution for tips.