(Bloomberg/Pei Li) — Tencent Holdings Ltd. has struck a deal with Apple Inc. that will see the iPhone maker handle payments and take a 15% cut of purchases in WeChat mini games and apps, resolving a high-profile dispute that’s dogged the world’s largest smartphone arena.
The agreement is part of a new Apple program introduced on Thursday that will be open to all mini app providers. To qualify, developers need to sign up to certain Apple software requirements, such as one to help parents share their child’s age range.
The agreed-upon rate is far lower than the iPhone’s typical 30% commission, but opens a new revenue stream for Apple and takes pressure off Tencent, which operates the WeChat app at the center of most Chinese people’s lives.
Apple had earlier demanded Tencent close loopholes that app creators employed to funnel users to external payment systems, circumventing the iPhone framework. WeChat will adopt the new system as soon as possible, Tencent said in its own statement confirming the pact reported by Bloomberg News earlier.
“We have a very good relationship with Apple and we have collaborated on a lot of different areas,” Tencent President Martin Lau said on a conference call after earnings on Thursday. “We have been in discussion with Apple to make the mini game ecosystem more vibrant.”
Apple’s agreement with Tencent marks an important step toward normalizing relations in one of its most important markets, where the US company is grappling with intensifying competition from local rivals including Xiaomi Corp. and Huawei Technologies Co. It also potentially establishes a precedent for other software purchases in China, a market where most phone makers operate their own independent app platforms.
The rare concession from Apple comes after protracted negotiation between the two tech giants. Chinese regulators stepped up examination of Apple’s policies in the country this year, while lawyers and activists are also rallying to put more pressure on the iPhone maker.
Apple has long policed its ecosystem to preserve quality and security around the world. But unlike in the US, Apple is a smaller player in China. Tencent and other local players like ByteDance Ltd. enjoy unusual dominance in internet content such as games and video, with the power to levy their own commissions on creators. WeChat is an app that more than a billion Chinese users rely on for everything from paying bills to booking cinema tickets.
At 15%, Apple’s taking half the usual fee that it charges many developers on in-app purchases, but it’s making inroads in a growing segment of entertainment. Mini games, contained entirely within WeChat contributed to 32.3 billion yuan ($4.5 billion) in social network revenue for China’s most valuable company in the September quarter.
Tencent disclosed in August last year that it was talking to Apple about “economically sustainable” and fair terms to let the US company take a share of mini game and app sales on iPhones.
Mini games, in particular, have been steadily growing in popularity, though the previous absence of an agreement meant that Apple wasn’t receiving any income from purchases.
Apple has in recent years taken steps in several jurisdictions to either reduce its once-universal 30% fee on purchases made via iPhones, allow exemptions for things like subscriptions or open devices up to alternative payment-handling services.
–With assistance from Zheping Huang, Vlad Savov and Debby Wu.
(Updates with Tencent’s announcement in the fourth paragraph.)
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