Apple begins delicate dance with Tencent in China

Take heed. Apple will have to tread carefully again in China. The iPhone-maker wants a share of revenue from games played on Tencent's all-in-one WeChat platform. For Apple boss Tim Cook, it's a lucrative opportunity as handset sales cool. Yet if the U.S. company pushes too hard, it may jeopardise its hard-earned appeal in the world's second-largest economy.

Tencent Chief Strategy Officer James Mitchell on Thursday confirmed that the two companies were in discussions about revenue sharing on so-called mini-games, or titles played directly on WeChat. Many titles can be played without users having to download them from an app store. These apps-within-an-app have taken off since Tencent introduced them six years ago: over half a billion WeChat users play mini-games at least once a month, the company revealed at a developer conference in July, and advertising revenue from mini-games now account for 15% of WeChat's total.

The bigger windfall for the duo could be in-app transactions, or sales of digital goods and services purchased within mini-games. For normal apps, Apple would typically take a 30% cut. Mitchell confirmed that Tencent currently doesn't monetise its mini-games on Apple's operating system via in-app transactions, but also added that it would be in everyone's interest if there was a way to do so "on terms that we think are economically sustainable and that are also fair".

A lot could be at stake. The recently released Dungeon & Fighter Mobile game, for instance, as an app grossed over $500 million in sales its first month across Apple and Android platforms, according to research firm Niko Partners. If a mini-game achieved even half of that monthly spending, a 30% commission fee would equal just shy of $1 billion of annual sales.

For Apple, the extra revenue would be welcome. Greater China sales have fallen year-on-year for four consecutive quarters and the iPhone is ceding market share to local rivals like Huawei and Xiaomi. Tencent would benefit too and can drive a hard bargain, not least because the Cupertino giant is also under scrutiny in Europe and elsewhere on its app store practices. Apple is on a delicate non-virtual battleground.