Apple's Big Problem
It’s becoming pretty tough to keep up-to-date with the constantly developing TikTok situation. While Microsoft continues to speak with ByteDance about acquiring parts of the business, now Twitter has stepped in and proposed their own merger. As has been noted by many before, Twitter at one point owned a very similar app called Vine but shut it down despite moderate popularity. In last week’s Daily Insight on the topic, I speculated that Disney or Apple could also enter the bidding process, but Twitter could be a nice home for the video-sharing app if they can afford it.
Current talks will have to move quickly though as President Trump issued two executive orders over the weekend which would impose new limits on TikTok and Tencent’s WeChat, effectively barring people in the U.S. or its jurisdictions from transacting with the companies. There is also a 45-day time limit on the purchase of TikTok’s U.S. assets, or the app could be removed from both the App and Google Play Stores. Both companies will be hoping that the order does not stand up to judicial scrutiny. However, it is based on the International Emergency Economic Powers Act (IEEPA), which gives the President wide-ranging authority when it comes to regulating foreign companies in the country.
However, the big loser in this scenario could end up being not TikTok or WeChat, but Apple.
With most American tech companies effectively banned from operating in China, Apple is the most heavily exposed to a further souring of relations between the two countries. There is no doubt that China is looking at Apple as a potential target for retaliation, not just because of its size, but also due to its profile. Just last quarter, Apple reported over $9 billion in revenue from Greater China, accounting for almost one-sixth of the company’s overall sales.
However, even if China were to take no action against Apple, they still have a massive problem when it comes to WeChat. WeChat is owned by Tencent, a Chinese internet conglomerate that also operates a huge portfolio of online gaming assets, including Riot Games, the developer of 'League of Legends'. It seems the government is going to waive Tencent’s gaming business from this ban, but WeChat being banned presents serious challenges.
It’s important to understand that WeChat is an incredibly important tool for people both inside and outside China. For one, it is vital for the Chinese diaspora to remain in communications with family inside the country. A friend of mine recently visited China for a few weeks and had to download WeChat in order to be able to communicate with his fiancée back home. Remember, Twitter, Gmail, Whatsapp, Facebook, and Instagram are all banned in China.
An even bigger issue exists for Apple inside China, where WeChat is seen as one of the most important apps that one can have. Here’s Ben Thompson from Stratechary discussing WeChat’s role:
“There is nothing in any other country that is comparable, particularly the Facebook properties (Facebook, Messenger, and WhatsApp) to which WeChat is commonly compared. All of those are about communication or wasting time: WeChat is that, but it is also for reading news, for hailing taxis, for paying for lunch (try and pay with cash for lunch, and you’ll look like a luddite), for accessing government resources, for business. For all intents and purposes WeChat is your phone, and to a far greater extent in China than anywhere else, your phone is everything.”
Note that Google doesn’t have quite the same problems. Android apps are not downloaded through the Google Play Store in China, but rather Chinese app stores. Apple’s closed-system of maintaining control over everything that goes onto the iPhone has helped make the iPhone experience the most admired. However, this could now force them to either abandon that rigid structure somewhat (at lease in China) or risk losing hundreds of millions of potential customers in the largest consumer market in the world.