WeChat helps Apple rack up bonus points in China

A WeChat app icon is pictured in Beijing, in this December 5, 2013 file picture illustration. Tens of millions of mobile game enthusiasts have made China Apple's third-largest market for software sales, and a huge chunk of that comes through WeChat.

BEIJING - Apple Inc has a lot for which to thank people like Deng.

A Beijing-based quality analyst, she gave only her surname as she's embarrassed by how much money she spends playing mobile games on WeChat, a hugely popular messaging app developed by Chinese internet giant Tencent Holdings Ltd.

"The most expensive time was when I spent 68 yuan (S$13.87) on a leopard on Tiantiankupao," said Deng, an avid iPhone user, referring to Tencent's hit game - called Timi Run Everyday in English - where characters run through obstacle courses. Having a leopard as a pet gives the characters extra power, helping players beat their friends.

Deng and tens of millions like her have made China Apple's third-largest market for software sales, and a huge chunk of that comes through WeChat.

Known locally as Weixin, WeChat had 438 million monthly active users globally, mostly in China, at the end of June, and has rapidly evolved from a messaging tool into a digital Swiss Army knife, allowing users to send messages, play games, book taxis and shop online.

The app has proved a winning formula in getting people in China, a market notorious for not paying for software, to connect their bank accounts with their phones and pay for virtual goods like extra lives and power-ups in mobile games.

Apple takes a 30 per cent cut on all sales. "We're seeing some substantial strength there," Apple CEO Tim Cook said of China in a July earnings call.

"The thing that's actually growing the most is the iTunes, Software and Services category, which has the App Store in it. That area is almost doubling year over year."

Apple's Greater China revenues, which include Hong Kong and Taiwan, soared 28 per cent in April-June from a year earlier to US$5.9 billion, and globally, iTunes, Software and Services sales were the company's second-fastest growing product category, up 12 per cent year-on-year to US$4.5 billion.

Tencent was the top game publisher for Apple's iOS operating system in China by revenue for both June and July, according to App Annie, a company that measures app usage. Apple is this week expected to launch its new iPhone - with a gamer-friendly larger screen.

"A VERY VIRTUOUS CYCLE"

Apple makes all software sales on the iPhone go through its App Store. Typically, the Cupertino, California-based company will take its 30 per cent of the sales, while the rest goes to an app's developer or publisher.

WeChat, which itself hosts apps and games made by other developers, is no different. The cash from any products sold on the app are split between Apple, Tencent and the developer.

"By far the biggest factor driving App Store revenue in China is WeChat," said Ben Thompson, who writes about technology at stratechery.com. "WeChat has driven app download and usage, which drives people to want to buy stuff, which drives them to connect their payment information. It's been a very virtuous cycle."

Growth has also been helped by increased smartphone sales since China Mobile, the country's largest carrier, began offering the iPhone in January.

A big part of WeChat's success has been with casual games - highly addictive hits like Candy Crush Saga and Temple Run that are often free to download but let users pay for in-game upgrades. WeChat has its own stable of games, and also publishes Candy Crush in China.

Games integrated with WeChat and Tencent's other mobile social network, Mobile QQ, generated revenues of 3 billion yuan (US$489 million) for Tencent in April-June, up from around 1.8 billion yuan in January-March.

"If you look at who's playing Temple Run and Candy Crush, a lot of these were non-gamers five years ago," said Junde Yu, App Annie's vice president of Asia Pacific.

"With the advent of smartphones, the ease of use, they started to download apps, and because they're very casual and fun they start playing games. It hooks them and encourages them to start making payments."

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