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Bad news for the App Store and for Greater China are terrible news for Apple.

The Financial Times reported on July 1 that “Apple has blocked updates on tens of thousands of revenue- generating iPhone games on its App Store in China”. The move was not sudden, however. The Cupertino company had been warning developers without proper Chinese government-approved licensing since February that their update privileges would be revoked on June 30.

Here are some concerning numbers that show the scale of the problem. According to AppinChina:

“Apple has roughly 60,000 games in China that cost money or include in-app purchases. China's regulators only issued 1,570 licenses last year.”

The math behind China App Store

From the information above, it looks like a very large number of gaming app developers in China could be impacted. To understand why this might be a big deal, allow me to do a bit of math based on my estimates and data provided by the Analysis Group:

  • Over 40% of the App Store’s in-app advertising revenue in 2019 was generated by games, or $20 billion.
  • Of the total in-app advertising revenue from gaming in 2019, $1 of every $5 came from China.
  • It is unclear how much of the $13 billion in digital goods and services revenues in China came from gaming. Assuming 25% (other sources include streaming, books and others), we are looking at another $3.25 billion in app developing revenues generated.
  • Apple keeps 30% of the total. In the case of gaming revenues from China, I estimate that Apple earned about $2.2 billion last year: one-in-five of the $20 billion in ads plus 25% of $13 billion, all of it multiplied by Apple’s 30% commission.

For context, I calculate that total App Store revenues to Apple reached $15 billion in 2019. If I am right in my calculations, gaming app revenues from China add up to roughly one-sixth of the total company’s number. Put a dent on this revenue stream, and both service and Greater China revenue growth can start to look a bit wobbly in 2020.

China remains a concern for Apple

This is just another step in Apple’s long journey to regain its footing in Greater China. As I reported a few times before, the company has ben facing several challenges in the Far East, after having achieved “peak China sales” in 2015:

  • the economic effects of COVID-19 are pushing consumers to slow down on spending
  • major smartphone competitors in the Chinese market have already released their 5G models
  • the US-China trade dispute could disrupt Apple’s business, particularly its supply chain
  • Apple has been losing ground to Huawei in tablet sales

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