When Wang Tingting, a Shanghai sales assistant, ditched her iPhone 5 last year for a Huawei P9 Plus, she noticed little difference: Both phones run WeChat, the app she and millions of other Chinese consumers use the most.
"I don't miss the iPhone at all," said Ms. Wang, 24 years old.
That sentiment undermines Apple Inc.'s efforts in its largest market outside the U.S., just as it is expected to launch its much-anticipated 10th-anniversary iPhone this fall.
The WeChat app from Tencent Holdings Ltd., with nearly one billion monthly active users, alone has captured nearly 35% of China's smartphone users' entire monthly time on mobile apps, according to data from QuestMobile.
Fans like Ms. Wang use WeChat to message friends, pay restaurant bills, hail cabs, play games and stream videos. This year, WeChat added "mini programs." This feature allows users to access apps stored in the cloud, so the apps can be used without being downloaded or stored on a device, giving users one less reason to buy an iPhone instead of cheaper domestic brands.
Skeptical investors are asking whether consumers in China will pay $1,000 for a new iPhone, when they spend more than 60% of their phone time inside a system from Tencent or from rivals Baidu Inc. and Alibaba Group Holding Ltd.
"That's the question: Is Apple losing its edge?" said Katy Huberty of Morgan Stanley, who remains optimistic about Apple's prospects in China.
Apple declined to comment.
Once the No. 3 player in China, Apple's iPhone is now the No. 4 smartphone brand by market share behind local rivals Oppo and Vivo, from BBK Electronics Corp., and Huawei Technologies Co., according to JL Warren Capital, a market-research firm focused on China. The iPhone's market share has fallen below 10% in China, from a peak of 13% in 2015.
Because of WeChat, in part, 50% of iPhone owners stayed with Apple when buying a new phone, according to independent analyst Ben Thompson of Stratechery, who highlighted the WeChat threat in a recent note. The figure is 80% for the rest of the world. That has turned Apple into just another vendor in China, Mr. Thompson wrote recently -- "a hazardous place to be."
Other surveys show Apple has stronger brand loyalty than competitors. A Morgan Stanley study found 74% of China's iPhone owners would stay with Apple, compared with retention rates of 24% for Oppo and 19% for Vivo.
The iPhone maintains a 70% share of the high-priced smartphone market, according to Morgan Stanley, and Apple reported a 90% year-over-year increase in app store sales in 2016. "We continue to be very enthusiastic about our opportunity in China," Apple Chief Executive Tim Cook told analysts in May.
Still, iPhone troubles have contributed to a steep sales drop for Apple in its Greater China market, which includes Hong Kong and Taiwan. It was the company's only market to report a sales decline in the first half of the fiscal year. Revenue fell 13% in the period, after a 6.4% drop in the same period a year ago.
Analysts expect Apple to release a 10th-anniversary iPhone this fall with a new design and features like wireless charging and facial recognition. They say its success largely depends on sales in China.
As an indication of the market's importance, Apple recently named its first executive with oversight of its China business, Isabel Ge Mahe. Her job includes keeping close to the market and ensuring Apple has the right features to appeal to Chinese buyers.
On Saturday, Apple removed apps that help users circumvent China's internet censorship, a move that may help the firm win some favor with Chinese authorities.
Apple has made changes to iOS 11, its coming operating system, to improve the QR code functionality popularized by WeChat and other Chinese apps. It also has developed features that enable iPhone owners to use their phone number as an Apple ID and to filter out text-message scams that inundate many smartphone users in China.
Tailoring software for the market could be critical to keeping the iPhone competitive. Otherwise, Mr. Thompson wrote, Apple runs the risk that the phone's appearance becomes the only thing that matters when Chinese consumers buy a new device.
Such a shift potentially would force Apple to overhaul its entire business model, moving to a system where it releases a new-looking phone annually rather than every other year, as it does currently.
Apple has long had a certain cachet with consumers who value style and brand as much as function. That distinction is losing its edge. Ren Yanmei, 56, of Zhengzhou, recently switched from an iPhone to a Xiaomi phone, using it to read news, send texts and chat by video with her daughter. "If a phone has WeChat, I don't care about the brand," she says.
--Junya Qian in Shanghai contributed to this article.
(END) Dow Jones Newswires
July 30, 2017 07:14 ET (11:14 GMT)