China’s Cheetah Mobile eyes U.S. for growth

Cheetah Mobile was born a Chinese company, but it increasingly has global designs.

The app maker rose to prominence in China as a leading maker of utility apps like file managers and battery optimizers. But while the Chinese market is vast and growing, Cheetah found it was often running up against the overarching dominance of China’s Big Three: Baidu, Alibaba and Tencent, known as BAT. That, along with the raft of copycats in the Chinese market, convinced Cheetah to diversify internationally, in particular in the U.S.

“When we went global, we realized that competition was less fierce, which surprised us,” said Josh Ong, director of communications and global brand strategy for Cheetah Mobile.

The company went public at New York Stock Exchange in 2014. It has developed many utility mobile apps, including Clean Master that helps improve device performance, File Manager that helps organize mobile files and Battery Doctor that optimizes phone battery life. Outside of gaming, Cheetah is the second-biggest app publisher worldwide for Google Play downloads, just behind Facebook. By letting users download its apps for free, Cheetah has amassed a huge user base and then monetizes the inventory via native ads.

Already, 20 percent of the app developer’s 651 million monthly active mobile users came from China, down 9 percent from the same period a year prior. It now sees 80 percent of its mobile traffic outside China and 57 percent of its revenue.

To monetize the content, Cheetah Mobile was the lead investor for U.S. ad automation software Nanigans’ Series B financing round and acquired French mobile ad tech startup MobPartner in 2015. It has also been serving ads for international marketers through Twitter MoPub, Facebook Audience Network and Google AdMob. In addition, the company purchased Zoom Interactive back in 2014 to help Facebook resell ads in China where the social giant is banned.

According to John Koetsier, economist for mobile tech company Tune, BAT is forcing many Chinese startups and midsize tech companies to go beyond China’s borders. For example, Chinese ad tech platform Mobvista purchased U.S. mobile app developer NativeX in late February of this year, and it’s expanding to India and Western Europe.

A global strategy proves effective for Cheetah Mobile. Its total revenue reached 1,115 million yuan (around $172.9 million) in the first quarter of 2016, up 57.2 percent from the same period in 2015.

This is a far cry from four years ago when the company aimed to be a PC marker in China. After its founding team visited Silicon Valley at the time, it realized that PC was not the future — mobile was, and there was a bigger market outside of China. Cheetah Mobile decided to shift its business to mobile with a focus on utility apps like battery savers and browsers.

“We knew mobile was growing, but when we looked at the apps on Google Play and App Store, categories like social and photo already had big players like Facebook, Instagram and Snapchat. We just didn’t have resources to take them down,” said Ong. “But tools was a big category as well, and it was not dominated by any players at the time.”

Utility apps can easily go global as the company just needs to optimize them in local languages, Ong added. This year, though, Cheetah Mobile is transitioning from utility to content, building apps that “cannot only solve the phone problem but also solve the life problem.” It embarks on a strategy called “from global to local” to look deep into local markets like U.S., India, Western Europe and Indonesia.

Ong explained that content apps require the company to have a strong local presence. For example, Cheetah Mobile is looking for local editors who understand local languages and culture to work on its new news apps, while its live broadcasting app will be focused on the U.S. because there’s a specific culture around influencer marketing and live video in the region, and the app may not necessarily be able to scale in Poland or Korea, Ong explained.

He added that the next generation of Chinese companies should have a global vision and work hard on user experience. DIY music-video app Musical.ly, for example, is headquartered and designed in China, but it has become beyond popular in the U.S..

“We invested in the app before it rocked to the top of App Store. The user experience is so great that almost all of the early users are from the U.S.,” said Ong. “I think more and more Chinese startups realize that it’s really competitive in China. If other companies succeed abroad, why not go overseas?”

Dan Buckstaff, vp of marketing for content-personalization company Jetlore, added that it would be really daunting to find some “open space” to launch in that one of the BAT isn’t already eyeing. But as a market like the U.S. has demonstrated, entrepreneurs will find a way to bring disruption by riding a new technology or phenomenon, and incumbents like the BAT will find it hard to respond, he explained.

“Who could have predicted the rise of Snapchat at the very moment that Facebook looked so dominant?”said Buckstaff. “I’m sure Chinese entrepreneurs will find a way.”

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