Chinese mobile app developer Sungy Mobile saw an 8% year-on-year decline in revenues from mobile apps in the fourth quarter of 2014. Revenues from mobile apps have barely grown since the fourth quarter of 2013, though the company has reported stable growth in user numbers. Two factors may explain the stagnation of revenue growth: (1) a failure to convert free users into paying customers of its own or third-party offerings, and (2) Chinese competitors entered the market aggressively in 2014.
Sungy Mobile was one of the first if not the first Chinese mobile service developer with the majority of its users from overseas that went to IPO in the U.S. Before it went public in late 2013, Go Launcher, its flagship Android app, and several personalization apps for Android had had a total of 325 million installs, 70% of which were from outside China.
Sungy Mobile’s Android launcher business was regarded as a success in applying a proven Chinese business model to overseas markets: gaining a large user base with a free and user-friendly internet product and then monetizing it by offering advertising inventory or taking revenue cuts from businesses who are allowed to sell goods, physical or virtual, to its users. At the time of listing, its revenue sources included mobile advertising, paid app downloads and in-app offerings.
It was expected that Sungy Mobile’s Android apps’ revenue growth would accelerate after the IPO when the company added gaming, one of China’s top-grossing internet services. And while Chinese users are reluctant to purchase paid apps it was believed overseas users, especially those in the developed markets, would do so.
It turns out neither became a revenue driver for the company. Since the fourth quarter of 2012 the number of quarterly paid downloads has barely grown. Gaming reported a 10% year-on-year decline in sales in the fourth quarter of 2014. Considering the large user base Sungy Mobile has claimed, sales revenues from paid downloads and gaming is relatively small.
It’s believed that the difficulty in converting free users into paying customers has something to do with the fact that most users of Chinese mobile apps, including Sungy Mobile’s, were acquired from third-party mobile ad networks rather than via organic growth. Unlike the domestic market, where they know more or less through which channels to reach a target audience, Chinese mobile app companies are less knowledgeable about individual countries than about international mobile ad networks, so they have to work at them especially when they want to get a large number of users in a short period of time. The chances that users acquired this way will be active or loyal users isn’t high, especially when if their ad budget wasn’t large.
So it’s not surprising to see Sungy Mobile’s mobile revenues come mainly from mobile advertising and its acquisition of mobile ad network GetJar. No matter if its users are active, it can at least place ads on its apps, while GetJar helps to acquire users and to improve ad inventory.
Becoming a mobile ad network therefore seems the short-term solution for Chinese tech companies with an international presence like Sungy Mobile.
Before Sungy Mobile’s revenues began to decline, other Chinese mobile app developers also believed its model could work overseas. In 2014 a handful of Chinese Android launchers emerged who also gained large numbers of overseas users, either with competitive products or by acquiring users from mobile ad networks.
Solo Launcher claimed several million users when announcing a Series A round of funding in December 2014. APUS, a startup founded by former Qihoo 360 executives, claimed it had had raised more than US$100 million to promote its Android launcher and other mobile apps overseas.
Though they are still far from encountering monetization problems, some have found problems in the business of utility and personalization apps, such as an Android launcher. Ads on launchers are annoying enough while they are being pressured to create more ad placements to help revenues grow. Also, as Android progresses, some offerings or benefits provided by those apps will be unnecessary or outdated.
It’s as yet unknown whether becoming a mobile ad network would be good for those Chinese utility and personalization apps. Some developers are trying to figure other ways. Solo Launcher tried to develop better mobile search on top for its Android launcher and then monetize through search marketing.
Though Cheetah Mobile started as a junk file cleaner rather than an Android launcher, it’s in the same position of exploring overseas markets. Cheetah Mobile is one of the big clients for several mobile ad networks we know. Similarly, its major revenue source is selling mobile ad inventory, and it has acquired two mobile advertising services, HongKong Zoom Interactive MobParter.
A major difference between Cheetah Mobile and Sungy Mobile and other Chinese developers is that the former is far more aggressive, having acquired as many as 1.1 billion installs worldwide as of the fourth quarter of 2014. Thus, it has an ad inventory larger than any other Chinese developer with a global presence.
Beginning monetizing overseas installs from the second quarter of 2014, the company generated US$22.4 million in overseas mobile ad revenue in the fourth quarter of 2014, almost four times that of Sungy Mobile’s. The sum was 24% of Cheetah Mobile’s total revenue that quarter.
What’s interesting is that the rest of the company’s revenues are from the aforementioned proven business model. Like Qihoo 360, Cheetah Mobile began with a free internet security product and has monetized its user base through advertising and gaming, amongst others.
Cheetah Mobile believes it is bringing the proven Chinese business model overseas. But it seems to know that in the short term the only revenue driver can be advertising. Cheetah Mobile’s CEO said on the latest earnings conference call that they wanted to become a leading global mobile advertising platform in two to three years.
Editing by Mike Cormack (@bucketoftongues)