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WITH CHINESE CHARACTERISTICS < HTTPS://TECHNODE.COM/CATEGORY/WITH-CHINESE- CHARACTERISTICS/> What’s to blame for top Android developer’s downfall? How once-solid became a wounded gazelle.

by Wei Sheng < https://technode.com/author/sheng-wei/> Mar 26, 2020

A few years ago, Chinese app developer Cheetah Mobile was a solid, medium-sized software company with a global user base. Backed by investments from and Bytedance, its utility apps for Android—including Clean Master, a browser, and a popular keyboard—were some of the most downloaded apps ever on Google’s Play Store.

Today, it’s a wounded gazelle, battling for survival. The company has been cut off from major mobile ad platforms, including Facebook. The company’s apps were removed from Google’s store in February as part of a purge of apps identified as malicious by Google, Android’s parent company, company executives said on a Tuesday earnings call.

Cheetah reported on Tuesday that its fourth-quarter revenue fell 55.7% year on year to RMB 612 million (about $86 million), and warned that the worst was yet to come.

The company booked a net loss of RMB 821.2 million in the fourth quarter, compared with net income of RMB 733.3 million in the same period a year ago.

The NYSE-listed company has seen its share price drop 43% since the start of the year, and its market cap has shrunk by nearly 94% from a historical high of $4.8 billion in May 2015.

What went wrong? The truth is that Cheetah has faced serious questions about data collection and ad practices for years, but until recently privacy and security questions haven’t been a serious threat to companies like Cheetah. Changing political contexts have sharply reduced the tolerance of US partners like Facebook and Google for small companies with mixed reputations.

Asian apps purged

In February, all of Cheetah Mobile’s apps and mobile games were removed from the store. Though Q4 results do not include the impact from the removals, company CFO Thomas Ren warned that the removals were “a bigger threat to the company than the coronavirus outbreak” during the earnings call.

Google said its reason < https://security.googleblog.com/2020/02/disruptive-ads- enforcement-and-our-new.html> for removing Cheetah Mobile apps, along with hundreds of apps from other developers, was that they displayed “disruptive ads” some of which were full-screen ads that covered the interface of their host apps. Per Bjorke, Google’s senior product manager for ad traffic quality, told BuzzFeed News < https://www.buzzfeednews.com/article/craigsilverman/google-bans-android-apps- disruptive-ads> in a February interview that the apps removed were “mainly from developers based in China, Hong Kong, Singapore, and India.”

Cheetah said it generated < http://ir.cmcm.com/2020-02-21-Cheetah-Mobile- Provides-Updates-on-Google-Collaboration> around 22.6% of its total revenue from Google in the first nine months of 2019 and that the removal would “adversely affect” its ability to attract new users and generate revenue from Google platforms.

Habitual fraud

The end of its relationships with US tech companies comes as they’re under increasing pressure to reassure their users about security. Cheetah, whose at least sloppy and allegedly fraudulent advertising and data collection practices have been criticized at length by Buzzfeed, faces a context in which such allegations are hard to ignore.

Data security is increasingly critical to Chinese tech companies that target users in the US. Beijing-based Bytedance’s popular short video app TikTok is struggling < https://technode.com/2020/03/12/tiktok-to-open-transparency-center-in-us-amid- lawmaker-scrutiny/> to assuage US lawmakers’ growing scrutiny over its content moderation policies and data security practices. Huawei, meanwhile, has been banned from importing components from American companies as a result of the Trump administration’s concerns that the company may hand over US telecom user data to the Chinese government.

Company founder and CEO Fu Sheng said during the call on Tuesday evening that its sinking revenue was due to a dropoff in online advertising income from its utility apps, which accounted for 80.4% of its total revenue in the quarter. Utility app ad revenue, Fu said, fell on an annual basis as a result of a suspension of its collaboration with Facebook on mobile ads in December 2018, but he didn’t provide further details.

The suspension of Cheetah Mobile’s “collaboration” with Facebook followed a November 2018 Buzzfeed News report < https://www.buzzfeednews.com/article/craigsilverman/android-apps-cheetah- mobile-kika-kochava-ad-fraud> , which said that seven apps developed by Cheetah Mobile available on the Google Play store have been “exploiting user permissions as part of an ad fraud scheme that could have stolen millions of dollars,” citing research from app analytics company Kochava.

The company said in a statement to TechNode Thursday that “the issue was caused by third-party advertising software development kits (SDKs),” and that it was not the company’s apps that performed fraudulent activities.

Cheetah’s offerings include a wide range of utility tools from file management applications to for mobile devices. Its flagship utility tools are Clean Master and Security Master, which together have been downloaded more than 4.1 billion times globally, according to the company’s website. Unable to distribute them on Google’s Play store, the company has started to provide the .apk install files of some products for Android users on its website.

Gabi Cirlig, a researcher at cybersecurity company White Ops, told Forbes < https://www.forbes.com/sites/thomasbrewster/2020/03/03/warning-an-android- security-app-with-1-billion-downloads-is-recording-users-web- browsing/#6378cb5f2149> earlier this month that four apps made by Cheetah Mobile, including Clean Master and Security Master, had been “collecting all manner of private user data, including users’ browsing history, search engine queries, and Wi-Fi access point names” and sending them to a web server based in China.

White Ops said it informed Google about the suspicious data transmissions in December, according to the report. It’s unclear whether the accusation by White Ops was the reason Cheetah’s apps were removed. Google did not respond to TechNode’s request for comment on Tuesday.

Cheetah Mobile said in a statement to TechNode that the company “need to obtain some level of data permissions” in order to “provide corresponding app services and continually improve user experience.”

“For example, the Wi-Fi hotspot which is mentioned in the article is used to detect security risks associated with Wi-Fi networks. Data in relation to ‘web browsing’ is used to protect our users from security risks or to provide a better user experience,” said the company.

Shifting blame

But however bad Cheetah’s practices were, it took years for US tech majors to object to them. The company has been a major Android player since 10 years ago. Google’s ban more than a year after accusations against the company were first published by Buzzfeed.

LatePost cited an anonymous industrial insider as saying that the reason was that Google is cracking down on developers with a bad reputation, not targeting specific apps.

Fu, however, doesn’t think so. He said in the interview that Google removed all of Cheetah’s apps because “Chinese companies are becoming less important to American companies.”

Some of Cheetah Mobile’s apps that run no ads, such as livestreaming platform LiveMe, were also taken down from the Play store, company CEO Fu told Chinese business news outlet Late Post < https://mp.weixin.qq.com/s/_CvplNOd45GWRqD176Y4rQ> in an interview.

Cheetah has been singled out by US politicians as a security threat. US Senator Mark Warner told BuzzFeed News < https://www.buzzfeednews.com/article/craigsilverman/mark-warner-cheetah-mobile- chinese-apps> in an interview in December 2018 that he was particularly concerned about the huge amount of user data that is collected from Americans by companies such as Cheetah Mobile and Kika Tech, another Chinese app developer that runs a popular keyboard app.

In February, Cheetah said it had contacted < http://ir.cmcm.com/2020-02-21-Cheetah- Mobile-Provides-Updates-on-Google-Collaboration> Google to appeal the ban. But the effort didn’t pay off. The company said in a statement < http://ir.cmcm.com/2020-03- 24-Cheetah-Mobile-Announces-Fourth-Quarter-2019-and-Full-Year-2019-Unaudited- Consolidated-Financial-Results> on Tuesday that Google had rejected its appeal.

“We are still in talks with Google [about restoring apps to the Play store], but it really depends on [Google’s] attitude. We can’t make any predictions,” Fu said during the call with analysts on Tuesday.

In addition to the app removal, Google also suspended Cheetah Mobile’s Google AdMob and Google Ad Manager accounts, meaning that the company is no longer able to earn income from Google’s mobile advertising platforms, including apps already downloaded to users’ phones.

Back to home market

If Cheetah is going to survive, it’ll probably be as a Chinese company.

The removal from Google’s is likely to have the biggest effect on Cheetah Mobile’s overseas revenue from mobile games and utility apps because most of Google’s services are not accessible from China, including the Play store. The company relies on domestic app stores such as Xiaomi’s Mi App Store and Huawei’s AppGallery to distribute apps in China.

The company’s revenue from utility tools was RMB 298.6 million in Q4, accounting for 48.7% of its total revenue, while it earned RMB 285.1 million from mobile games, comprising 46.6% of revenue.

Overall, the company earned more than half of its total revenue from overseas markets during the quarter, or RMB 330 million.

The Google ban has forced the Chinese company to retreat to its home market. Fu told analysts during the earnings call that the company will pivot its utility tool business to focus on China. “China’s mobile internet market is big enough,” he said.

The company will find other partners in overseas markets to distribute its mobile games, said Fu, without providing detail.

UPDATE: The article has been updated to add a statement from the company responding to White Ops’s report provided after publication, and to, at the company’s request, change a metaphor used to describe Cheetah Mobile to “wounded gazelle.”