Alibaba’s potential secret US weapon

Brent Lewin | Bloomberg | Getty Images The Alibaba Group Holding Ltd. application loading page is displayed on an Apple Inc. iPad, rear, and iPhone 5s in an arranged photograph.

Brent Lewin | Bloomberg | Getty Images
The Alibaba Group Holding Ltd. application loading page is displayed on an Apple Inc. iPad, rear, and iPhone 5s in an arranged photograph.

China’s biggest Internet companies, after gaining dominance at home, are now looking for ways to generate revenue in the U.S. It’s no enviable task. GoogleFacebookTwitter and are more than just major brands—they’re addictive habits.

In China’s U.S. push, all eyes are currently on Alibaba, the e-retailing giant that’s prepping one of the largest Internet initial public offerings on record, even though 85 percent of its sales are from domestic commerce.

As the company dips into the U.S. and onto Amazon’s home turf, a little-known Chinese-based start-up called AppFlood may be among its best allies.

Co-founded and led by Si Shen, a former executive at Google’s China unit, AppFlood is a mobile advertising network that promotes applications to users on Apple’s iOS devices and Google’s Android phones, helping them get discovered among the hundreds of thousands of available apps.

“Mainstream U.S. consumers have not had any recognized Chinese brands in their daily life,” Shen said. “Alibaba has the potential to be the first recognized brand.”

Shen knows how challenging it is for Chinese companies to reach U.S. consumers and how reluctant they are to partner with unfamiliar businesses.

As a bilingual Chinese native, who went to college in Beijing and did her graduate work at Stanford University in California, Shen is serving as a technology liaison and positioning AppFlood to make boatloads of money in the process. The company has offices in Beijing, San Francisco and London.

“Trust is the selling point, because with a lot of these Chinese companies, there’s a language and cultural barrier,” said Hurst Lin, a Beijing-based partner at venture firm DCM and an early investor in PapayaMobile, the parent company of AppFlood. “American competitors do not have the understanding of what Chinese companies want.”

Read More Google-China showdown

AppFlood has its own hurdles to clear. Trying to win deals in the digital ad market, particularly in the U.S., means contending with Google. The search leader, which owns popular sites and services as well as a major mobile ad network, controls about half of the $32.7 billion mobile ad market, according to eMarketer. Facebook is second with 22 percent this year.

Among app discovery tools, AppFlood has a host of competitors. Tap4Fun, a mobile game developer based in Chengdu, China, has spent some money with AppFlood in the U.S., but more with rivals like Chartboost, said Charlie Moseley, the Tap4Fun’s creative director. While AppFlood is effective at bringing in users for Tap4Fun games in emerging markets like Brazil and India, other companies attract new U.S. customers at a lower cost, said Moseley. And user acquisition costs are more critical than working with a Chinese company, he said.

“It’s very easy to lose money,” Moseley said. “It can be a very dangerous and costly thing to do if you don’t know what you’re doing.”

Still, AppFlood is winning its share of the pie, and some Chinese companies are spending millions of dollars a month on the service. Its biggest customers include Chinese search provider Baidu, security software provider Qihoo 360 and Sungy Mobile, which allows users to customize their home screen.

As a search engine, Baidu may have no shot of taking on Google in the U.S., but the company has other products that can be competitive. AppFlood’s network is driving installations of Baidu apps such as its speed booster and battery saver products that enhance mobile phone performance. Baidu said in January that its speed booster app reached five million downloads in just four months.

Will Baidu remain dominant in China?

AppFlood has been in talks to work with Alibaba, which recently entered the mobile game market and last week invested $120 million in U.S. game developer Kabam.

Read More Alibaba’s US investments

A representative from Alibaba declined to comment.

Shen, 32, co-founded PapayaMobile in 2008 after five years at Google. The company was a mobile app developer focused on games until finding out there was more money to be made helping other developers promote theirapps.

With Chinese companies looking to break into the U.S., she created AppFlood in 2012 as the way to make it happen. PapayaMobile has raised $22 million in venture funding from DCM, which has offices in China, the U.S. and Japan, and Keystone Ventures, headquartered in Beijing.

AppFlood is the heart of the business, with revenue multiplying by tenfold in the past three quarters, Shen said.

DCM’s Lin said that AppFlood can establish a healthy business working with Chinese apps in the U.S., but to become a really big company it needs to build a network at home. The Chinese mobile ad market is still in its early days, and is a couple years behind the U.S., but growth is inevitable, Lin said. And by getting a head start in the U.S. and perfecting its ad-targeting technology, the thinking goes, AppFlood is poised to take off in China when the market is ready.

“She’ll be the biggest and most refined,” Lin said, referring to Shen. “Initially the big dollars will be made the U.S.”

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