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Source: Reuters

INTERVIEW-UPDATE 1-Sky-mobi revenue growth to be below industry

Published: 28 Mar 2011 22:46:23 PST

* Sees topline growth below market growth rates this year

* In talks with U.S. iPhone, Japanese, South Korean game developers

* Eyes huge growth in China's lower-end mobile user space (Adds details, quotes)

SHANGHAI, March 29 - China's Sky-mobi , the country's leading mobile application developer, sees its topline growth rate increasing at a slower pace than the industry's this year, as changes to mobile payment hurts the user experience, a top executive said on Tuesday.

Sky-mobi, which makes most of its revenue by selling mobile applications from its application store, recently entered the mobile advertising space via an agreement with one of China's leading advertising portals, Sohu.com Inc . [ID:nL3E7EN2HP]

The firm also plans to chase tie-ups with other companies and push its community platform, Maopao, where selling virtual items is driving revenue growth.

"Certain parts of our business such as mobile community will be, but overall we will not be growing at that high of a rate," Carl Yeung, chief financial officer of Sky-mobi, told Reuters in an interview, comparing the firm's growth rate to China's mobile Internet market, which he said was delivering annual revenue growth of 100 percent.

Yeung said Chinese operators' recent decision to switch to double or triple payment verification for the user has cut into revenues as users have to adjust to the new system.

"It's already getting better, but it will take time for users to fully adapt to double and triple confirmation," he said.

Analysts say one of Sky-mobi's greatest challenges is when an established player Internet company such as Baidu or Tencent Holdings decides to enter the mobile space.

Yeung admits to having no real competitors in the market right now and is actively seeking strategic tie-ups and agreements to counter that threat.

Sky-mobi signed in January an agreement with Tencent, China's largest Internet company by market value, to promote the latter's applications on its application store.

Yeung said Sky-mobi is in talks with Japanese, South Korean and U.S. iPhone developers to create games for Sky-mobi's application store.

China is the world's largest mobile and Internet market by users with penetration rates much lower than that of developed markets.

At the end of December last year, Sky-mobi had 58.6 million registered members, an increase of 369 percent over the previous year. The firm had 846 million downloads from its application store for the three months that ended on Dec. 31.

Sky-mobi eyes revenue contribution from mobile advertising reaching 20 percent in the medium to long term, while revenue from its community platform will hit 50 percent in that time period, up from the 20 percent it is expected to contribute this fiscal year.

NO TABLETS, FOCUS ON GRASSROOTS

Sky-mobi will continue to focus solely on mobile phones and cultivating its core 'grassroots' customers that are pegged as migrant workers, between the ages of 18-25 and making around 2,000 yuan ($305) a month.

"We are quite determined not to go into tablets," Yeung said.

"Tablet technology today is good for professionals, people with higher incomes and relatively more free time, but this group of people (lower-end users) do not have that," he said.

Yeung said more than 70 percent of all of China's mobile phone users fall into this 'grassroots' category. These users will fuel future growth of the firm, as most of them spend their time on their mobile phones because of limited access to the Internet through PCs and don't make enough to own televisions.

"If you really look at China, China is not Shanghai or Beijing," Yeung said, as the rationale for targeting lower-end users.

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