Chen Hua, 35, CEO of Beijing Kuzhi Tech, an iPhone application developer, has called for the "unfair" ranking systems in domestic app stores to be dropped, despite the high ranking of his firm's own Changba app in Apple Inc's China App Store.

Some domestic app publishers boost their rankings by hiring professional firms to fake downloads, which causes unfair competition and squeezes newly launched apps and smaller firms, Chen told the Global Times Sunday.

Chen's firm is well-funded, having received around 500 million yuan ($80.4 million) from venture capitalists at the end of 2012. But smaller players in the field need a well-ordered market to grow, and the first thing that needs to be done to create such an environment is to drop app rankings, Chen said.

Manipulated figures

Almost all Internet companies in China have been directly or indirectly involved in dubious market practices such as fake downloads, and this is no longer a secret, said Hao Peiqiang, founder of domestic app downloading platform iApp4me.com, on Sunday.

The main reason for this is that people mainly choose apps according to their rankings in app stores, Hao told the Global Times.

Xu Huaizhe, CEO of domestic social networking operator 00544.com, started to help publishers boost the rankings of their apps from March 2012, via methods like hiring a group of people to download the apps continuously over a given period.

People might consider such a business to be morally unacceptable but it is not against the law, Xu said in his Sina Weibo, adding that his firm will continue its dominance of this business area during 2013.

Such "promotion" is necessary, as many current apps are similar to each other in terms of design and user experience, said Chen.

But faking downloads carries the potential risk of being delisted by major app stores, if they discover it, he warned.

App publishers in China are likely to continue with this practice, as no regulation about it has been issued yet, said Hao. Well-funded app publishers, like game producers that earn big revenues through in-app purchases, can maintain a leading position in rankings by paying around 80,000 yuan a day for fake downloads for a certain period, according to Hao.

This amount is unaffordable for small app publishers, he noted, who consequently face a harder time getting noticed.

Profit hard to come by

The lack of profitable business models in the domestic app market is another big concern.

According to data from Guangdong-based market research firm iiMedia Research Group, more than 55 percent of domestic app developers made a loss during the third quarter of 2012.

Theoretically speaking, with the protection of intellectual property rights, developers could make money by just selling apps.

Finnish firm Rovio Entertainment announced in May 2012 that it generated revenues of $106 million in 2011, mainly from sales of Angry Birds apps.

However, app publishers cannot succeed with this model in China, said Chen, because domestic users prefer free apps, huge numbers of which can be found easily on the Internet.

According to Shanghai-based consulting firm Stenvall Skoeld & Company, around 3 percent of Apple's global App Store revenue in the second quarter of 2012 was contributed by Chinese users. And international app ranking data provider App Annie reported that in December 2012, China ranked second in terms of downloads from the App Store but only sixth in terms of revenue.

Since Chinese users have relatively low willingness to buy apps, many developers turn to alternative revenue sources, advertising in particular, which depends largely on having a large amount of active users, said Hao.

Another concern is that people will soon get tired of the increasing number of advertisements in apps and stop using them, he said.

Besides, the revenue from mobile advertisements is low, and can hardly offset the high costs of promotions for attracting new users, Hao noted.

The average cost per thousand impressions (CPM) for mobile advertisements is around $0.75, compared to $3.50 for webpage advertisements, according to Mary Meeker, a partner of Kleiner Perkins Caufield & Byers, in an annual Internet Trends Report released in December 2012.

The future's still bright

Despite such obstacles, Chen still feels the domestic app market has a bright future, as the mobile Internet industry is booming amid the rise in use of mobile devices.

These devices, such as smartphones and tablets, provide the same functions as personal computers and are more portable, making them increasingly popular in recent years.

According to data released on January 25 by Beijing-based market research firm iResearch, the total market value of China's mobile Internet industry reached 55 billion yuan in 2012, up 96.4 percent year-on-year. The number of smartphone users in China also rose to 360 million, up 80 percent year-on-year. These increases are likely to continue in 2013 and will last for the next three years, the firm said.

According to a report by China Internet Information Center on January 15, 74.5 percent of domestic netizens preferred to surf the Internet via mobile devices in 2012, up from 69.3 percent in 2011.

The growing mobile market has prompted many players in the Internet sector, including Baidu Inc, Renren and Qihoo 360 Technology Co, to develop their own mobile operations and launch various kinds of apps.

The mobile Internet era has arrived and only consistent innovations will enable app developers to survive in the Chinese market, said Hu Zemin, CEO of Boyuan Wireless Websoft Technology, during the 7th Mobile Internet Forum in April 2012.

"Currently, the mobile Internet industry is a promising but money-burning sector. Venture capital determines the life span of domestic app developers in the absence of a feasible profit model. But as long as we are able to develop an app that is needed by domestic users and continuously introduce new functions into it, funds will find us," said Chen, adding that this is not easy, requiring not only good ideas but also promotion skills.

China's current mobile Internet industry could be compared to the early days of the desktop Internet era, full of hope as well as difficulties and dishonest competition, said Hao. Only a few brave and wise firms will survive, perhaps just one in 10 out of the companies currently operating, he said.