As customers require more and better functions from mobile phones, cellphone application software stores in China have appeared and some leaders are innovating in distribution networks and user-experience to win market share.

"Most mobile application software stores in China earn money through advertisements and network flows, creating no real value at all. We are thinking of new ways to change the common profit pattern. The first thing we are doing is to innovate in the distribution network to attract more users," Song Tao, chief executive officer of Sky Network Technology Co, told China Daily.

"Most application store companies in China work online. We are planning to develop businesses both online and offline. We are setting up 10,000 stores cooperating with retailers and handset manufacturers within a year," said Song, adding that the company already cooperates with more than 800 domestic handset manufacturers.

Companies need a unique selling point - a USP - to survive.

According to Song, most Chinese are used to using free software. His company plans to invest several hundred million yuan in the first three years.

"Our solid cash flow from feature phone operations and highly competitive, new products for low cost smartphones make us one of the best-positioned mobile Internet companies in China," he said.

Song also said the company will encourage good products by allocating at least 20 percent of its revenues to the developers of software in its application stores.

Sky Network, founded in 2005, listed on the Nasdaq in 2010. It was the first Chinese mobile Internet stock to do so. US-based VC firm Sequoia Capital invested $3.5 million in Sky Network in 2007 and it holds 28.1 percent of shares in the company. According to its company presentation in March on its website, Sky Network is the largest mobile application store in China with an approximately 50 percent market share. Its cumulative users reached 899 million people with 7.6 billion cumulative downloads from Jan 1, 2007, to Dec 31, 2011.

AppChina.com, founded in 2010, is targeting high-end users whose cellphone prices are more than 2,000 yuan. It is innovating in user experience to stand out in the market.

"In the past 18 months, we have made efforts to improve the Web browsing and download speeds for mobile users as fast as using wifi," said Luo Chuan, chief executive officer at AppChina and former head of MSN China.

According to Luo, the company checks software on its platform carefully and removes disruptive and misleading advertisements to guarantee users have a high-quality experience. He said 50 percent of first-time users of AppChina return.

AppChina's mobile software is in 50 million cellphones, Luo said. "An application store should not simply put software in a basket. It should be able to recommend particular software to particular users based on their interests," said Luo.

He said his company will encourage popular software developers with good pay.

Most of their software will be free. Less than 10 percent of high-end products including good games and books will be charged and become a significant way of making profits. AppChina raised funds of 40 million yuan in January from venture capital firm Fang Fund and Kai-Fu Lee's Innovation Works. There are more than 100 mobile application software stores in China but only 10 will survive, Sina Technology quoted Tan Yi, chief executive officer of gfan.com, as saying.