In China, feature phones still dominant, help drive Internet usage, mobile search

China's Easou, a mobile Internet search company, has more than 200 million users, many of whom use feature phones

While smartphones have been the craze in China's tech market, feature phones are still helping to drive Internet usage in the country, especially with search. A case in point is Easou, a mobile Internet search company with more than 200 million users in the country, many of whom are using less advanced handsets from Nokia and local Chinese brands.

"In the U.S., when the smartphone came out, people started using the devices to go online," said Frank Wang, CEO of Easou. "But in China, some are still using feature phones to go online."

Despite China becoming the world's largest smartphone market by shipments -- with Android helping to drive the majority of sales -- feature phones still reign in the country. For 2012, shipments of the devices are expected to reach 218 million units in China, exceeding smartphone shipments by 58 million, according to research firm IDC.

But while analysts expect feature phone use to drop over time, the devices combined with smartphones have helped bring China's mobile Internet user base to 388 million, surpassing the number of desktop-based users, according to the China Internet Network Information Center.

For Easou, feature phones have helped the company tap the country's burgeoning mobile Internet space, a market in which Chinese Internet giants Baidu and Tencent are also expanding their search services. Founded in 2005, Easou previously focused on the country's key smaller cities, outside of Beijing and Shanghai, where PC use was less common.

"The U.S. first had the Internet, then the mobile Internet. But this wasn't the case for China," Wang said in an interview."In China, early on there were people who didn't use PC-based Internet, but instead used the mobile Internet. It's been like this for many years."

In the second quarter, only 17.6 percent of the company's users had Android devices, while Apple's iOS stood at 3.5 percent. Instead, a large remainder, at 60 percent, were users with Nokia Symbian devices or handsets designed around phone chips from MediaTek.

With the rise of smartphones, however, many PC-based Internet users in the country are now moving to mobile devices as a way to go online. In response, Easou has been working to expand into China's first-tier cities including Beijing and Shanghai, where smartphone usage is more prevalent. The company wants to differentiate its services by providing more location-based searches, while aiming to provide targeted replies to users' queries rather than a long list of web pages.

But while China's mobile Internet space is opening opportunities, the market still faces challenges given the small screen sizes of many mobile phones.

Unlike in China's PC-based search which Baidu dominates, in the mobile Internet search space, the search giant competes with Tencent and Easou, with each company having about a 20 to more than 30 percent market share, according to research firm Analysys International.

Advertising revenue in China's mobile Internet market, however, is still small compared to the more lucrative PC-based Internet ad business, said Mark Natkin, managing director for Beijing-based Marbridge Consulting.

Local Chinese media have reported that Easou made 300 million yuan in revenue last year, which the company declined to confirm. In comparison, Baidu made 5.46 billion yuan in revenue in this year's second quarter alone.

"One major challenge is screen size," Natkin said. "It's just not so attractive for an ad to be on a small mobile screen." Mobile phones users in China are also less accustomed to purchasing products with their handsets, and generally only go online to view entertainment news or pornography, two areas difficult to monetize, Natkin said.

To sell more ads, Easou has targeted small and medium businesses in 50 cities across the China, by using its offline sales offices, according to Wang. Asked if he was concerned about competition with Baidu and Tencent, Wang said the landscape of China's Internet market continues to change, allowing new companies to rise.

"If in three to five years, the mobile Internet market rises, then Easou will truly become a magnificent company," Wang said.

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