April 8, 2014, 10:31 AM

Chinese e-retailers build a solid business on selling intangible products

Cell phone plans, travel packages, and games are all big sellers online. Wal-Mart’s China subsidiary, Yihoadian, is among the latest web retailers to strengthen its sales of lottery tickets.

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Many forms of gambling are illegal in mainland China, but not lotteries, which are a big business—including online.

Chinese consumers bought 40 billion yuan ($6.4 billion) worth of lottery tickets via the web in 2013, up 82.4% from 2012, according to China’s Ministry of Finance. That represented nearly 13% of total lottery purchases of 309.3 billion yuan ($49.8 billion) last year.

Most of the largest e-retail sites in China sell lottery tickets, including Taobao.com, JD.com and Suning.com. Online grocery shop Yihaodian recently added to its offerings via a deal with lottery site 500.com, which will sell lottery products through Yihaodian’s online marketplace for outside sellers.

“As a market leader, 500.com has a strong advantage on products, technology and lottery information. The users of Yihaodian demonstrate a strong demand for virtual products, such as lottery products. Our sales of lottery products grew 103% in 2013,” says Yihaodian vice president Wu Haiquan.

500.com is one of two companies approved by the Ministry of Finance of to provide lottery products for sale online in China. The company is listed on the New York Stock Exchange and has a market value of about $2 billion. Yihaodian, No. 5 in the newly released Internet retailer China 500 guide, is 51% owned by Wal-Mart Stores Inc. JD.com is No. 1 in the China 500 and Suning.com No. 2. (While Taobao and Tmall, Alibaba Group Holding Ltd.’s two big online shopping malls account for 80% of online retail sales in China, they are not ranked in the China 500 because they are not merchants themselves; instead sales on Taobao and Tmall are attributed to the merchants that sell on those marketplaces.)

Besides lottery products, Chinese e-retailers also sell a variety of other virtual products. For example, Taobao.com sells cell phone plans, travel packages and access to online games. While Alibaba doesn’t disclose its sales from virtual products,  Suning.com says they account for about 5% of total sales.

Chinese consumers are much more likely than their U.S. counterparts to buy certain virtual products, such as items offered within online games. In China, 67% of iPad users and 63% of Android tablet users say they buy virtual goods in games, versus 37% and 33%, respectively, in the U.S., according to consulting firm Frank N. Magid Associates.

Connect with Frank Tong on LinkedIn.

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