Last week, news hit that Shanda is partnering with Hong Kong listed electronics retailer Yolo to distribute Shanda’s EZ series of home entertainment products got me scratching my head (again) about the present and future of e-commerce in China, specifically, where is it going?

Consider the Shanda and Yolo relationship:

(1) Shanda is one of the largest web based companies in China with a hyper active — first adopters of e-commerce — and loyal customer base, and yet they’ve been unable to successfully sell their EZ home entertainment products via Shanda’s platform

(2) Shanda has structured a deal whereby Yolo will not only subsidize EZ Pod purchases (RMB200 below sticker price), but also share revenues from EZ Pod (i.e. fees generated from paid subscriptions)

So the question is, why is Shanda moving offline (and asking Yolo to subsidize EZ Pod) when they have a captivate audience, solid branding, traffic, and a solid payment platform in place (could you ask for a more fertile e-commerce environment)? And, what does this say about the future of e-commerce in China (ex-out gaming and mature content)?

I have some ideas, but I’ll leave it up you, the reader, to fill in the blanks…