Design-focused commerce company Fab has raised that round of funding we scooped a few months ago. Fab is announcing today that it has raised $150 million in the first tranche of the company’s Series D round of financing. We’re told that $150 million is the first part of a larger Series D round that Fab expects to complete over the next few months. New to this round is Chinese Internet giant Tencent, who will also have a board seat at Fab; and Japanese conglomerate Itochu. Previous investors Atomico, Andreessen Horowitz, Menlo Ventures, RTP Capital, Pinnacle Ventures, Lars Hinrichs, and Docomo Capital also participated in this latest round of financing.

This brings Fab’s total funding to $310 million. We’re hearing from multiple sources that the pre-money valuation of the company was $1 billion, as we had reported in April (a spokesperson for Fab has confirmed the valuation). And we’ve also heard from a source that Fab will be raising another $100 million or more in the later part of this round. At Fab’s last round of financing in 2012, the company was worth around $600 million. Past investors include First Round Capital, SoftTech VC, Baroda Ventures, Ashton Kutcher, Guy Oseary, Thrive Capital, Kevin Rose, SV Angel, The Washington Post, VTB Capital, Phenomen Ventures and the Times of India.

Founder and CEO Jason Goldberg said the company started down the fundraising route in March to raise enough capital to have several years of runway, at least until 2015. He added that for this round there was $400 million worth of interest coming from investors.

Growth, International And Another Pivot

Fourteen million users strong, Fab is continuing to grow at a fast clip after its initial pivot. Last year, the company saw $150 million in revenue, and revealed in February that sales were up by nearly 300 percent in January 2013 over January 2012. In fact, January was Fab’s third-highest sales month ever.

According to the company, Fab should reach $250 million in 2013 sales. Fab’s now achieving 43 percent gross margins, up from 29 percent in 2011. Interestingly, Fab says that most of its revenue is not derived from flash sales, which was the initial model Fab adopted after its pivot in 2011. As we wrote in this profile of the company, Fab infamously pivoted from Fabulis, which was a social network for the gay community, into a flash sales site. Fab says that two-thirds of sales are currently not from the flash-sales on the site, and the company recently rebranded to reflect this change. And 50 percent of Fab’s sales are in home categories.

In May, Fab debuted its new design store, which makes it more of an integrated e-commerce site. You can access design pages by room, type of furniture, color, designer and more.

International is also a huge potential growth area for the company. Fab has 1 million members in the UK, which is generating nearly 40 percent of its sales in Europe and is its fastest-growing market outside the U.S. Asia is the next frontier, which is why Goldberg and Fab are bringing on Tencent and Itochu as partners.

As Goldberg explains, there are currently only four e-commerce companies in the world that are valued at more than $10 billion: Amazon, Alibaba, eBay, and Rakuten. He believes that Fab has a legitimate chance to be the fifth by leading in what he calls Emotional Commerce. This basically means that Fab helps people discover the items they love and want.

Part of Fab’s plan to take over emotional commerce involves making its own line of products and home goods. Fab is also partnering with designers to manufacture and sell home furnishings exclusively through Fab. Additionally, Fab is experimenting with brick and mortar stores, with the first store debuting in Hamburg, Germany. Mobile is also a huge growth area, with one-third of sales being placed via mobile. And international will also be a major strategic focus for Fab, which just acquired German custom furniture store Massivkonzept. Fab sells products in 27 countries and 40 percent of sales today occur outside the U.S.

What Fab Is Spending The Cash On

$150 million is a lot of cash, and Fab is raising more. Where is the money going? Goldberg says that Fab will be investing in additional enhancements to its supply chain, logistics, customer service, technology, and merchandising. At the beginning of 2012 it took 16 days — on average — from time of purchase to shipping a product. Today, 75 percent of Fab’s orders ship within 24 hours of purchase, and Fab wants to make sure this is the case for 100 percent of the products sold on the site. This year Fab will open its own new Fab-operated warehouse in The Netherlands to serve European customers. In 2014 Fab will open a warehouse in the Las Vegas area.

As mentioned above, Fab will also be doubling down on manufacturing and designing more products in-house, as well as working with designers to offer items exclusively on Fab. We can also expect more development in social and mobile. And Goldberg says Fab will be putting more investment in international (likely via more acquisitions, as it has bought five companies in two years).

With the Tencent investment, Goldberg says that Fab will be working together to expand the site’s presence in China.

As for why Fab has raised as much as it has in only two years, Goldberg maintains that this is how retail works. “Tell me an e-commerce business that is worth more than $5 billion that hasn’t raised a lot of money,” he says. To fund things like logistics, fulfillment, inventory and manufacturing, a business needs a lot of capital, he explains. He adds that if Fab stayed as a U.S. business, the company wouldn’t need to raise as much.

There is also now a somewhat clear path towards profitability, at least for the U.S. and European businesses. Goldberg says that Fab will likely become profitable in its U.S. and European operations by Q4 2014 or Q1 2015.

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Chinese Internet companies Baidu, Tencent and Qihoo 360 are reportedly competing to purchase Sogou, Sohu‘s search business. Sina Tech’s report cites unnamed sources in the investment industry (link via Google Translate) and Sogou CEO Wang Xiaoquan has already taken to his Sina Weibo account to brush off the report as “unreliable,” but it’s worth noting that rumors of two recent acquisitions–PPS by Baidu and Alibaba’s purchase of a stake in Sina Weibo–both turned out to be true.

According to Sina Tech’s sources, Sogou, the third largest search engine in China, is currently stymied by a development bottleneck and can’t grab any more market share away from Baidu and Qihoo 360. Baidu has 67.21 percent market share and Qihoo 360 holds 14.94 percent, compared to Sogou’s 9.15 percent slice, according to data from CNZZ. The company has been considering a sale for the past six months, with Qihoo offering $140 million including stock and cash options, while Baidu is offering an undisclosed but higher amount of cash. Meanwhile, Tencent has entered the fray mainly because it doesn’t want Qihoo 360 to get its hands on Sogou.

The sale has been held up in part because of dissension within Sogou’s top ranks. CEO Wang Xiaochuan is reportedly at the head of the faction that wants to sell to Qihoo 360, but Sohu chairman Charles Zhang prefers Baidu’s offer. Sina Tech sources say, however, that Qihoo 360′s offer looks poised to triumph. If Qihoo 360 does indeed buy Sogou, the deal will boost the combined company’s market share to about 25 percent. Qihoo 360 will also reap the benefits of Sogou’s unique “smart input” method, which currently has 195 million active users.

“If the two merge it will really subvert the current structure of the search market. It’ll become a power struggle between two competitors,” said Sina Tech’s source.

A Baidu spokesman declined comment. Qihoo 360 and Tencent have also been emailed for comment.

Article courtesy of TechCrunch

Tencent’s WeChat messenger has made a larger play for the Singapore market, with the release of a TV commercial in the country.

The Chinese commercial features two popular Taiwanese stars, and will air on the free-to-air Chinese channels in the country.

Louis Song, country manager of Tencent’s international business group for Malaysia and Singapore, said the company hopes to gather more mindshare in the country. “Singapore is a very strong market like Hong Kong, Taiwan, Malaysia, and Thailand. We are witnessing a sturdy growth in mobile application platforms,” he said.

Singapore has almost 8 million mobile subscriptions, at a penetration rate of 150 percent of the population, meaning every other person holds more than one phone. Anecdotally however, Whatsapp appears to be more popular in Singapore than WeChat for the moment.

And the 8 million is just a drop in the bucket for WeChat’s current base of 300 million or so subscribers.

The TV ad strategy appears to be one that both WeChat and Japanese competitor, Line, are relying on. Both messaging players recently released TV ads in Indonesia, revealing that the strategy seemed to work well for them in increasing user adoption there.

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Tencent’s social blogging site, Qzone, has Asia’s largest active social network user base, with 600 million (and counting) users who log in more than twice a month.

Besides Qzone, the Chinese Internet giant is perhaps better known for its flagship QQ instant messenger and the exploding WeChat smartphone messaging app.

I spoke to Peter Zheng, vice president of Tencent’s social network group. He’s been overseeing Qzone’s evolution for the past eight years. He told me that when Qzone was launched in 2005, it was initially planned as a Geocities-style blog community, before the company decided to add social aspects by linking blogs to users’ QQ accounts. “Luckily, when we started, Facebook wasn’t common in China. There were some challenges from other platforms like microblogs such as Weibo, but these [Twitter-like channels] are quite public, and people saw QZone as a more private space,” he said.

It wasn’t always supposed to be walled, but QZone inherited the company’s older QQ contact list that added people based on user IDs, not more universal identifiers like email addresses or phone numbers. And unlike what we’re used to on Facebook or LinkedIn for example, you can’t see who your friends’ friends are because of the way those lists were architected, said Zheng.

“For a while, we were concerned that that made it hard for people to expand their friends lists. Our legacy was closed, and we thought it hindered the expansion of the network,” he said. But it seemed to work out. “Over time, our users told us that they didn’t want to add contacts the way you do on Facebook. When everyone is added deliberately because you sought them out, you’re just adding buddies you want to share your updates with. Turns out that was a way to keep your friend circles tight, and our users are keener to share on Qzone because of that,” he said.

This is the mantra of some of the “private” sharing platforms like Path—some with more success than others—but Tencent seems to have stumbled upon the working formula and had its popularity multiplied by the sheer volume of users coming onboard in its home country.

^{Over 100 million users concurrently on Qzone, with most of them concentrated in China}

Another way it has fueled its user growth is an early emphasis on the mobile phone. The Qzone app was released in early 2010, and included features like photo filters and the option to record voice memos. While a typical Twitter or Tumblr user would take a photo, open it in a separate app to dress it up, then open the blogging app to post it, all of this can be done within Qzone’s app, reducing the friction to post. (Instagram was launched towards Fall 2010.)

The Qzone app has also added features that caught on with Asian users earlier than they did in the West, such as decorative water marks. “Asian users like to decorate their photos, not just filter them,” he said. Qzone’s app also allows users to add a voice clip as a status update, or tag it to a photo. “That makes it feel more personal. You can send a gift and attach a voice clip from the phone too,” Zheng said.

When he showed me a typical Qzone page, I was boggled by how busy the page was, with animations and audio. “It’s almost like MySpace,” I say.

“Sort of,” he agreed. “But it isn’t really the form factor that matters the most. Maintaining the relationship with your existing user base and keeping them happy goes a long way. You want to be on the social network that your friends are on, and always keeping it fresh means users stay happy.”

Tapping the ideas of 22,000

It is here in Shenzhen’s hi-tech district that Zheng’s 2,000 or so engineers work on Qzone. The Tencent headquarters is a sprawling skyscraper, dwarfing its myriad grey-washed neighbors. While I had problems getting my cab driver to register exactly where I wanted to be in the already famous Hua Qiang Bei cluster, simply saying “Tencent” in English got him to immediately acknowledge, exclaiming “Teng Xun Da Sha”, which translates to Tencent Plaza in Mandarin.

Started in 1998, Tencent is China’s largest Internet company by revenue, and was the first Internet company in the country to break through the $1 billion revenue mark in 2009.

My arrival at the headquarters was kicked off with a tour of the impressive lobby showcase area. A big, gleaming board reflected how many users were concurrently on QQ—156 million that Wednesday afternoon, with a peak of 172 million. The company counts an active user as someone who logs in more than twice a month, and by that measure, has an impressively high retention rate of 700 million out of its 1 billion total users worldwide.

^{156 million users chatting on QQ instant messenger at the same time}

“This is the same tour that our CEO, Pony Ma, gave to (Chinese Communist Party general secretary) Xi Jinping when he visited,” informed my guide in impeccable English. I asked her how long she’s been working for Tencent, and she said she’s been with the company for the past two years since she graduated. “I do not consider myself young here,” she said, shaking her head.

And perhaps she can’t. The average age of Tencent’s 22,000 employees is merely 26—a feat made possible by an aggressive, ongoing hiring campaign that takes Tencent to tertiary institutions in the country in order to sniff out their finest.

The constant influx of fresh blood could be one of the reasons why Tencent has kept up with China’s relatively young Internet population. China’s average age across its user base is just 25, while in the US, that number is much higher at 42.

How do you juggle ideas coming in from thousands of young, enthusiastic minds? “Unfortunately, you have to cancel projects if they don’t work after a certain time, usually several weeks or months,” said Zheng.

“There are no bad ideas, only bad execution. So we give all ideas a fair chance, but we look for teams with bad execution and we do kill their projects,” he said.

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Tencent, China’s largest Internet company by revenue, announced today that it has hired Peter Cheng, the former chief operating officer of AdChina, as the general manager of Tencent’s online media group advertising platform. Cheng will take charge of Tencent’s advertising platform-related business and report to Liu Shengyi, the senior vice president of Tencent and president of the online media group. The move comes after Tencent warned of slowing advertising spending in the Chinese market.

Cheng became AdChina’s COO in February 2008, where he was responsible for the daily operations of the company’s integrated marketing and advertising platform. Before joining AdChina, Cheng was vice president of product management at online advertising company Adify and prior to that held senior marketing and product management positions at eBay, Oracle, and FedEx.

Back in November, Tencent said  that advertising spending in the Chinese market continues to be slow due to a weak economy and industrywide sluggishness. Even though Tencent’s ad-revenue growth in the third quarter reached 69 percent, the company warned that its winning streak was coming to an end “because decelerating economic growth in China may slow revenue growth rates for the online-advertising industry as a whole, including [Tencent's] own online-advertising business.” Other Chinese Internet companies hit by declining advertising spending include Baidu and Renren. At that time, however, Tencent chief strategy officer James Mitchell also said that the company still has room to add advertisements, in particular targeted ads, to its platforms.

In May 2012, Tencent restructured its business units into six groups, including the Online Media Group Cheng just joined. The move was meant to help it ward off competition from Alibaba/Taobao and Sina Weibo. Cheng will “continue to work on maximizing advertisers’ marketing value through the integration of Tencent’s marketing platforms,” said the company in a press release.

“More and more advertisers are focusing on new media and mobile marketing. Soon, new technologies such as RTB, audience targeting and social CRM (customer relationship management) will inject new power into online marketing,” said Cheng in the statement. “We are already seeing  major developments in online video advertising, and all of these innovations will revolutionize traditional marketing approaches.”

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China’s Internet juggernaut Tencent announced today that it would undergo a restructuring of its business units into six groups. Ren Yuxin was also named as the new chief operating officer and will head  up the media and social-networking groups.

The six groups include:

TEG – Technology & Engineering Group, comprised of Tencent Research and operating divisions.

SNG – Social Networking Group, comprised of its Internet business lines and some divisions from Tencent Research.

CBG – Creative Business Group, formed by Tencent Guangdong R&D Center and its corporate development arm.

IEG – Interactive Entertainment Group, original Interactive Entertainment service.

MIG – Mobile Internet Group, made up of wireless services and some divisions from Tencent Research.

OMG – Online Media Group, namely its portal business.

The most profitable Chinese Internet company and its red scarf clad penguin mascot, has been growing into quite the force by competing with other Chinese Internet companies on many fronts like portal business (rivals with Sina, Sohu and NetEase), online games (Sohu, NetEase and Shanda), social networking service (Sina, Renren), software and anti-virus services (Qihoo 360), online video (Qiyi, Sohu Video), eCommerce (Taobao), travel booking (Ctrip), online payment (Alipay) and search (Baidu and Sogou). Just to name a few.

In the firm’s freshly released Q1 2012 financial results, the company turned a profit of US $470.6 million on revenue of 1.53 billion, a 2.8% increase from this time last year.

All of its major offerings are still seeing big growth, for example, its instant messaging system QQ now boasts 751.9 million accounts, up 11.5% YOY. Both QZone and Pengyou.com, Tencent’s approach to social networking to date claims 576.7 million and 214.5 million users respectively, up 9.7% since last quarter and a stunning 30.2% YOY. And the Shenzhen-based company’s profit-making businesses including QQ Game Open Platform, Internet value-added service, wireless Internet value-added service as well as online advertising business all pulled off decent growth in the past quarter.

However, there’s always more than meets the eye.

For starters, Tencent’s investment spree last year hasn’t brought on too much revenue, for example, it still lags behind Alibaba/Taobao on the eCommerce front in spite of all its recent acquisitions. Starting last year, Tencent invested in a handful of eCommerce services, like Gaopeng (think Groupon), China’s Zappos OKBuy.com, the Chinese OTA elong.com, diamond dealer kela.cn, 3C etailer 51buy.com and so forth, with elong.com being the only one turning a profit.

Furthermore, Sina Weibo, which is like a Chinese mix of Facebook and Twitter, is posing a real threat to Tencent’s dominance in social networking. Just like Tencent built its empire on QQ, Sina has been working relentlessly on Weibo to reinvent itself from the traditional online media company to the leading social media outlet by adding a swath of innovations to the platform like Weibo Open Platform, Enterprise Weibo, Weibo gaming center and so on.

At the same time, Tencent’s search effort Soso has been long-rumored to be facing serious downsizing, which shows that a company that seems as strong as Tencent can still have weaknesses. Soso hasn’t had any major breakthroughs since its inception six years ago. It currently accounts for 1.5% of China’s search market in the first quarter of this year, according to a report by Beijing-based market researcher iResearch.

Tencent should be wary of the rise of its peers and an organizational restructure might help it be more responsive to market change and be nimble in execution.

Article courtesy of TechCrunch

Editor’s note: Guest author Gang Lu is the editor of TechNode, a bilingual blog based in China.

As Facebook’s imminent IPO became the talk of Silicon Valley and Wall Street, you might have read from the social networking site’s SEC S-1 filing that it pulled in more than $1 billion in profit on revenue of $3.71 billion last year. What Facebook’s prospectus will not tell you, is that the social giant has taken a page from Tencent’s business model, at least according to the Chinese Internet giant’s CTO.

Xiong Minghua, Tencent’s CTO, said in a speech at the ChinaBang Awards ceremony (which was hosted by my Chinese bilingual media blog, TechNode) that years ago in its early stage, Facebook encountered some serious pitfalls such as where Facebook was heading (product direction) and how to make money (business model). So how did Facebook solve these problems?

“Frankly speaking, [Facebook] learned a lot from Tencent with regard to business models”, said Xiong, “Facebook and Tencent have communicated in depth on that front in Facebook’s early stage. I visited Facebook back in 2006 and they cared a lot about Tencent’s business models—especially our micro payment, they studied it thoroughly. Their staffs visited us many times and we had lots of communication in the past few years.”

He also mentioned that before Facebook’s inception, U.S. Internet companies’ one and only business model was online advertising. Then Facebook introduced micro payments and selling virtual items. Advertising is still the vast majority of Facebook’s revenues, but payments are already a $557 million business, and growing fast.

On the other hand, Xiong sang high praises for Facebook’s part in ushering in a new age in the history of the Internet—opening up to the outside world rather than sealing it off. He said the “Facebook open platform” marked the beginning of a new era, and nothing that came before it has had such an impact on the proliferation of startups.

At the same time, it seems to him that the lesson of Facebook, and even of Tencent, is that you don’t have to and can’t afford to wait for a perfect team, the best user experience, or a proven business model to start your own cause. These are the things to be solved while on-the-go. They’re part of the entrepreneurial path rather than the prerequisite. It might take longer for some to figure everything out than others, but the point is to stick to it. Tencent once considered selling the company, he notes, but luckily, it didn’t and hence it has built its own internet empire in China.

Article courtesy of TechCrunch

Editor’s note: Contributor Kai Lukoff is a Beijing-based writer who is the founder of startup blog Techrice.

In the West, the battle for the social graph is over for now. Facebook is the undisputed champion. All my Western friends use Facebook, and many are addicted.

“If Facebook is the world’s social graph, then QQ (Tencent’s instant messenger) is China’s social graph,”

TechCrunch Disrupt Beijing kicked off with a bang this morning: Pony Ma, founder, Executive Director, Chairman, and CEO of Chinese giant Tencent took the stage for a fireside chat with our own Sarah Lacy. Tencent, for those who aren’t familiar with it, is one of the world’s biggest Internet giants. The company sees $3 billion in revenue and $1 billion in profit annually, with services that include web portals, games, social networks, and IM. According to Forbes, Ma is the 9th richest person in China.

The interview spanned many topics, ranging from Tencent’s past to the role China will have as the web continues to grow and mature. And it was notable for another reason: this was the first time Ma agreed to be interviewed on stage by a foreign journalist.

You’ll find my takeaways below, and a recording of the whole interview above — it’s well worth watching.

Lacy began the interview by asking about the criticisms that Chinese entrepreneurs are “just copycats” — a notion she thinks is overstated (Google wasn’t the first search engine), but that is widely held nonetheless.

Ma said that it’s a difficult topic, explaining that China has a relatively short Internet history compared to the US and Silicon Valley (he notes that Europe is in a similar situation). And he said other sectors have seen a similar mimicry process. But in the long term, he doesn’t see it as a continuing trend — if you don’t have innovative applications and innovative cultures, and you aren’t attracting talent, then the industry won’t be sustained. In other words, it sounds like he believes we’ll see more creativity coming out of China over time.

The conversation then turned to Tencent. The company, while immensely succesful, has also developed a reputation for squashing competition — Lacy pointed out that there’s a saying among Chinese startups: “Life, Death, or Tencent”.

Ma didn’t do much to dispute this idea (he mentioned that Microsoft had a similar reputation in the past). But he said that the company is working hard to change things by embracing a more open platform approach, following in the footsteps of Facebook’s application platform and Apple’s App Store. Ma explains that there’s no way for one company to produce all the applications that its users want, and that the demands of these customers are specialized. Which is why creating ecosystems where many developers and applications can thrive is beneficial.

Lacy then asked about the lack of success many Silicon Valley-based startups have when they try venturing into China, pointing out some of the stumbles Groupon has had along the way.

Ma declined to criticize Groupon too much (he said they’re a Tencent partner), but he said that in general it’s proven that the Chinese market is vastly different compared to America and elsewhere. Sometimes companies don’t have particularly solid integrations and try to get started too quickly. Another issue he points out: in the US, when a company starts to get traction, they often have a 3-6 month headstart compared to the competition. In China, as soon as someone launches a site, hundreds of other people have started working on the same idea within the hour. “You need to have extraordinary wisdom to be the forerunner,” he said.

Some other key takeaways: Asked what keeps him up at night, Ma recounted the myriad ways Internet companies can fail — everything from server outages to data loss. But in the long term, it’s the fact that the company is always looking to make sure it’s on top of the next great business opportunity.

Ma said that, as he set about building Tencent, he learned from many of the articles written in and about Silicon Valley. “I think Steve Jobs is my idol”, he said, explaining that the integration of technical products and art is something everyone should aspire to.  He added, “wealth won’t give you satisfaction, creating a good product that’s well received by users is what matters most.”

Article courtesy of TechCrunch

First up, Tencent CEO Pony Ma, and then YouTube’s Steve Chen.

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