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.

CDG – Corp. Development 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.

The biggest barrier to starting a company isn’t ideas, funding or experience. It’s excuses. And you can understand why: Starting a company is scary even in Silicon Valley, a place where decades of ecosystem formation have provided entrepreneurs with soft-feathered nest of funding, mentoring and support. Outside the Valley it’s downright terrifying. It’s little wonder that even the best entrepreneurs go through a period of doubt and excuses not to take the plunge.

So when I hear complaints from entrepreneurs in other areas of the US or in other countries about how they can’t start companies because there is no angel money, no mentors, no employees that will work for a startup, I always wonder how much of these gripes are truly insurmountable odds to new company formation and how much are the grousing of someone looking for someone else to blame. Perhaps someone who likes the idea of starting a company, but doesn’t really want to put in the hours.

In China, the complaint du jour is that the entrepreneurs are trying to push beyond just founding companies that are clones of Western Web brands, and it’s the VCs that won’t take the risk on truly new ideas. Over two days of backstage deliberation at Disrupt Beijing, I got to see first-hand how the mind of the Chinese VC works. And I have to say, Chinese entrepreneurs have a valid point. Pushed to make a decision on which startups should move forward and which should not, Chinese VCs frequently picked the company with the clearer market over the company with the cool new technology and the gorgeous UI.

This is not entirely a bad thing. In part, the emphasis on solving an existing problem and building a business was refreshing to hear. I’ve long argued we don’t ask these questions backstage at US Disrupts enough, and when I’ve disagreed with the winners in the past, that’s usually been the reason why. In fact, given the arguments over Qwiki v. CloudFlare or Sonar v. BillGuard or Shaker v. anyone else, I might lobby to have a Chinese VC on our judging panels from now on. So it was surreal for me to be the one arguing against an obsession with the market, saying to judges last week, “Remember! These companies are starting for the first time; they don’t have to have all of the answers yet!”

There were a handful of companies shot down by Chinese VCs that would have been received far differently at a US Disrupt. I have a hunch 8 Securities with its slick UI and social engineering would have been a crowd favorite in the US. (It certainly got Jason Kincaid and Erick Schonfeld all hot and bothered.) Likewise, several members of the TechCrunch staff were surprised at how little support there was for UnitedStyles– a user-generated fashion design site built by people with deep industry domain expertise and with a well-thought through user experience. The delightful make-your-own animated ebook company Moglue was another one that seemed to captivate Valley judges in attendance, but was brushed aside by Chinese VCs as clever technology and little else.

In each of these cases– and several others– Chinese VCs had the same complaint: Not a clear enough market for the product. In fact, one thing that set eventual winner OrderWithMe apart from the pack was how well the founders knew their target market and how clearly they could articulate that market’s need for easier-to-source Chinese products. (They deserved the win no matter what continent we were on and were the clear judges, staff and crowd favorite. See our post-win interview with the winners here.)

The bias towards market size makes sense. Size is after all what China’s Web scene has historically had going for it. How much of Tencent’s domination is management and product and how much is its whopping 600 million person audience? It’s impossible to know, but it’s clearly a mix of the two. After all, plenty of companies fail in huge China. But no Tencent, Alibaba or Baidu has come out of India or Brazil to date. A massive domestic market not easily tapped by the West has clearly given Chinese startups more room for error than counterparts in other countries.

Most Westerners have written off Chinese entrepreneurs as unoriginal, and maybe that’s how it started. But it’s clear that at least half of the problem comes from investors. When I asked VCs about their over-reliance on funding clones over new ideas, no one really denied it: The Chinese Web has been characterized by speed and land grab, like the US in 1999 but on steroids. Culturally, the Chinese excel at efficiency and the surest, quickest, easiest way to grab large tracts of Web land was to copy what had worked in the US. The innovation has come in delivery and monetization– many of the so-called copy cats of China are totally different from US companies in practice. But they get their start as the “fill-in-the-blank” of China, and that’s the marketing when they go public too. At the beginning and the end, it’s the game they have to play to get money.

Many investors have become addicted to this sure-thing copy-cat model, although a few investors pointed to increasing investments in areas like the mobile Web that are still developing everywhere. Our runner up– which got the majority of the votes among the Chinese VCs– was Anquanbao, arguably a clone of CloudFlare. (Fittingly, the original was a Disrupt runner up too.)

Anquanbao was the only clone in the finals, and some of the judges seemed to gravitate to it for that reason. Matthew Prince, CloudFlare‘s founder, was a judge of an earlier session and I asked his thoughts on the company. Although he humbly thought CloudFlare’s technology was better, he admitted Anquanbao was the surest bet of all of the Battlefield contestants to build a big company. As he explained it, the market need in China for a security product like this is just so huge. And while CloudFlare is doing plenty of business in China, Prince expects a local company will be the one to win big. That makes Anquanbao perfectly positioned for success.

As an investor, how can you ignore a near-certainty like that? Looking at Disrupt finalists as our own venture portfolio, it was powerful logic for us too and a big reason Anquanbao made it into the finals and won the title of runner-up.

But for Chinese entrepreneurs to get to the next level of Web innovation, investors are going to have to stop making the easy bet. As I reminded VCs on our venture capital panel, they’re supposed to be taking risk. (The normally reverent crowd of Chinese entrepreneurs applauded.)

There’s a groundswell of entrepreneurs who want them to. We not only saw it with the imperfect-but-original company pitches we saw from the Hackathon and the Battlefield, but we heard it from entrepreneurs in the hallways. Pony Ma, founder of Tencent, opened the conference by arguing it was the crucial next step for Chinese Web companies, and said that fears of whether Tencent will keep up with this new generation are what keeps him up at night.

There are hints of a new generation of angels in China who may push the envelope further, even if VCs won’t. Chinese entrepreneur and angel Lei Jun spoke at Disrupt about how he invests differently, despite his most notable win being an Amazon clone. Today, he says he doesn’t merely back a pre-existing idea, he partners with entrepreneurs to create new companies that evolves overtime along with what the market wants.

If TechCrunch didn’t believe in Chinese innovation, we wouldn’t have held our first international conference there. And if the current crop of investors aren’t going to champion it, the market is big enough and there’s enough talent there now that others will. It’s up to the entrepreneurs to push the market forward, not just give the investors what they want.

The sun has set on our first ever TechCrunch Disrupt conference outside U.S. soil. The Beijing event ended this past Tuesday, as OrderWithMe won the Disrupt Cup. With the 12 to 15 hour time difference between the U.S. and China, watching it live wasn’t the easiest option. We produced more than 60 videos. But here’s a look at some of the highlights you might have missed:

Disrupt Cup Winner OrderWithMe’s Demo

OrderWithMe won the Disrupt Cup, emerging to victory from a field of 15 companies. Learn more about their business model, offering wholesale group buying to small businesses and watch a backstage interview with the winners.

Pony Ma, Founder and CEO of Tencent

Tencent is China’s largest and most used internet services portal. Read more about this rare interview with Tencent Founder Pony Ma.

Lei Jun, Co-Founder of Xiaomi, On How He Plans To Take On Apple In The Mobile Phone Industry

Lei Jun is one of the most successful entrepreneurs in China. Read more about Xiaomi Tech’s ambitious goals.

Kai-Fu Lee on his start-up incubator InnovationWorks

InnovationWorks is a Chinese incubator that helps early stage Chinese internet companies. Read more on what they looking for when making investment decisions.

Cheezburger CEO Ben Huh: An Entrepreneur is Someone Who Doesn’t Understand The Word No

Ben Huh, CEO of icanhascheezburger.com, gave a powerful and inspirational talk on internet culture and entrepreneurship. He also explained his mission to make everyone in the world happy for five minutes a day. Read more.

Phil Libin, Evernote CEO on How Freemium Products Can Work

Evernote CEO, Phil Libin, spoke about building a successful freemium product that people will love and will eventually give you money without you having to ask.

TechCrunch Staffer Greg Barto Spins Around In A Barrel

The TechCrunch team and local partners had some time to explore adventures in Beijing. Here’s a ride Greg won’t ever forget.

You can find all the Beijing Disrupt videos here and all the posts here.

More news from Disrupt can be found in our posts on the Complete Guide to Disrupt Beijing Day 1 and Day 2.

In addition to our regular Disrupt Music, which you can download here, we added a new track just for China. [download link]

As we announced last week, we’ve been busy securing some of the most exciting names in China for our Disrupt Beijing conference this October including Tencent Founder and CEO Pony Ma and Chinese entrepreneur and angel investor Lei Jun. But it wouldn’t be a TechCrunch event without bringing a little of that Silicon Valley magic too.

In selecting people to bring to China we wanted a mix of some people who are new to the country and others who have a long experience doing business there; people who are existing successes and those who have a fast-growing, tiger-by-the-tail right now. We also wanted a few people who could speak to the culture and whimsy that makes the Valley so unique.

We’ll start things off with Peter Vesterbacka the mighty eagle of Rovio, maker of Angry Birds. Vesterbacka is no stranger to China, where he says Rovio is busy building a $100 million business by the end of the year. That business spans everything from games to desserts to plush toys. I last saw Vesterbacka at the Next11 Conference in Berlin and the more he told me of his strategy for China, the more I insisted he be at Disrupt. He may even have some news to announce…

Steve Chen, co-founder of YouTube, will also be joining us on stage. Chen is an expert in a good problem to have: A company growing so fast it could bankrupt you. YouTube is one of the biggest phenomena the Web 2.0 world has ever seen. It’s played a pivotal role in everything from US presidential races to the rise of Justin Bieber. And it was the first Web 2.0 to have a $1 billion-plus exit.

The Valley isn’t all about fun ways to waste time. Phil Libin of Evernote calls his company “the anti-Zynga” because it seeks to make you smarter during the little holes in your day. Evernote has a rabid following among its users and is one of the hottest companies in Silicon Valley right now, fresh off raising a recent funding round. Evernote rivals Foursquare in downloads, and unlike Foursquare it has no monetization problems, as Libin explains in this video.

These are just a few of the Valley names joining us in Beijing this October. Stay tuned for more speaker announcements and remember to buy your tickets and apply for the Startup Battlefield today. As a reminder, we’ll have translation headsets for all attendees so all speakers and startups competing can do so in their native language, and our global audience won’t miss a thing. Battlefield applications are available in English and Chinese as well.

Even before I worked at TechCrunch, Disrupt was one of the few industry conferences I looked forward to every year. There were two big reasons why: The enthusiasm and excitement of the startups who launch there, and the unparalleled lineup of the most exciting people in tech engaging in frank, honest conversations.

When we expanded the franchise to New York, it was natural to bring the most exciting Silicon Alley names on stage. That has included people like Fred Wilson and Dennis Crowley, but also the top names in media like Charlie Rose and Arianna Huffington. We even threw New York Mayor Michael Bloomberg in the mix.

In thinking through the lineup for Disrupt Beijing– our first ever International conference– I wanted to make sure we were bringing some of the most interesting personalities from the West to China. But more important was that we anchor the show with the most interesting names in the Chinese tech scene we could find.

This is not a conference about Silicon Valley coming to China to tell the country how it’s done. China is the only other country in the world where entrepreneurs are already building $1 billion Internet powerhouses. This is a conference that seeks to bridge the gap between the two preeminent tech ecosystems in the world today.

So after many months of work and early morning transcontinental phone calls, I’m delighted to start announcing our lineup. It’s a mix of veterans and newcomers, investors and entrepreneurs, and of course East and West.

The conference will kick off with one of the most captivating people in the tech world today: Tencent CEO and founder Pony Ma.

While Alibaba’s Jack Ma or Baidu’s Robin Li are more common on the International conference circuit, it’s Pony Ma who has proven what a force Chinese entrepreneurs can be on a global scale. Tencent is not only the largest Internet company in China, it’s the third largest in the world. It’s a titan of China’s surging online game/virtual goods universe– the one area where the Valley are the copycats, not the Chinese. Tencent is the company you worry about if you’re a startup in China, and if you’re a startup in the US– like Groupon– it’s the company you want to do a joint venture with.

It’s the perfect time for Ma to headline a TechCrunch event. After years of focusing on the Chinese market, Tencent is starting to get more international, expanding its staff in the US and quietly acquiring US startups. If you can’t make it to China, this will be a keynote you’ll want to make sure you catch on the livestream.

Lei Jun isn’t nearly as well known as Ma, but when I asked friends and entrepreneurs in China who they most wanted to see on stage at Disrupt, nearly all of them mentioned him. He’s a serial entrepreneur and angel investor who’s been compared to everyone from Ron Conway to Peter Thiel. Earlier this month, he made waves with the announcement of Xiaomi’s upcoming Android phone in a Steve Jobs-styled keynote.

Xiaomi is one of the most ambitious startups in China right now. It’s aiming to make the first high-quality smart phone made by and for the Chinese market, priced cheaper than other locally made smartphones and at less than half the price of the iPhone. It will run on Android, but have features and apps specifically tailored for the Chinese market. It’s sure to set off a pricing war that will affect everyone from HTC to Google to Apple, and be one of the biggest tech stories of the fall.

We’ll be announcing more speakers over the next few weeks, so you might want to grab your tickets here now. And if you don’t speak Chinese or only speak Chinese– don’t worry. TechCrunch is investing in real-time translation headsets for the conference so every one of our guests can address the audience in their native language and everyone in attendance can follow along.

As I said at the beginning of this post, the other thing that makes Disrupt such a special event is the Startup Battlefield. We can stack an agenda with big names, but we rely on the TechCrunch community to make the Battlefield just as memorable. If you’re a startup, and you want to demo your product on the same stage as Pony Ma and Lei Jun, send us your application now. Application forms are available in English and Chinese, and the presentations can be done in either language as well. The Battlefield isn’t limited to just Chinese companies– as with all of our Disrupts startups from all over the world are welcome to submit.

Questions about whether your company is a fit? When in doubt, it doesn’t hurt to fill out the application. Only TechCrunch staff will be vetting the applications, and we want to see everyone great.

Stay tuned for more information about Disrupt Beijing in coming weeks and go here for tickets.

Tencent, a major provider of Internet and mobile services in China, has reported second quarter earnings today, and unfortunately fell short of analyst expectations. Revenue came in at $1 billion, an increase of 44.3% from the second quarter of 2010.

Profit for the period was 2.35 Yuan (Around $362.1 million), which is an increase of 21.3% year over year. Analysts expected 2.54 billion Yuan in terms of net profit. Net margin decreased to 34.8% from 45.5% last quarter. For the first half of 2011, Tencent’s total revenues were 2.02 billion, an increase of 47% from 2010.

Tencent active instant messaging (QQ) user accounts grew 4.1% from the first quarter 2011 to 701.9 million accounts. Active Qzone (social network) user accounts increased 5.1% compared to the quarter prior to 530 million, while active Pengyou accounts increased 27.5% quarter-over-quarter to nearly 129.3 million.

Chairman and CEO of Tencent Ma Huateng reassured in a statement “Despite a seasonally weaker period, we achieved solid growth in both operational and financial metrics in the second quarter of 2011. As we continued to unfold our open platform strategies during the period under review, we have made significant progress in forming partnerships and making strategic investments across industries including e-commerce, entertainment and security, which are aligned with our key development initiatives…In addition, we remain dedicated to making investments in strategic new product areas including microblog, e-commerce, search, online security, online video and international expansion, as we outlined earlier this year. We believe these investments, though bringing margin pressure, will enhance our platforms and generate returns over time.”

Tencent recently partnered with Zynga to bring CityVille to the Chinese market, and invested in Chinese travel site eLong.

China currently has the most Internet users of any country in the world, with some 420 million people connecting to the Web. Some more recent statistics even put that number as high as 485 million. Granted, China has a population of just over 1.3 billion, which means only 32 percent of its population is using the Web, a percentage far lower than the U.S. and Japan (at at 77 percent and 78 percent, respectively).

Of course, with web activity continuing to grow rapidly in China, the Asian power represents an enormous digital market, even as the so-called “Great Firewall of China” has made it difficult (or impossible) to fully transport international digital technologies and businesses into the Chinese ecosystem.

Thanks to China’s strict web regulation (and IP blocking, among other things), in the big picture, U.S. businesses have failed to make a significant impact, even in spite of the fact that China’s web users have begun adopting social networking, microblogging, gaming and more, with gusto.

Twitter has been blocked in China since 2009, for example, but that hasn’t stopped Chinese companies from adopting Twitter-like microblogging platforms at home. The use of “weibo” sites (the Chinese translation of “microblogging”) has exploded in China in the last few years, and two companies in particular have come to dominate the market: Tencent and Sina.

Of course, the matter of which company is winning the “weibo race” in China is open to debate. The reason for this is that Tencent has essentially become, as iChinaStock.com puts it, what AIM, Myspace, Facebook, and Twitter would be were they combined together into one, giant amalgamated enterprise.

Tencent’s IM application, QQ Messenger (a.k.a. QQ), claims to have 674 million active users, (although it’s very likely that estimate is high by several hundred million). QQ is the service from which Tencent signs up its users and then funnels them into its other products and services, including games, search, and Tencent Weibo, to name a few.

According to iChinaStock, microblogging in China really took off with the rise in popularity of Sina Weibo in 2009 and 2010; today, the popular microblogging service has nearly 140 million users. Yet, since Tencent launched Tencent Weibo in 2010, its service, too, has been growing at a breakneck pace, today claiming over 200 million registered users.

However, iChinaStock estimates that only about 93 million of those users are active on the service, and while this number remains open for debate, it is likely that as many as 40 percent of Tencent Weibo users are registering through QQ, which makes those registered stats run high, while in fact many of those users aren’t even active.

As always, the issue of identifying “registered” versus “active” users is delicate, and when it comes to these Chinese microblogging services, much of the data is either unpublished, unreliable, or an estimation.

Yet, in regard to which company is winning the race, Digimind, a solution provider that offers competitive intelligence as well as e-reputation, data mining and social media monitoring, has whipped up a nifty little infographic that gives us a peek into the Weibo War, and how the leaders stack up against Twitter. (See below)

While Digimind has Sina Weibo as the clear leader in China’s microblogging space, Tencent is certainly not to be dismissed, as it is growing exponentially, has an integrated, multi-level platform from which to channel users into its Weibo, and is spending millions on marketing to bring new users to its service.

That being said, those who I spoke to at Digmind, along with sources in China (as well as iChinaStock) all agree that Sina Weibo likely outranks Tencent in terms of the quantity of active users as well as the quality. With Sina owning 57 percent of the Chinese microblogging market and finding high adoption among Chinese celebrities (not to mention have a relatively stable platform without a lot of downtime), Sina looks like the clear frontrunner. Not to mention that the company acquired “weibo.com” and “weibo.cn” — two fairly important domain names for a company looking to dominate the weibo market. Plus, they’re just easier to remember.

While Sina Weibo compares favorably to Twitter in terms of adoption in China, the fact of the matter is that Twitter has a far broader reach, now being translated into 11 languages, whereas Sina and Tencent remain localized to the Chinese market. (Although Sina Weibo is planning to launch an English language version sometime soon.) Of course, it may be that the market is so huge that neither company will effectively become the “Twitter of China”, though Sina Weibo certainly seems to have the competitive advantage at this point.

However, with Tencent’s broader platform and patent ownership reaching into areas including instant messaging, e-commerce, online payment services, search, information security, and gaming, Tencent is diversified to say the least. And, with the massive adoption of QQ, perhaps it is Tencent that has first dibs on a bigger prize: China’s social graph.

Let us know what you think.

Further reading: For a really excellent comparison of Sina Weibo and Tencent (and Tencent Weibo), check out iChinaStock.com’s analysis here, and Bill Bishop of DigiCha’s analysis here.

Without further ado, the infographic:

Excerpt image courtesy of Technode

Silicon Valley loves to dismiss Asian companies as nothing more than copycats who thrive, particularly in China, because the government protects them and punishes Western competitors. Even when the businesses in question are dramatically different in practice and scale, they are described as the “eBay of China”, “The Google of China” and “the YouTube of China,” not Alibaba, Baidu and YouKu. I’ve argued why this is mostly nonsense before.

But the starkest argument that Asia does indeed innovate may be found in the world of free-to-play games and virtual goods. This is a new market we’re in a lather about here with the impending $1 billion IPO of Zynga, but one that is much larger and more than ten years old in Asia.

And one of the industry’s pioneers, Nexon, is also said to be readying itself for an IPO. Nexon was started in Korea, but more recently moved its headquarters to Tokyo. And get this: It has higher revenues, far better margins and dramatically better user engagement statistics than Zynga, even if most average Western investors have never heard of it. No big deal, because it’s likely to file somewhere in Asia according to sources familiar with the matter, not on the NYSE or the Nasdaq. And in Korea, China and Japan, Nexon most definitely doesn’t have the problem of being unknown.

Nexon is a 17-year-old company with 1.14 billion cumulative registered users and 3000 employees. In 2009, it reported revenues of $643 million– just north of Zynga’s 2010 revenues. And we hear from people close to the company, Nexon has been growing revenues at about 30% per year for the last five years. That would put 2010 revenues around $900 million, and revenues in 2011 on pace to comfortably break $1 billion. That’s impressive growth considering Nexon’s size, age and penetration in its home market, and it means Nexon’s revenue-per-employee is almost double Zynga’s.

What’s more: Nexon’s margins are far better than Zynga’s because they don’t have to pay the 30% Facebook Credits fee on purchases. Our source says the margins are in the range of their largest competitor, Chinese juggernaut Tencent which had 50% margins in 2010. Increased tax and marketing expenses caused margins to fall to 46.3% in its March 2011 earnings report. Still, for what’s essentially a media business, those margins are pretty enviable.

And like Tencent, Nexon is starting to eye North America and Western Europe for growth. Nexon’s biggest market is in Korea, closely followed by its business in China. But its fastest growing market is North America. Nexon is growing more than 50% a year here, albeit off a pretty small base. Nine days ago it launched a private beta on its first Facebook game, a version of its popular MapleStory Adventures. (Featuring that world-weary pig above.) Some 31,000 players have “purchased” 363,000 items over that period. Purchase is in quote marks because the company isn’t actually using Facebook Credits during the beta period, so the purchases are being made from game play points. Actual monetary purchases will almost certainly be less. Still, it gives you an idea of the engagement going on. The game opens to the public July 27.

Recently I talked to Nexon CFO Owen Mahoney about the North America strategy. He wouldn’t comment- or even hint about- the IPO speculation, Nexon’s revenues, growth or margins, but he had some interesting color on Nexon’s push into the US. The driver isn’t so much Zynga’s success, although the company has done an exemplary job of evangelizing the free-to-play, virtual goods model. The biggest driver is that North America and Western Europe are finally reaching critical mass of broadband needed to support Nexon’s traditional graphics-rich games. Yep, when you are a Korean-born gaming company, we are considered an infrastructure and technology backwater that’s just now starting to look interesting.

For the last few years that Mahoney has been working between the US and Asia, it’s been a surreal experience, with the US considering virtual goods an absurd business model, and Asia considering console games selling in boxes on store shelves just as absurd. The journey has been all the more surreal, because Mahoney spent nine years as an executive at EA.

There’s no dying EA equivalent in Asia, because that model was largely leap-frogged over a decade ago as companies like Tencent, Nexon, Shanda, Giant and others started to soar on the free-to-play model. Even subscription-based gaming models have long been out of vogue. “For two years we couldn’t talk to anyone in North America about microtransactions. It was this weird disconnect because Asian markets couldn’t understand why you would ever go to BestBuy and buy a box. It seemed insane. That’s much less the case now,” Mahoney says.

That disconnect is core to how the social Web and the Web in general has evolved in Asia. In the US, the Internet started with email, commerce, transactions and finding information. It was all about convenience and efficiency, and it’s only in the last five-to-ten years that entertainment-for-entertainment-sake has started to become a huge business online. In Asia, it’s largely the opposite. Put another way, social networks emerged because of gaming in Asia, not as an after-thought add on. And that’s benefitted the big Asian game makers who don’t have to pay the 30% customer acquisition costs to a platform like Facebook or Apple. (Although clearly, Nexon is swallowing those terms to expand more broadly in the US.)

The Nexon game and type of gamer is still pretty distinct from Zynga’s casual Farmville farmer. While Zynga excels at games that continually rope you in for short periods of time and develop new versions of its games to keep people engaged, the life of a Nexon gamer playing a single game is measured in long sessions over months and years. A whopping one-third of its users have played for three years or more and play for tens of hours a month. So you could argue just as big Chinese Web 1.0 giants were never true copy-cats of Valley companies, so too has Zynga iterated and “localized” the free-to-play model.

Of course since Asian gaming companies have the five-to-ten year headstart, it’s their turn to be the giant foreign Web company tapping a new market– in this case, the US. In addition to Nexon, Tencent has been wading in as quietly as it can, doing one big acquisition of Riot Games in February and dozens of smaller, unreported acquisitions over the last year or more. It’ll be interesting to watch whether the Asian Web companies coming to the US have a better track record than we had going to Asia.

(Expect this to be a big topic at our Disrupt Beijing conference this fall. Tickets and more details will be available on TechCrunch soon.)

Expedia has acquired approximately 8% of the outstanding shares for $41.2 million, holds 56% of the outstanding shares (Expedia held a a previous investment in eLong), making the company the largest shareholder in eLong.

This is actually the first investment in the travel market for Tencent and the funding represents a partnership as well, in which both companies will develop online travel products and will distribute eLong’s hotel supply to Tencent’s online community. Currently Tencent says it reaches 674 million active user accounts in China. And eLong’s hotel supply portfolio now covers over 150,000 hotel properties worldwide, including more than 19,000 hotels in China, and more than 130,000 internationally through its connection with Expedia.

Flush with cash, Tencent has made a number of major investments recently, including the A-Fund. The company is also rumored to be interested in buying MySpace and just bought Riot Games for $400 million.

For Expedia, the investment gives the company a stronger foothold in China, which is a “key region” for the U.S. travel company.

That lazy marketing strategy has helped companies like YouKu (aka THE YOUTUBE OF CHINA!….nevermind it doesn’t really do user generated content) or RenRen (aka THE FACEBOOK OF CHINA!) to get heady IPO pops, but it doesn’t help investors have a clue what they are really buying or the context of those companies on the ground. Historically boutique banks are better at doing this than the bulge bracket firms. (See the “four horsemen“ who helped build Silicon Valley.)

Pacific Crest has been in China for ten years, and it’s clearly a good time for the firm to be doubling down. Much of the entrepreneurship in China over the last decade has been in non-tech sectors. Think: The guy who became a billionaire by growing the potatoes KFC uses in its fries. (I have no proof that guy actually exists, but I always hear about him when I’m talking to bankers in China as the example that nearly anything becomes a $1 billion business on the mainland.)

But tech is finally exploding, and China is proving that the biggest Web companies no longer come out of Silicon Valley. Not only are Tencent and Baidu two of the five largest Web companies by market cap in the world, the number of $1 billion+ Web companies in China has doubled in the last two years from fifty to more than 100, says Scott Sandbo, Chairman and CEO of Pacific Crest.

And my personal barometer for Chinese investment no longer being a fringe thing: Even Michael “everything great happens in the Valley” Arrington has money invested there.

Of course as the rollercoaster of RenRen’s IPO shows, many people are momentum investing off of scant information, marketing taglines and momentum. That’s not pretty. Hopefully, Pacific Crest can bring some more solid research to the Chinese tech investment landscape, before this whole thing ends in paper millionaires moving back in with their parents….again.

Tencent, a major provider of Internet and mobile services in China, this morning revealed earnings for the first quarter of 2011, reporting a better-than-expected 61 percent jump in net income.

The company’s profit rose to 2.87 billion yuan (roughly $442 million), up from 1.78 billion yuan (roughly $274 million) a year earlier.

Total revenues were 6,33 billion yuan (approximately $975 million), an increase of 14.7 percent over the fourth quarter of 2010 or an increase of 50 percent over the first quarter of 2010.

Tencent active instant messaging (QQ) user accounts grew another 4.1 percent compared to the last quarter of 2010, reaching a whopping 674.3 million. Active Qzone (social network) user accounts increased 2.6 compared to the quarter prior to nearly 505 million, while active Pengyou accounts increased 19.9 percent quarter-over-quarter to nearly 102 million.

The big climb in revenues mostly came from the company’s online gaming business and other ‘Internet value-added services’, such as QQ-related subscription fees.

Despite increasing pressure from gaming industry rivals like Netease, Shanda Games, Perfect World and Changyou, Tencent managed to increase its share of China’s online games market to 29.1 percent in 2010, up from 21.1 percent a year earlier, according to researcher iResearch.

In the first quarter of this year, Tencent’s revenue from Internet value-added services jumped 55 percent to 5.25 billion yuan (roughly $808.5 million) from 3.39 billion yuan ($522 million).

“Looking forward, we remain committed to making significant investments in our existing core businesses and new strategic initiatives including microblog, e-commerce, search, online security, online video and international expansion,” the company said in a canned statement.

For your further reading pleasure:

Move Over iFund: DCM, Tencent, GREE, KDDI Launch $100M A-Fund
China’s Online Game Market Surges; Set To Top $8 Billion By 2014
Tencent Invests $300 Million In Russian Facebook And Zynga Backer DST
What Valley Companies Should Know about Tencent

But in Asia– and much of the rest of the developing world– the anticipated mobile giant is Android. Android phones are just starting to hit Japan and China, and a flood of cheap new models are expected to come on the market within the next year. Expect a flood of new apps to follow that, particularly in China where venture capital is flowing like water.

The rise of Android is as close to a no-brainer prediction as you can make with always volatile and uncertain emerging markets. Combine the market size of countries like Japan, China, Indonesia and India with cheap, increasingly-sophisticated devices and a massive base of gamemakers and hackers and someone’s going to make a lot of money.

Silicon Valley companies have a long track record of screwing up in Asia, especially China. But Google would have to screw up so monumentally badly to blow Android’s Asian future. It would have to screw up worse than eBay, MySpace, Amazon, AOL, and, ahem, Google already screwed up in China, combined.

So it’s not a surprise that DCM has launched a $100 million Asian A-Fund to support early-stage Android entrepreneurs. The surprise is that more firms haven’t been creating funds like these. Android development has already been a huge thrust of Innovation Works, the incubator started by former head of Google China, Kaifu Lee, for about six months. (Innovation Works is also our partner in producing TechCrunch Disrupt in Beijing, so expect to see a lot of Android innovation at the conference this October. More news on Beijing Disrupt is coming soon.)

DCM general partner David Chao says the idea developed over dinner in Beijing with DCM, GREE and KDDI about three months ago where the group couldn’t stop talking about Android’s opportunity in their requisite countries. “There’s this explosion of freedom coming,” Chao says. “It’s probably the first time people all around the world feel like they can do something simple on mobile and unleash their talent. If we just did this in the US, it’d be incredibly restricting.”

DCM’s fund will focus on startups in Silicon Valley, Beijing and Tokyo and investment decisions will be jointly made by partners in all three locations. Mostly, that will be DCM’s existing staff, with a few extra hires. That may sound inefficient, but DCM has long been an outlier with its China strategy, making all its investment decisions as a single firm, not a Valley firm with international franchise offices. And, so far, it’s worked well for the firm.

DCM has partnered with some big Asian heavyweights including gaming giant Tencent, Japan’s largest mobile gaming social network GREE and Japan’s second largest mobile operator KDDI. DCM has additional partners in the United States that it will be announcing in coming weeks.

Chao described the role of the strategic partners as an advantage startups could chose to take advantage of if they wanted distribution help in China and Japan, or refuse if they were worried about those bigger competitors squashing them in the market.

Worries about competition are just one of the headaches with an undertaking like this. While Android is undoubtably a huge opportunity, there are a lot of cooks in this $100 million kitchen– not only across different time zones and cultures, but across different industries. Already, there was a dispute on the part of the various partners on when the news would be released. I woke up to DCM moving the news release up by about five hours, thanks to a promise a Japanese partner made to the Japanese media. Let’s hope the coordination gets better once investments start, because it’s a huge opportunity for startups to leverage these massive markets at once.

Though the Chinese gaming market experienced somewhat sluggish growth in the first part of 2010, by year’s end it had rebounded to 25 percent overall growth, reaching $5 billion in sales. Thus, it seems that it is no longer even remotely outlandish to predict that China will make up a quarter of the industry’s total global sales by 2014, with the U.S. falling to 22 percent, as forecasted by The Financial Times, via investment bank Digi-Capital in February.

The bright outlook for Chinese gaming is bolstered by the fact that country’s top online game companies experienced another banner year of growth in 2010, led by gaming colossus Tencent, which saw revenue push $1.4 billion. Tencent was followed by Netease at $749 million, Shanda Games at $680 million, Perfect World at $374 million, and Changyou with $327 million.

What’s more, in 2010, Shenzhen ZQ Game became the first massively multiplayer online game company to be listed publicly on the Shenzen Stock Exchange — its IPO was for a reported $110 million. Not to mention, Sina Weibo, China’s microblogging platform (in which users can write posts of 140 Chinese characters, a la Twitter), surpassed 100 million users in February 2011, according to Pearl Research.

With the surge in online activity, both in online gaming and China’s social web, it should come as no surprise that Pearl Research predicts Asian, specifically Chinese, companies to drive international consolidation of gaming enterprises this year. Flush with cash, Chinese online gaming companies are expected to reach out beyond domestic markets to strike deals with foreign competitors, driving overseas expansion, and a flurry of M&A activity in 2011.

It sounds like exactly what you’d expect based on this hiring ad, we printed a few weeks ago. It boasts of near-infinite funds, goals to hire 1,000 people by March and an emphasis on consultants and MBAs– not people versed in the local market. Chinese language skills aren’t even mentioned in the ad.

It’s easy to say this is just another botched joint venture and another arrogant US Internet company swaggering into China, thinking its brand name and wads of cash will bridge cultural gaps. Given the track record of US companies entering China, it’s actually hard to say anything but that. I hope Groupon realizes that it needs Tencent to navigate China a lot more than Tencent needs Groupon to build a big group buying site. Tencent is already hedging its bets with a QQ group buying product and an investment in a Yelp clone called Aibang.com.

If the German Groupon unit running the show doesn’t get the realities of how much it needs the cooperation of Tencent and buy in of locals– the Chicago office needs to step in ASAFP. The market moves quickly in China and you don’t get a second chance once you’ve blown it.  These are problems that near-endless cash don’t solve.

Tencent and its founder Pony Ma (seen in a sea of winking penguins to your left) are incredibly press-shy, as everything about the way the deal “leaked” demonstrates. It came late on a Friday before the Superbowl, it was positioned as Tencent buying an undisclosed “majority share” and not an acquisition – even the subsequent analysis was that it was just more proof of how hot the US gaming market is. Even Chinese companies were buying into it!

In fact, this deal represents way more than that – and anyone in the game industry should be paying attention. Not only is this one of the biggest gaming acquisitions of late and one of the biggest purchases of an American company by a Chinese company, but it shows who really understands where gaming is going at a big company level. This isn’t about China suddenly wanting a piece of the hot US gaming market– China and Korea are light years ahead of many gaming startups when it comes to in-browser games and virtual goods. According to Mitch Lasky, a Benchmark partner and investor in Riot, the deal was hotly contested and almost every suitor was from China or Korea. American gaming companies who get on conference calls to talk about how badly they want to expand in this market were nowhere to be found. “American companies don’t get the future they are facing,” Lasky says. “It’s remarkable how short-sighted they are being.” Put a more macro way: This new generation of in-browser gaming and virtual goods could well be the first Internet category where America simply doesn’t dominate.

And Tencent is the most formidable of the next generation gaming titans. The company has been methodically building relationships in the Valley for years, very quietly acquiring stakes in dozens of companies and some small companies outright. As a refresher, the company is not merely the largest Web company in China, it’s the third largest publicly traded Internet company on earth. Like most Chinese companies, it’s been loathe to make acquisitions in China– in part because of it doesn’t want to dilute its culture– and in the US– in part because it doesn’t want the potential American backlash. The fact that this deal was slipped so under the radar, with no outcry no doubt will embolden Tencent and others to make more US purchases.

And, for the entrepreneurs involved, that’s a good thing. There are certain strengths that Chinese Internet companies have that American Internet companies don’t, mostly around monetization execution and micro-payments. Just as a wave of Chinese entrepreneurs learned from working at Valley-based multinationals, so too do gaming entrepreneurs have a lot to learn from Chinese and Korean gaming companies. That’s the big leagues when it comes to high-volume computer-based gaming, not anything happening over here. What Tencent could teach an entrepreneur about scaling and thwarting thousands of hacks per second could rival the most seasoned Valley geek.

Like most things Tencent does, the deal was methodical and a long time coming. The company was an investor in Riot, and has positioned this as a buyout of other shareholders, rather than a straight acquisition. That’s technically true, but it’s not just a DST-like secondary deal. All of the other investors and shareholders– save a group of management Tencent wanted to still have skin in the game– got cashed out. And my understanding from people close to the deal was it was cash, with very little earn-out on the back end.

It’s an interesting way to structure an acquisition. Tencent has clearly learned from what most Valley companies have done badly in China and doesn’t intend to micromanage Riot from half-a-continent away. It intends for Riot to stay independent, and even has said it would support an eventual Riot IPO. If the deal becomes a success, this could be the new model for acquisitions not only for Tencent– but for Chinese Web companies in general.

Nokia this morning announced two deals with leading Chinese Internet companies SINA and Tencent, who will be integrating with Nokia’s Ovi Maps in China.

Millions of users of SINA’s microbloging service and Tencent’s massively popular online community QQ (636 million users and counting) will be able to share their location through Nokia mobile devices, check-in to locations and upload content tied to location, such as recommendations and reviews of restaurants, shops and movie theatres.

The first location-based services for SINA and Tencent customers through Ovi Maps are planned to be available during the first quarter of 2011.

Nokia says more than 250 million people (!) are currently using a Nokia device in China.

Exclusive - QQ is breath-takingly huge in China. A product of Internet juggernaut Tencent, the household instant messaging client boasts some 600 million active users in total – roughly 90 percent of China’s Internet population – of which about 120 million concurrent users access the service on any given day.

Today, the company is launching a full-fledged instant messaging client for international usage dubbed QQi version 1.0, in an effort to broaden its scope even more (download it here).

In addition, the company plans to launch a multi-language social networking service in early 2011, TechCrunch has learned.

So with all the Windows Live Messengers, Skypes, AIMs, Yahoo Messengers, Facebook Chats and whatnot, why would the world need another IM client to communicate with each other? It doesn’t, but QQ has something different to offer: access to its vast user base in China.

An international version of the product has actually been available in beta since earlier this year, targeting mostly expats living in China. Already, some 2 million people use the French, Japanese or English-language version of the service, with more signing up every day.

The service is entirely free of charge, devoid of ads and available for Windows PCs. ‘Light’ versions of QQi with stripped-down functionality are also available for Mac and iOS devices.

By launching an multi-language version of QQ, its most successful product by far, Tencent says it aims to offer a bridge for any non-Chinese user to connect with the existing 600 million active Chinese-language accounts, whether it’d be their friends or business relations.

Apart from its core IM functionality, QQi offers its users a variety of free apps to explore anything China-centric, ranging from job opportunities, news or language learning tools, to events, travel deals, directories, videos, and more.

The service has already partnered with a host of local partners, such as the travel portal Ctrip.com and local news paper ChinaDaily.com.

QQi product manager Marc Violo tells me Tencent intends to integrate more third-party apps and establish more, deeper partnerships with both local and global players in the future.

The IM client will also be made available in more languages down the line.

Details are still thin on the international social networking service Tencent plans to debut, but we should have more information available in the first few months of next year.

敬请期待 (Stay tuned).

But part of this is cultural. American Internet entrepreneurs are more likely to want to sell their companies these days. But in China, it’s like the late 1990s: Success equals an IPO. On the other side of the bargaining table, American companies like to buy technology, engineers and potential competitors and aren’t afraid to potentially overpay to get what they want. Chinese Internet companies have the cash and the stock currency: Tencent is the third largest Internet company in the world by market cap and Baidu is the fifth. But so far, they’ve been loathe to do big acquisitions that would dilute the corporate culture.

That has to change at some point… doesn’t it? We ask DCM’s Ruby Lu about the implications of this IPO-only culture, especially the talent war it’s creating among big companies and startups in China’s hotspots. Video below.

As you may have read, a strange and dramatic fight is escalating in the Chinese Internet between Qihoo 360 and Tencent, maker of the ubiquitous QQ messaging platform.

In short, anti-virus software maker Qihoo 360 accused Tencent of giving out private user data and turned its privacy protection software guns on QQ. Tencent has big muscles in China and its flexing them: It accused Qihoo 360 of something similar, telling users to uninstall the software if they want to keep using QQ. That the standoff is so tense — and critical to the Chinese Internet given the power and reach of the two players– that the country’s Ministry of Industry and Information Technology and the Ministry of Public Security have stepped in. There doesn’t appear to be any solution yet.

Why should you care if you’re not in China? Because China is the largest Web audience in the world and Tencent is the king of it. At north of $40 billion, it also has the third largest market capitalizations of any Web company globally, just edging out eBay and  soaring even higher in the last few months. And it has international ambitions. It owns 10% of Mail.ru, which in turn owns huge chunks of Facebook, Groupon, Zynga and other Western Web 2.0 giants. Watching how Tencent throws its weight around the Web is now as important as watching precedents set by Google or Facebook.

I know what you’re thinking: Chinese companies are up in arms about the rights of individuals online? But let’s put that aside for a minute. This is a test of just how powerful Tencent is becoming– more important, how it views its power in the world’s largest Internet market. Chinese sources are saying they’ve never seen a battle like this amid the normally low-key Web giants, and it’s hard to remember one like this in the Valley. The closest I can remember is the throw down between eBay and Google over payments where eBay blocked Google Checkout transactions on its site and when Google pushed back, eBay pulled its ads. No one won: As Mike said in the link above Google came off like a wimp and eBay came off like a bully.

That spat was nakedly about power in the check out market. This fight is ostensibly about user’s infomation and  the crucial question is whether either of these companies are indeed sticking up for users’ privacy rights or it’s all just competitive posturing. As far as I can tell no one really knows. And that’s the point. In the blackbox of the Chinese Internet, it’s almost impossible to know who is protecting users and who is just protecting their fiefdom. That means it’s not in the interest of China or the Web for any one site to have the power to strong-arm users stop using another popular service.

We’ll see how the market votes. Will the desire to connect with friends over QQ win out over software that prevents viruses? The world’s Web elite should pay attention: If Tencent has that much power, that’s even more staggering than its market cap.