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Alibaba, Microsoft team up on Chinese search site
Published on: 2010-10-13
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BEIJING—Big Chinese electronic-commerce company Alibaba Group has joined with Microsoft Corp. to create a new Web-search site—a move that could challenge Baidu Inc.'s dominance of China's search market.

Alibaba Group, of which Yahoo Inc. owns a roughly 40% stake, launched a beta version of a website called Etao on Saturday, aimed at driving traffic to Alibaba's retail website, Taobao.com.

Search results on Etao are displayed in several groups. Taobao listings, including images and product prices, appear first. Those are followed by links to related online forums. Next come informational websites and Web search results provided by Microsoft's Bing search engine.

Alibaba and Microsoft confirmed that Etao is in public, or beta, testing, but declined further comment. A Yahoo spokeswoman declined to comment on the new search site. She added the company doesn't have operational control over the Yahoo China business.

The move, which comes amid heightened tensions between Alibaba and Yahoo, could further reduce Yahoo's role in Alibaba's operations. It also comes as Yahoo in the U.S. has stopped developing its own search technology and adopted Microsoft's Bing.

Baidu's dominance of China's search market has grown in the wake of Google Inc.'s decision to stop cooperating with Beijing's censorship regulations and to move Google's Chinese website to Hong Kong, where the regulations don't apply.

Google's search sites are still accessible from within China, but like other overseas sites, its services are sometimes interrupted by China's firewall technology. Baidu and Google declined to comment on Etao.

Besides Alibaba Group, other Chinese companies, such as Tencent Holdings Ltd., have moved to enter the Web-search market, as well. But their presences are minimal and it is likely to be some time before even strongly supported rivals like Etao can catch up with Baidu.

Revenue in China's online search market was valued at 4.62 billion yuan ($692 million) in the first half, up 45% from a year earlier, according to Beijing research firm Analysys International.

Taobao is the biggest e-commerce website in China, handling 75% of e-commerce transactions as of the second quarter, according to Analysys International. Taobao expects to double the value of transactions done through its website to 400 billion yuan this year.

The operation of Etao further marginalizes Yahoo's Chinese website, which is operated by Alibaba Group and has seen its market share drop to less than 1%, from 21% in 2005, under Alibaba's supervision.

It was unclear whether any search technology from Yahoo is powering Etao's search services. Alibaba Group, which is based in Hangzhou, China, has agreed to purchase a stake in Sohu.com Inc.'s Sogou search business. Sohu Chief Technology Officer Wang Xiaochuan said Sohu is talking with Alibaba about providing search technology for Etao.

According to Analysys International, Baidu had 70% and Google had 24.2% of search-market revenue in China as of the second quarter.

David Wolf, chief executive of Wolf Group Asia, a Beijing-based marketing-strategy firm, said it will take time for Etao to gain traction. "I don't think they're in a position to displace Baidu anytime soon," he said.

Still, Mr. Wolf said the deal is "a coup for Microsoft," which is still testing its Chinese search site and doesn't yet have a significant share of market revenue. Big players such as Alibaba and Microsoft "can make it work," he said. It is only a matter of time before Baidu faces more competitors, he said. "Alibaba is simply the first one to step into the fray."

Microsoft doesn't sell advertisements on the Chinese version of its Bing search site, instead displaying ads sold by Baidu in exchange for a share of the revenue the ads generate. Bing search results on Etao for keywords such as "sneakers" and "computer desk" in Chinese didn't display those ads as of Tuesday.

In 2007, Baidu announced that it would introduce its own e-commerce platform called Youa to compete with Taobao. Baidu's chief executive, Robin Li, said at the time that search engines were the foundation of online shopping and that about half of Chinese online shoppers would conduct a general Web search before looking for goods on websites such as Taobao. Taobao responded by blocking Baidu from searching goods on its website.



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