China's Baidu is to partner with Microsoft for English-language search, giving the U.S. software giant a chance to expand its tiny Web presence in a market Google has stepped back from, and helping the Chinese company's international ambitions.
The tie-up will direct English searches from Baidu to Microsoft's Bing, which will deliver the results back to Baidu's Web pages, Baidu said in an emailed statement on Monday.
Baidu has about 80 percent of the search market in China -- a nation with almost half a billion Internet users and still only about 30 percent penetration -- after Google left mainland China in a high-profile fallout with Beijing over censorship.
Bing -- which filters out results in China relating to controversial subjects, such as political dissidents, Taiwan or pornography, to be able to operate in the country -- has a negligible share of the market, while Google has nearly 20 percent counting visits to its offshore sites.
Baidu spokesman Kaiser Kuo said Bing was not submitting to any further censorship or restrictions on its English search as a result of the deal "than they already do". Microsoft had no immediate comment beyond confirming the partnership.
Google is losing share to Baidu but is still number two in China. Worldwide, Google runs about 84 percent of Web searches, followed by Yahoo with 6 percent and Bing with 4 percent, according to analytics firm Net Applications.
"Google has potentially shot itself in the foot when it comes to cooperation's in the Chinese market," said Daniel Knapp, analyst at media industry research firm Screen Digest.
"Chinese local players like Baidu would be very wary about striking up a relationship with Google, a rogue authority in the eyes of the Chinese authorities. Microsoft has always been very diffident -- for Baidu it's much safer," he added.
The new tie-up, due to be launched later this year, builds on existing cooperation between Baidu and Bing on mobile platforms and page results.
Baidu is beginning to diversify from its core search business to compete in the fast-growing segments of mobile and social networking.
It also has a Japanese search service that is currently loss-making.
Search engine marketing company Greenlight said it saw the deal as positive for both sides, and could envisage the new partners dominating the Chinese search-advertising market.
"Whilst it represents an opportunity for Bing to make more money from the Chinese market, Baidu gets what it needs to expand overseas when it is ready to do so," said Greenlight Chief Operating Officer Andreas Pouros.
"Microsoft has entered the Chinese market slowly and has made some friends, in a way that the Chinese government will have no issue with. This should leave Baidu and Bing to control the Chinese search ad market without too much difficulty."
Baidu made $1.2 billion in online marketing revenues last year, up 78 percent from 2009. Microsoft's total online advertising revenue in fiscal 2010, including a small contribution from Bing, was $1.9 billion.
Some analysts were sceptical over how much demand there would be for English search on Baidu.
"It's a good thing, but I see very minimal impact for Baidu. I don't see a lot English keywords going through Baidu. It goes through Google," said Wallace Cheung, a Hong Kong-based analyst at Credit Suisse.
(Additional reporting by Melanie Lee and Samuel Shen; Editing by Matt Driskill and Louise Heavens)