Chinese e-commerce giant Alibaba Group has hooked up with Microsoft to launch a Chinese search site called Etao, according to a report in the Wall Street Journal. The website was tested in a beta version over the weekend.

The move bolsters Alibaba's entry into search -- Yahoo (YHOO) holds nearly a 40% stake in the company -- and puts it head-to-head with Chinese search giant Baidu (BIDU), which three years ago expanded into Chinese e-commerce and poses a potential threat to Alibaba.

Alibaba's aim is to create a search engine that will drive users to its Taobao.com shopping site, which industry watchers have speculated is ripe for an e-commerce IPO. Etao's search results display Taobao's products and prices first, followed by related online forums and links Microsoft's (MSFT) Bing search results, according to the report.

While it's not immediately clear what Microsoft is currently getting out of the deal, it likely will involve advertising revenue. In China, Microsoft receives a cut of display advertising revenues Baidu sells off of its Bing search results.

Analysys International reported revenues from the online Chinese search market rose 45% to $692 million during the first six months of 2010, compared with a year ago, according to the Journal.

While Baidu holds the largest slice of the search revenue pie in China, more competitors are venturing in following Google's virtual exit from the search market there earlier this year. Baidu held 70% of the market share in the second quarter, compared with 24.2% for Google and a measly 4.2% for Microsoft.

Back in September, Microsoft said it was interested in finding a partner to improve its standing in search market share and that it was ultimately aiming to be No. 1 in the market.

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