The deal illustrates the strength of Baidu's ad sales team in China's paid search advertising market, compared to Microsoft's weakness.
Users of Microsoft's Chinese websites, which include MSN China, Windows Live and other partners such as China Telecom, will now see Baidu's paid links mixed in with Microsoft's standard search results.
Baidu's popular search engine is funded mainly by paid search results which appear above non-paid listings. Advertisers pay Baidu a few cents each time a user clicks on one of the paid listings.
Income from clicks on the links featured on Microsoft's sites will be shared between Microsoft and Baidu. The financial terms of the deal were not revealed.
Baidu's share of China's internet search market is generally estimated at over 50 per cent, and as high as 70 per cent.
The company does have a measurable minority share in some Chinese online markets, such as instant messaging and blogs.
"We expect this partnership to expand greatly our revenue from the paid search listings," said Baidu spokesman Xu Jiye, according to the Shanghai Daily.
A Microsoft China executive added: "China is one of our most important markets. The strategic alliance with Baidu will help us provide new opportunities for advertisers, which will further enhance our search business in China."
Baidu has faced accusations of click fraud related to its sponsored search results placements during the past year.
A small number of advertisers have complained that they are paying for nonexistent clicks, or paying for clicks from people who have no intention of buying their products and services.
However, Baidu executives have pointed out that none of these accusations has resulted in any formal legal action, much less been proven in court.
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