Microsoft and Baidu ad deal -- who's the winner?

Yesterday, Baidu.com Inc. (NASDAQ:BIDU), China's most dominant player in Internet search, announced it would start selling advertising for Microsoft Corp.'s (NASDAQ:MSFT) MSN and other web sites in China.

Without knowing the financial details of the deal (they weren't disclosed), this partnership, which should begin already this month, is difficult to estimate.

True, Baidu would gain from Microsoft displaying Baidu's paid search listings on search results pages of MSN and Live among others, but Microsoft is still a small player in the Chinese Internet search market, behind Baidu, Google Inc. (NASDAQ:GOOG) and Yahoo! Inc. (NASDAQ:YHOO). On the other hand, the Chinese market is still underdeveloped and even a small incremental gain could prove to be significant to Baidu's revenue.

As for Microsoft, it claims the partnership would help the company "provide new opportunities for advertisers which will further enhance our search business in China," according to Erik Johnson, general manager, of Microsoft Online Services Group for Greater China. On the other hand, judging from eBay Inc.'s (NASDAQ:EBAY) experience in China, a strategic alliance with the leader in the market -- something many eBay investors hoped would happen for that company -- could prove to be helpful in its attempt to gain access to this potentially huge market.

Does Baidu need to worry from all the giant companies trying to gain a place in the Chinese market? Maybe, but the past have shown that local companies simply do better there.