Sealing up negotiation talks that Piper Jaffray analyst Safa Rashtchy brought to light last week, Baidu.com (Nasdaq: BIDU ) will be providing paid-search listings for Microsoft's (Nasdaq: MSFT ) MSN China search-engine websites.
This isn't necessarily a monster catch for Baidu. Yes, Microsoft draws 465 million unique monthly visitors worldwide, but it's still little more than a bit player in China. And even though it may one day find itself wanting to break from Baidu and begin selling its own ads in China, it's unlikely to happen for a few years, if the slow stateside rollout of AdCenter is any indication.
So Microsoft is doing the right thing. Baidu has the broadest network of local advertisers, and a revenue-sharing deal with Baidu should be more lucrative than struggling to survive on its own. Anyone who has seen Google (Nasdaq: GOOG ) and eBay (Nasdaq: EBAY ) struggle in China and suffer through high-level defections can probably appreciate Microsoft's decision to go with the proven leader. It will still be serving up the actual search results, only now it will have a deep third-party partner to populate the ad space.
Last week, Raschtchy estimated that the deal with MSN could result in 50 million more daily searches for Baidu to feed ads into, with the result of between $10 million and $20 million in incremental revenue. Even at the high end, that would make up less than 10% of the company's revenues next year.
However, this deal is about more than just the money. It's a statement. It's an escape route for any other outsider looking to make a splash in China with ad space to sell. Even though Google may one day have something to say about it, for now, all roads to China seem to weave through Baidu.
Longtime Fool contributor Rick Munarriz has been to mainland China just once, but he's longing to brush up on Mandarin and make it another go in the future. He does not own shares in any of the companies mentioned in this story.Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.The Fool has a disclosure policy.