Feb. 10 (Bloomberg) -- Alibaba Group Holding Ltd., part- owned by Yahoo! Inc., said its online commerce unit will challenge Baidu Inc. as China’s biggest generator of Web advertising after sales more than doubled last year.

“One of Baidu’s biggest competitors is going to be Taobao,” Alibaba Group Chief Financial Officer Joseph Tsai said in a phone interview today. “E-commerce has become an emerging platform for merchants to advertise, taking market share away from search players.”

Taobao, China’s biggest trading Web site for consumers, has sought to boost advertising sales by allowing vendors to bid for the right to associate their products with keyword searches. That tactic pits the company against search-engine leader Baidu, which posted an 85 percent increase in third-quarter sales on higher demand for keyword-related advertising.

“If Taobao can continue to increase traffic at its Web site, it can achieve good growth in revenue from paid-search,” said Li Ji, an Internet analyst at research company Analysys International in Beijing. Still, at present, “advertisers on Baidu’s paid-search platform are able to reach more Web users than an on Taobao’s” as it’s targeted at a wider range of users.

Baidu, Search

Baidu, China’s biggest search engine, had 62.2 percent of the country’s advertising sales linked to Web queries last year, more than twice as much as second-placed Google Inc., according to Analysys International. Third-quarter sales rose to 919.1 million yuan ($134.5 million), from 496.5 million yuan a year earlier, the Beijing-based company said in October.

“Search and e-commerce are two different things,” Baidu said in an e-mailed reply to a Bloomberg request for comment. “Looking at more mature markets like in the U.S., the roles of search engines and e-commerce are established and clear.”

Taobao was established in 2003 and less than three years later overtook EBay Inc. to become China’s most-used consumer- to-consumer Web site by not charging customers commissions on goods sold to other users. The unit, which Tsai said derives “a majority” of its sales from advertising, posted a profit in earnings before interest, tax, depreciation and amortization in August for the first time.

Taobao users sold 99.96 billion yuan of merchandise in 2008, more than double the 43.3 billion yuan of transactions a year earlier, Tsai said today. The e-commerce unit had 75 percent of China’s online shopping market, Alibaba said, citing data from research company iResearch.

McDonald’s Vouchers

McDonald’s Corp., the world’s biggest restaurant chain, will start selling food vouchers and other products to Chinese consumers on Taobao starting tomorrow, tapping demand in the world’s largest Internet market by users, according to a notice on the e-commerce company’s site today.

Yahoo owns a 39 percent stake in closely held Alibaba Group, based in Hangzhou, eastern China. Softbank Corp., Japan’s third- biggest mobile-phone company, is the second-biggest shareholder with 29 percent.

Alibaba Group owns 74 percent of Hong Kong-listed Alibaba.com Ltd., operator of China’s biggest trading Web site for companies.

China added 88 million Internet users last year for a total of 298 million at the end of December, according to data from the China Internet Network Information Center.

To contact the reporter on this story: Mark Lee in Hong Kong at wlee37@bloomberg.net

Last Updated: February 10, 2009 06:28 EST