While Taobao does not charge listing or transaction fees, its huge traffic flow gives it strong revenue potential. The launch of a search engine puts Taobao in more direct competition with search companies like Baidu for advertising dollars from small and medium-size businesses, said Li Zhi, an analyst at local consultancy Analysys International.
"Taobao will definitely use this search engine as another marketing and promotion feature," said Li.
Credit Suisse projects that Taobao's share of China's paid search market will grow to 22 percent in 2012, while Baidu's share will drop to 36 percent from this year's 50 percent. Yahoo's share is forecast to sink from 3 percent to 1 percent.
Taobao's home page also has a search function, but its results page is more cluttered than that of the new search engine at search.taobao.com. Taobao chief financial officer Daniel Zhang declined to comment when asked if the search engine, currently billed as in beta, will be expanded to include results from the wider Internet later.
Yahoo China may have struggled in recent years partly because Alibaba has not developed it as a major search service, said Li.
"I think the mission for Yahoo was to provide better search technology and search service to Alibaba and Taobao," she said.
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