Baidu Inc, China's biggest search engine, is challenging the country's No 1 e-commerce company, Alibaba Group Holding Ltd, by adding services that help shoppers find retail stores and retrieve product information.

Baidu agreed to invest in mapping company IndoorAtlas Ltd, which allows users to find their way through malls and office buildings, the companies said on Wednesday. The search operator also unveiled a headset that can deliver product information to shoppers and a mobile service that makes it easier for consumers to find nearby businesses.

The company's billionaire founder Robin Li is adding the functions to help sell more advertising by connecting mobile phone users with brick-and-mortar businesses. The move comes days after Baidu formed an online shopping venture with Dalian Wanda Group Co Ltd and Tencent Holdings Ltd, Asia's biggest Internet company, intensifying the rivalry with Alibaba.

"The mobile Internet has given us new possibilities and opportunities," Li said at Baidu's annual developers' conference in Beijing on Wednesday. "Mobile presents many opportunities not only for Internet companies but also participants in traditional industries."

IndoorAtlas is the world's first location service using magnetic anomalies inside buildings to pinpoint indoor locations, with results that are accurate to less than 3 meters, according to its website. Baidu invested $10 million in the Finnish company, valuing it at about $40 million to $50 million, a person familiar with the matter said, asking not to be identified as the details are not public.

Baidu's American depositary receipts climbed to $224.80 on Tuesday in New York, rallying the most since July 25, after Bloomberg News reported the investment. The Bloomberg China-US Equity Index added 0.6 percent on Wednesday.

Businesses such as restaurants and movie theaters stand to benefit as mobile Internet applications make it easier for consumers to discover what is nearby, Li said.

BaiduEye, the company's new headset, has a camera that wraps around the side of a user's head and can identify products and provide information about them through an earpiece or smartphone. The hardware does not include a display.

"This is like an extension of your eye, a third eye or second brain," the system's designer Gu Jiawei said. "For us, the shopping mall is the most attractive scenario. Consumers can see what a product is and get online comments."

The Baidu Connect service, which started on Wednesday, allows merchants and restaurants to register and set up an account that makes it easier to reach customers and offer location-based services, Li Mingyuan, Baidu's vice-president for mobile, said at the conference. Once the account is created, that presence becomes integrated across Baidu's offerings such as search and maps, so businesses can offer promotions and discounts.

IndoorAtlas was founded in 2012 as a spinoff from the University of Oulu, Finland. The company was incorporated in the US with an office in Mountain View, California, last year. It also has research and development centers in Oulu and Oxford, England.

Baidu is investing in mobile applications to capture rising Web traffic on smartphones and tablet computers. The venture with Wanda plans to target the online-to-offline segment, directing mobile Web users to nearby shops and restaurants, Wanda Chairman Wang Jianlin said last month.

That is also an area where Alibaba, China's biggest e-commerce operator, is seeking to expand. In March, Alibaba agreed to buy a stake in Intime Retail Group Co, owner of department stores and supermarkets, as the company integrates online and offline shopping.

Alibaba in July acquired AutoNavi Holdings Ltd in a deal that valued the company at $1.5 billion to bolster its Internet mapping tools as it plans an initial public offering and listing on the New York Stock Exchange.