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Microsoft Taps Yahoo! Exec for Online Group

The Associated Press

SEATTLE -- Microsoft (MSFT Quote) tapped a former Yahoo!(YHOO Quote) search executive to lead its online push, adding to the intrigue surrounding a possible search partnership between the two rivals.

Redmond, Wash.-based Microsoft named Qi Lu president of its online services group, responsible for all of the software maker's Web-based programs and services, including search and online advertising -- areas where it ranks a distant No. 3 behind Google (GOOG Quote) and Yahoo!.

The slot was left vacant after Kevin Johnson, a driving force behind Microsoft's quixotic attempt to buy Yahoo!, departed in July. A top internal contender to succeed Johnson, former aQuantive chief Brian McAndrews, is leaving the company, Microsoft said.

Lu spent a decade working for Yahoo!. He oversaw a high-profile effort, dubbed "Project Panama," that has helped Yahoo! reap more money from the ads running alongside its search results. But that project took longer than investors had hoped to complete, giving Google more time to widen its advantage over its rival.

More than 100 Yahoo! executives have left since January 2007, exasperated with the perceived bungling of the Sunnyvale, Calif., company's leaders. The Web icon, eclipsed by Google and outmaneuvered by nimble newcomers like MySpace and Facebook, has posted sagging profits for the past three years.

Lu left Yahoo! in August, shortly after the company hired Google to show some of the ads next to its search results. The proposed partnership disillusioned some of Yahoo!'s search engine specialists who saw the deal as a signal that the company planned to spend less time and money to improve its own technology.

The alliance fell apart last month when Google backed out to avoid an antitrust battle with the Justice Department.

The move to hire Lu is a new twist in Microsoft's winding pursuit of Google's online advertising success, which culminated with a $47.5 billion bid to buy Yahoo! this spring. After Yahoo! spurned the offer, Microsoft CEO Steve Ballmer -- Lu's new boss -- attempted to buy Yahoo!'s search operations a la carte for $1 billion. Yahoo! again declined, but Ballmer has repeatedly said he remains interested in some kind of tie-up.

Hiring Lu "shows that Microsoft is doubling down on search again," said Matt Rosoff, an analyst for the independent research group Directions on Microsoft.

Shares of Yahoo! rose 3 cents in extended trading after sinking 3.9% to close at $11.05. Microsoft's stock slipped 9 cents after hours, following a regular session loss of 76 cents, or 3.8%, to close at $19.11.