Microsoft Corp, which roped in former Yahoo executive Qi Lu to head its struggling internet business, is now eying a search deal with the internet major.

Lu, formerly vice president of engineering for the search and advertising technology group at Yahoo, will take over as president of Microsoft's online services group early next month.

Lu, who left Yahoo in August after 10 years at the company, is expected to grow Microsoft's online services group, which oversees the software giant's search and advertising business. He will report directly to Steve Ballmer.

Lu is replacing Brian McAndrews, who is in charge of the advertiser and publisher solutions group. McAndrews was made CEO when Microsoft acquired aQuantive when early last year.

In a joint interview with Qi Lu, the Microsoft CEO said the two companies  are currently not in discussions over a transaction, but such a deal would create a "credible competitor" to Google Inc.

Lu, however, will be leading the company's challenge to Google, which dominates the search and online advertising businesses.

Lu, a computer scientist with a Ph.D was a former IBM researcher who holds 20 patents.