Lu will begin Jan. 5, 2009, overseeing the broad Online Services Group, which was created this summer when the Platforms and Services Division was split in two upon the departure of former Division President Kevin Johnson.

Lu will oversee:

-- The Advertiser & Publisher Solutions business, managed by Scott Howe, a former aQuantive executive, who was promoted to corporate vice president and will be filling McAndrews' role. McAndrews "decided to transition out of Microsoft, and will do so over the next several months, serving in a consultative capacity to Steve Ballmer and Qi Lu during that time."

-- the Online Audience business, managed by Senior Vice President Yusuf Mehdi;

-- OSG Research & Development, managed by Senior Vice President Satya Nadella;

-- OSG Finance, managed by Rik van der Kooi who was promoted to corporate vice president.

A Microsoft spokesman said the company was not giving interviews on the appointment today.

Kara Swisher reported earlier today that Lu was a front runner for the job.

Other changes being in Microsoft's online organization:

"The field sales organizations in the Online Services Group will move to Microsoft's centralized Sales, Marketing and Services Group led by chief operating officer Kevin Turner. This group, called Consumer & Online, will be led by Corporate Vice President Darren Huston and will include the Global Advertising Sales and Services organization, led by vice president Bill Shaughnessy."

More background on Lu:

According to Microsoft, Lu was most recently executive vice president of Engineering for the Search and Advertising Technology Group at Yahoo! He "was responsible for development efforts around Yahoo!'s Web search and monetization platforms." He left in August.

He was promoted to his post as Yahoo's search engineering boss in 2006. More background from this Yahoo press release at the time:

"Previously, Lu was the vice president of engineering at Yahoo!, responsible for the technology development of Yahoo!'s Search and Marketplace business unit which includes the company's search, e-commerce, and local listings of businesses and products.

"Prior to joining Yahoo! in 1998, Lu was a Research Staff Member at IBM Almaden Research Center. Before that, Lu worked at Carnegie Mellon University as a Research Associate, and at Fudan University in China as a faculty member.

"Lu received his B.S. and M.S. in computer science from Fudan University and his Ph.D. in computer science from Carnegie Mellon University."

Swisher's thoughts on Lu as a pick to head the Online business, where Microsoft competes directly with Google, are worth a read:

She also parses the strategic implications of hiring Lu:

"In picking a serious tech-oriented executive over a more media-centric one ... [Ballmer] is clearly staking out an even more head-on fight with Google.

"But since a lot of Microsoft's future rests on winning in the search and search-advertising space and trying to catch up with its techtastic Silicon Valley archrival from way back in the race, Lu is also well suited for the position. ...

"Importantly, Lu will definitely be a draw in bringing in top talent to Microsoft, especially from Yahoo."

That's already happening. Last month, Microsoft took Sean Suchter, former Yahoo vice president of search technology.