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The time to do a Microsoft-Yahoo deal is now and it’s time to put aside the bad boardroom blood and hook up on search.

For those keeping score at home, Yahoo CEO Jerry Yang said the company is open to a deal with Microsoft in a widely panned keynote. Microsoft CEO Steve Ballmer said Microsoft isn’t interested in Yahoo just a few weeks after saying a deal made sense. In the meantime, Google has walked away from a search deal with Yahoo in a move that opens the door for Microsoft’s return.

Here’s what we know:

* Google is a runaway freight train in search.
* Yahoo is a solid No. 2 but won’t remain that way forever.
* Microsoft needs scale if it’s going to be a search player. A few analysts note that Microsoft’s search technology is improving, but it doesn’t have the audience to refine its ad system.

Combine Microsoft and Yahoo search–not a full merger just a search partnership–and you get the matchup we all know is going to happen: Microsoft vs. Google. There are two alternatives in the search marketplace (monopoly and duopoly). Without a deal between Yahoo and Microsoft we’ll get a Google monopoly.

Is a search deal between Yahoo and Microsoft really that complicated? Not at all. In fact, a Microsoft-Yahoo deal would look like any other outsourcing pact. Companies do it with data centers all the time. You sell your assets to the outsourcing firm (basically Microsoft in search) and the service provider rents it back to you. Yahoo would farm out its search to Microsoft, the software giant would guarantee a minimum payment and Yang & Co. would use Redmond’s text ads. Big whoop. Is that so hard?