Yahoo! has agreed to buy the 80 per cent of RightMedia, the online advertising broker, it does not own for $680 million (£340m), in a bid to extend its reach on smaller websites and better compete with Google.

The cash-and-shares deal follows Google’s $3.1 billion acquisition of DoubleClick, the largest independent broker of display – or banner – advertising, earlier this month.

RightMedia, which had previously flagged its independence as a key advantage, runs an online exchange for web advertising that specialises in trading space on less-trafficked, or "non-premium" web pages, such as those created by members of the public on social networking-style sites.

The four-year-old company claims it "pulls back the curtain that the largest intermediaries have drawn over the market" by allowing buyers and sellers of online advertising to talk directly to each other. It has about 20,000 advertiser users.

Yahoo! took a 20 per cent stake in the privately-owned group for $40 million as part of a funding round in October.

DoubleClick recently announced it was working on an exchange platform similar to RightMedia’s.

Tery Semel, the Yahoo chief executive, said on his blog: “As new forms of content continue to increase on the Web, so do the opportunities for advertisers to get their message across. This growing inventory is driving a significant transition in the online ad world, with third-party ad networks and exchanges gaining share of the total online ad dollars.”

Yahoo, which is trailing far behind Google in terms of online advertising revenues and profits, has made several aggressive moves to expand its business in recent months. It recently agreed a deal to sell ads on eBay, the online auction hose, and has forged a deal to supply advertiing to some 264 US newspapers.

However, Google has been just as active. As well as the DoubleClick deal, the comapny recently announced a tie-upwith Clear Channel, the world’s biggest radio company, to expand its advertising business on to the airwaves.

Commentators said the decision to buy RightMedia suggested that Mr Semel is not content to rely entirely on Panama, the group’s new in-house advertising platform, to revitalise its fortunes.

“[It] signals that Yahoo wants more weapons in its arsenal to fight the ongoing online advertising war beyond their new Panama release,” Michael Arrington said on the closely-read Techcrunch blog.

Mr Semel said: “We think supply and demand should be regulated by the marketplace, not a closed platform. Right Media provides a democratic model that empowers advertisers with all of these benefits.”

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