Yahoo has acquired a stake in Indian internet advertising company Tyroo Media to help it capture more of the country’s fast-growing online ad market.

Yahoo acquired between 35% and 50% of Tyroo for an undisclosed amount of money, said George Zacharias, managing director of Yahoo India, in a telephone interview today.

Tyroo, based in Gurgaon, places advertisements on a network of about 1,200 websites. Its service is suitable for smaller businesses, allowing them to design graphic or text-based ads and choose websites that will bring them a targeted audience, said Harish Bahl, CEO of Smile Interactive Technologies Group, of which Tyroo is a part.

The advertisers do not need to have their own websites – which small Indian businesses often do not have – since buyers can contact them via email or short messaging service (SMS), he said.

Yahoo started its search-based advertising business in India about eight months ago and so far has a few thousand small advertisers, Zacharias said. There are millions of potential advertisers in India, which all the search companies and advertising networks are chasing, he added.

The deal with Tyroo will allow Yahoo to grow its business with third-party publishers in India while it prepares to bring its revamped advertising system, codenamed Panama, into the country, along with technology it acquired from Right Media, Zacharias said.

Yahoo announced in April that it would buy the remainder of Right Media, an online exchange where advertisers and publishers can buy and sell display advertising on websites. The relationship with Tyroo will continue after the Panama and Right Media technologies are introduced to India, Zacharias said.

The companies will also integrate their back-end systems so that advertisers on Yahoo and Tyroo can access to each other's networks, Bahl said. The companies will remain independent, however, he added.

The news comes a day after Yahoo reported disappointing financial results for its second quarter. Net income declined to $161 million (£78.55m), or $0.11 per share, down slightly from $164m (£80m) , or $0.11 per share, for the same period in 2006.

Yahoo net income fell year-over-year in a quarter that saw Yahoo leadership change hands amid criticism that the company failed to capitalize on the explosive growth of the search-engine advertising market. Revenue excluding traffic acquisition costs was $1.2 billion (585.5m) The company lowered its earnings guidance for the current quarter.