Google is hardly an inflationary force in the world. That is unless you are sitting at Yahoo’s Sunnyvale headquarters. Not content with upping the stakes in Silicon Valley’s war for talent, the search giant has helped ratchet up the price of key internet assets. Take Yahoo’s acquisition of Right Media.

In October, Yahoo spent about $40m on 20 per cent of the company, which auctions non-premium advertising inventory. It is now buying full control at a valuation more than four times higher. That can in part be justified by the synergy opportunities that come with full control. But the sneaking suspicion is that Yahoo was bounced into action at such a high price by Google’s recent $3.1bn purchase of DoubleClick.

Google’s deal, assuming it avoids regulatory snags, will help spread its search dominance further into serving display advertising. Also, DoubleClick itself has plans to expand into Right Media’s core auction business.

While it is hard to justify paying 12 times expected 2007 revenues for such a young business, it is understandable why Yahoo feels compelled to roll the dice and try to kick-start Right Media’s growth. As a result of the acquisition, Yahoo will put far more of its own non-premium advertising inventory on to the auction system. That should help boost liquidity, the Holy Grail for auction sites. (There is, though, a risk it puts others off, because Yahoo will be both the site’s owner and biggest seller of advertising inventory.)

The broader question is where this advertising arms race leaves Microsoft. So far, its attempts to build an advertising platform have failed to gain traction and it has missed out on deals to bolster its presence. The temptation to pursue the high-risk option of buying Yahoo itself, to build a serious front against Google, must be growing. The high-risk option of trying to buy Yahoo itself, to build a serious front against Google, must be becoming more seductive.