Google’s (GOOG) latest purchase — $106.5 million for Web video software firm On2 — is relatively small. But its effects on the Web video industry could be huge.
If the deal goes through, and Google does what we think it will — open-source On2’s tech and push it everywhere — Google won’t just control the world’s top Web video site, YouTube, but the technology behind the industry, too.
Here’s what we believe Google is thinking about:
- Taking control of and open-sourcing On2’s newest video compression technology, VP8, which some say is a little better than the format du jour, H.264, and would be free.
- This could eventually shift Web video tech into Google’s favour. It won’t spread out into the world’s Web browsers overnight, but will eventually.
- Adobe would have to build it into Flash, Microsoft would have to build it into Silverlight. Not doing so could risk a Google plugin replacing theirs.
- Google would get royalty-free tools in the hands of thousands more developers to build video software for its Android and Chrome OS platforms, the Web, etc.
- Google would control the future development of the world’s top Web video technology.
- It would also hurt today’s top video companies financially: The MPEG group, Adobe, Microsoft, RealNetworks, and even Apple a bit.
The question now is whether this is disruptive enough that Microsoft, Adobe, or another company would have to outbid Google just to keep On2 out of Google’s hands. The companies have already entered into an acquisition agreement, but On2’s board would have the fiduciary duty to hear other offers.
Here’s Google’s blog post announcing the deal. The key statement suggesting they plan to rip open On2’s tech and the industry: “we think that video compression technology should be a part of the web platform.”
Today, video is an important part of many people’s everyday activities on the Internet and a big part of many Google products.
Because we spend a lot of time working to make the overall web experience better for users, we think that video compression technology should be a part of the web platform. To that end, we’re happy to announce today that we’ve signed a deal to acquire On2 Technologies, a leading creator of high-quality video compression technology.
The deal is still subject to approval by On2 Technologies’ stockholders and review by relevant regulatory authorities, including the SEC, but we expect it to close in Q4.
Although we’re not in a position to discuss specific product plans until after the deal closes, we are committed to innovation in video quality on the web, and we believe that On2 Technologies’ team and technology will help us further that goal.
We’ll update everybody when we’re able to share more information. In the meantime, nothing will change for On2 Technologies’ current and prospective customers.
Update: We just got off the phone with streaming media analyst Dan Rayburn. He splashed a little cold water on our idea. His key points:
- Just owning the VP8 compression technology doesn’t give Google a platform, such as, say, Windows Media or Flash video. Google would have to build that out themselves.
- Google may actually be more interested in some of the encoding technology just to make YouTube’s back-end run smoother.
- Many would argue that VP8 is not as good as H.264. It might need to be much better for people to switch. Quality, not royalty fees, is what’s keeping VP8 out of Flash right now, he thinks.
Either way, will be interesting to see what happens here.
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