Google Picks up On2 on the Cheap

Google will acquire video compression company On2 for $106.5 million in stock, valuing On2 at $.60/share and offering some solace for the many On2 investors who have suffered as the company’s stock tanked below $.40 a share this year. While I think the move makes a lot of sense there are countless questions about what Google will do once the deal is done.

On2’s VP6 codec is widely used in online video, offering a higher quality solution than the previous generation Sorenson Spark codec which powered most early Flash video including YouTube back in the day. More recently YouTube has moved to higher quality H.264 compression which falls under the auspices of MPEG LA licensing. While some have argued that the acquisition is an attempt by Google to avoid license fees Dan Rayburn does a good job of debunking this theory.

More likely this is about infrastructure and the ability to encode high quality video on the massive scale that YouTube does. By purchasing On2, Google gains the flexibility to do with all of On2’s IP what it likes which includes the possibility of open sourcing it. Meanwhile, they can rapidly deploy On2 technology across their video encoding infrastructure to deliver media to all screens.

On2’s acquisition of Hantro last year gives them a foothold into H.264 encoding and the mobile video market. As Om notes, the move puts them into more direct competition with “Adobe with its market-leading Flash, Microsoft with its up-and-coming Silverlight and Apple with Quicktime. As Google delves deeper into creating their own operating systems it gives them more leverage with which to control the media ecosystem on their platforms.