14 DAY TRIAL // Google has just announced that it will acquire video technology company On2 and has entered the final stages of the deal, which involves an all-stock transaction, each On2 share being the equivalent of $0.60 worth of Google class A common stock, thus valuating the company at about $106.5 million. The transaction is expected to be finalized by the end of the year, by which time the company will be fully assimilated.
"Today video is an essential part of the web experience, and we believe high-quality video compression technology should be a part of the web platform," Sundar Pichai, vice president, Product Management, Google, said. "We are committed to innovation in video quality on the web, and we believe that On2's team and technology will help us further that goal."
On2 is a manufacturer of video compression technologies and holds a number of patents and codecs used by many third parties either in desktop or mobile applications. Some of its best-known codecs are from the VP series, namely VP3, VP4, VP5, TrueMotion VP6, TrueMotion VP7 and VP8. It has partnered with the likes of Adobe, Skype, Nokia, Infineon, Sun Microsystems, Mediatek, Sony, Brightcove, and Move Networks.
"We're thrilled that On2 is joining one of the world's most innovative companies," Matt Frost, interim CEO of On2, said. "After intensive review of On2 products, Google confirmed our long-held beliefs as to the quality of our video technologies."
The search giant claims that the $0.60 per share valuation is 57 percent over the current closing price for On2 stock and 62 percent over the past six months’ average share price. The company started as a venture capital backed enterprise before going public in 1999.
The acquisition could lead to better open-source video codecs, to be used in HTML 5
The most interesting aspects of the deal aren't the financial but the technological ones. Google has always had an open approach to technology, open-sourcing many of its software projects, like Google Chrome and even the upcoming Chrome OS. Another area where the search giant has had a great interest is open web standards, with a greater recent focus on open online video standards. It is also a big supporter of the proposed HTML 5 standard, with all of its features currently implemented in Chrome.
However, one of the major issues holding back the <video> tag and HTML 5 has been the choice of a codec to power the technology. Many are asking for an open-source one, namely Ogg Theora, while others argue that it offers inferior quality compared to some of the proprietary solutions. So far, the company is supporting both Ogg Theora and H264, the proprietary codec mostly used as an alternative, in Chrome but this has been a problem when the source code for the browser was opened, as H264 support required a separate license, incompatible with the GPL one.
All of this makes it very likely that Google may have plans to open source at least some of the codecs it bought and implement them in Chrome and, at some point in the future, possibly even offer an HTML 5 version of YouTube, something other video sites already sport. What's interesting is that On2 actually has a history with open source and, in fact, the current Ogg Theora implementation is based on the VP3 source code the company released back in 2001. But even if this doesn't happen, at the very least YouTube will get better quality video.