Wednesday, February 17, 2010

Google Finally Acquires On2, What's Next for Online Video?

After many long months and several offers increasing their bid, Google has won over the On2 shareholders with an additional $26.5 million on top of their original $106.5 million to purchase On2 for $133 million, in a merger deal that should close the by end of day Friday. The saga of this acquisition dates back to August 2009, when Google announced that they would acquire New York-based video codec maker On2 Technologies f0r $106.5 million, but the search Goliath was met with their own modern-day version of David, in the form of defiant On2 shareholders who refused to agree to the terms of the sale.

An outspoken group of stockholders protested "the attempted theft of the company at $0.60 per share" and believed that On2 was worth more than 60 cents a share. They held out for many months as Google upped the offer several times, with the final offer last month of $133 million, that was approved by a majority of On2 stockholders today. On2 shareholders will receive 1/1000th of a share of Google stock, plus 15 cents per share. Google (GOOG) stocks are currently trading at $538 a share.

With all the recent debate on the future of web video, Flash vs. HTML5 and open video formats, H.264 licensing fee extension, and the coming mobile explosion of 2010 - now that Google has finalized this deal, how disruptive will it to the online video landscape?

In a previous post, I asked that same question:
"There's been a lot of speculation that Google is purchasing On2 to take advantage of the advanced V7 and V8 codecs for either open source the codecs and make them license-free. Such a move would create serious competition to the other major video compression technologies of H.264, Flash and Silverlight all of which are proprietary codecs. Could Google be looking to to avoid the licensing fees for H.264? Will Google open source On2's technology to disrupt HTML5? Is Google looking to bake the high quality video compression technology into YouTube to speed up videos and lower bandwidth costs?
This all sounds like a big deal that's going to give Google the edge to disrupt the fabric of the online video landscape and "win the online video format war" and with the acquisition Google acquires technology that it can embed within its Android and Chrome OS platforms. This may cause companies like Adobe, Microsoft and Apple to take a financial hit and force them to support whatever new video codec that Google brings to market. Also, with the situation regarding browser-based decoding for tag in HTML5 at a stalemate and undefined, Google could help change the tide by open sourcing On2 VP technology."
I also cited a number of sources in that post who shared their theories on the acquisition, such as Dan Rayburn who didn't think it would be a big deal, Om Malik who said to pay attention to what Google does with Android, and Brian Dipert who thought that it could be Google's latest move to wrest control from Adobe, Apple, Microsoft and Mozilla.

For now, we can only speculate what Google will do next with On2's video compression technology, but this could prove to be a major game-changer in online video landscape and the mobile frontier. 2010 is shaping up to be quite an interesting year so far.