This morning, Google announced the acquisition of video compression developer On2. Each old share of On2 stock will be converted to $.60 of Google Class A common stock. The total value of the transaction is estimated to be around $106.5 million. The .60 per share price represents a 57% increase in the closing price of On2 common just before the deal.
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On2 is the company behind many video codec designs, including VP3, 4, and 5, in addition to TrueMotion VP 6, 7, and 8. Google has coyly avoided stating exactly why they wanted to acquire On2, but it's likely related to YouTube. On2 is the developer that released their VP3 technology and patents to the open source community. TechCrunch believes it is possible that Google intends to release VP7 and 8 in the same way.Either of those codecs, if released freely to the Internet and used as the compression technology for YouTube, could really give Flash a run for its money. Apple has tried to do that for a while with H264, but Google is the only company that actually has a shot of pulling Flash down from its throne within any reasonable length of time. If they push for VP 7 or 8 in YouTube, they'll set a new precedent. One that Adobe would find very worrisome.
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Of course, it's too early to tell just now what Google will do with On2. For now, they assure customers and prospective customers of the newly-acquired company, it is business as usual. How long it will stay that way is anyone's guess.