Google yesterday moved to bolster its internet video capability with an acquisition that will provide new technology for its Chrome browser, YouTube website and Android mobile operating system. It is buying On2, a company that makes sophisticated video compression technology, for $106.5m.
On2's technologies have long been a part of the web video infrastructure and analysts consider its newest compression technologies among the best.
The company's client list includes Skype, Sony and Sun Microsystems.
"It wasn't after them for the revenue opportunity," said Peter Bell, a partner with Highland Capital Partners, which invests in video technology companies. "It was about the core technology." On2 lost $51m last year.
Google probably plans to integrate On2's technology into its Chrome browser to make it more powerful and a more attractive alternative to rivals such as Microsoft's Internet Explorer and Mozilla's Firefox.
Chrome has built-in video capabilities, eliminating the need for plug-ins for Adobe's Flash and Microsoft's Silverlight. The acquisition also represents another push by Google into web infrastructure software, opening up yet another front in its broadening war with Microsoft, while also picking a fight with Adobe.
In competing with Adobe's Flash, Google is coming full circle. It was the exploding popularity of YouTube that helped make Flash the dominant web video standard.
Google bought YouTube, the biggest video sharing site on the web, for $1.65bn in 2007. On2's technology is likely to be used to improve the YouTube experience. Google will probably make On2's technology open source, releasing it to the public and essentially making it free.
The deal was a stock-for-stock transaction, with each outstanding share of On2 common stock being converted into $0.60 worth of Google class A common stock, which comes to about $106.5m.
Google's competitors could try to thwart the deal by making an offer of their own for On2
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