The companies announced Wednesday that Google would buy On2 for $106.5 million in stock. Since On2's video compression technology is two generations newer than Flash Player and YouTube is the largest distributor of video on the Web, it would be a powerful match. Google, which will own both by the end of this year, wouldn't give much more than a hint about its plans for On2.
"We're always looking to improve video quality and delivery on the Web," Google spokesman Andrew Pederson told DailyFinance in a telephone interview. "On2 will allow us to do that even more with our own products and initiatives." Pederson didn't explain what he meant by "even more." He did address the interest in On2 more broadly, saying, "Google does a lot of work to make the online experience better for users."
If Google decides to take On2's compression technology and give it away for free, folks would no longer have to buy software from the likes of Adobe (ADBE) or RealNetworks (RNWK). In essence, for the low, low price of $106.5 million dollars -- paid in stock, no less -- Google can beat those in the business of collecting licensing fees on such technology.
Taken a step further, if On2's compression service was used to improve, say, Google Talk, then Skype may have to step up its own service to take on an empowered rival. Heck, Google could speed up video conferencing, which would make enemies out of those companies. Would Apple (AAPL) deny an iTunes video conference app from Google or an app that rivals its Quick Time software?
Maybe that's why Google CEO Eric Schmidt resigned from Apple's board Monday. We may not know what Google has in mind until after the On2 acquisition is complete later this year. The pending deal is subject to stockholder approval, regulatory clearances, and other closing conditions.
Google's competitors, which seem to be adding up by the week, may have a better idea what the search giant is buying in On2. Analysts I spoke with suggested that if Google decides it doesn't want to make money on On2's technology, which seems to be its motto outside of online search, the company could go in and blow up the market.
Google marches on. We'll soon find out if this is another kingdom it'll frighten or conquer.
Anthony Massucci is a senior writer for DailyFinance. You may follow him on Twitter at hianthony.