Breaking Down The Google/On2 Acquisition

This past week, Google made the news yet again in online video, buying the company On2 for $106.5 million in stock.  In talking to colleagues and scrolling through the blogosphere, I find there seems to be a significant amount of confusion surrounding this deal (myself included). Looking at the deal and its implications more closely, here's what I've found:

What On2 does: On2's key product is focused on video compression.  A smaller (more compressed) file size means several things: faster download times, fewer delays and lower bandwidth usage.   On2 also has software that optimizes video for both mobile and digital televisions.

The obvious reason why this matters to Google: On2 will make YouTube better and more profitable.  Despite the recent positive messages on the site's revenue and eventual profitability, it's clear that YouTube is expensive  to run because of the sheer volume of video that is uploaded and viewed each day.  On2 is a solution to lower the cost of operating the site while at the same time delivering higher quality video.  Sidebar on video quality -- On2 powers the current king of quality video, Hulu.



The other obvious reason why this matters to Google: mobile.  While mobile is still one of the most polarizing topics out there,  most agree that Google is positioning itself to be a force to be reckoned with when mobile finally does hit critical mass.  On2 gives the company a solution to deliver quality mobile video on Android as well as on other handsets.

Other companies that this matters to: Adobe and Microsoft.  Currently, Flash and Silverlight are the delivery platforms of choice.  The On2 codec now gives Google the ability to drive adoption of its HTML5 plugin, which is currently supported by Chrome.

Hopefully, the strategic reasons for the deal make sense now: efficiency today and securing the right technology for future products.  Seems like all the right reasons.

(Thanks to Dave Otten and Jeroen Wijering of for their input and explanations for this Insider.)

4 comments about "Breaking Down The Google/On2 Acquisition".
Check to receive email when comments are posted.
  1. Dan Berger from WildPitch.TV, August 10, 2009 at 12:39 p.m.

    You hit the high points of why the technology matters to Google. But there is growing consensus from ON2 shareholders that this deal will not get done for $106.5 million in stock. Look for shareholders to block/stall the deal and more reasonably-valued bids to come forward.

  2. Thomas Moyer from Dentsu Aegis Network, August 10, 2009 at 12:51 p.m.

    Great article explaining On2's value propostion. I also agree with Dan that On2 might look for a better deal.

  3. Rich Reader from WOMbuzz, August 10, 2009 at 1:02 p.m.

    At the end of the day, dollars and sense fly off the ends of one's picks and shovels. The clues to where these comparative advantages can be found come from the practitioners and engineers.

    Given the importance of moderating the size of files uploaded to YouTube and Google, they would serve themselves well to support ON2 rendering of FLV which is often as small as a tenth of MP4, WMV, and QuickTime. Additionally, Chrome and Wave need to step up to both the FLV endoding and the .SWF streaming plate.

    Content Creators upload and encode to FaceBook using ON2-generated FLV because transmission and encoding times are lower (because it's already Flash), and because this practice delivers a superior stream in 720P and above.

    These would be big benefits to YouTube and Google, which they have yet to embrace and enable.

  4. Ran Shenhar from Cricket Communication, August 10, 2009 at 4:47 p.m.

    Good article, thanks.
    See also Webmonkey's piece about this deal -

Next story loading loading..