This morning Google announced it was spending $106 million in stock to buy On2, a maker of audio and video compression software. The very logical question I don’t hear being asked, though, is why would Google spend money for something it is already getting pretty much for free? It’s to turn yet another partner into a competitor, this time Adobe Systems.
Google already uses On2 codecs in Adobe’s Flash video, which is the very heart of its YouTube video streaming service. On2 powers YouTube’s so-called High Quality or HQ service, which due to competitive pressures on YouTube is likely to soon become YouTube’s standard codec.
It is important to remember that Flash video was not a significant competitor until it was embraced by the pre-Google YouTube. Flash video simply wasn’t that good. It relied on an antiquated H.263 codec that was originally intended for video conferencing and, while fast, was of not particularly good quality. But quality didn’t matter to the early YouTube, just fast and reliable streaming connections, which a video conferencing codec could provide.
The lower quality of streaming video had the industry broadly turning away from streaming, moving to the download delivery model championed by Apple with iTunes. Then YouTube changed everything seemingly overnight.
The important Internet video standards then were Windows Media and QuickTime with Flash video an also-ran. But how times have changed! In terms of total connections and streams, Flash video is now the Big Kahuna by a long shot. And while both QuickTime and Windows Media have moved up-market a bit with their superior H.264 and VC-1 codecs, Flash isn’t far behind with On2 and H.264, itself.
Adobe and Google have been on a collision course for some time. Adobe competes with Google Docs, for example, and now they’ll compete on video, too. And with more than half of all Internet video already going through one Google platform or another, this is an instance where Google probably has the advantage.
With Google finally under some earnings pressure and Internet advertising flat, the company has to enter new markets with new services to gain new profit centers. It happens all the time in maturing companies.
Just as YouTube gave Flash video its huge success, so Google is now trying to take it away.