August 6, 2009 - 8:00am
Stepping up efforts to foster the spread of Internet video, Google Inc announced that it would acquire video compression software maker On2 Technologies Inc for $106.5 million. This technology, which shrinks video files, making it easier to send video across the Internet, has become increasingly important as more people watch and share videos online. Each outstanding common share of On2 will be converted into 60 cents worth of Google Class A common stock under the deal.
Google, which bought popular video sharing site YouTube for $1.65 billion in 2006, could use On2's software to drive down the cost of producing and distributing Internet video. Although YouTube is the top U.S. video site, Google`s losses this year range from $174 million to $470 million, according to analysts estimates, as it costs a lot to stream billions of videos, with only a tiny swathe of them being supported by advertising. Google executives said in July that YouTube would be profitable in the near future.
Analysts said that with On2's video technology, Google could field its own software that allows videos to play on PCs and mobile devices, creating a rival to Microsoft Corp's Windows Media, Apple Inc's QuickTime and Adobe Systems Inc's Flash, analysts said. Merriman Curhan Ford analyst Richard Fetyko said in a note to investors that Google could also use the technology to build an application that competes with Skype, the popular Web-based voice and video calling company that parent eBay Inc plans to spin off. Adobe and Skype currently license On2 technology. By owning On2's video compression technology, Google could avoid paying licensing fees to shrink YouTube videos, which could save the company tens of millions of dollars a year, Fetyko added.
Shares of Google were off slightly at $451.34 in afternoon Nasdaq trade. Shares of On2, which are traded on the American Stock Exchange, rose to 58 cents on Wednesday.
Gartner analyst Andrew Frank that the main alternative to On2's technology, the H.264 standard, requires companies to pay licensing fees that aren't cheap. While On2 also charges fees, Frank said that Google will have the option to make the software as low-cost and as open as it feels is necessary to make Internet video proliferate.
Stepping up efforts to foster the spread of Internet video, Google Inc announced that it would acquire video compression software maker On2 Technologies Inc for $106.5 million. This technology, which shrinks video files, making it easier to send video across the Internet, has become increasingly important as more people watch and share videos online. Each outstanding common share of On2 will be converted into 60 cents worth of Google Class A common stock under the deal.
Google, which bought popular video sharing site YouTube for $1.65 billion in 2006, could use On2's software to drive down the cost of producing and distributing Internet video. Although YouTube is the top U.S. video site, Google`s losses this year range from $174 million to $470 million, according to analysts estimates, as it costs a lot to stream billions of videos, with only a tiny swathe of them being supported by advertising. Google executives said in July that YouTube would be profitable in the near future.
Analysts said that with On2's video technology, Google could field its own software that allows videos to play on PCs and mobile devices, creating a rival to Microsoft Corp's Windows Media, Apple Inc's QuickTime and Adobe Systems Inc's Flash, analysts said. Merriman Curhan Ford analyst Richard Fetyko said in a note to investors that Google could also use the technology to build an application that competes with Skype, the popular Web-based voice and video calling company that parent eBay Inc plans to spin off. Adobe and Skype currently license On2 technology. By owning On2's video compression technology, Google could avoid paying licensing fees to shrink YouTube videos, which could save the company tens of millions of dollars a year, Fetyko added.
Shares of Google were off slightly at $451.34 in afternoon Nasdaq trade. Shares of On2, which are traded on the American Stock Exchange, rose to 58 cents on Wednesday.
Gartner analyst Andrew Frank that the main alternative to On2's technology, the H.264 standard, requires companies to pay licensing fees that aren't cheap. While On2 also charges fees, Frank said that Google will have the option to make the software as low-cost and as open as it feels is necessary to make Internet video proliferate.
Comments
This is a very interesting move by Google on many counts, glad I found it here. We also have to assume that most times Google thinks bigger and wider than just the dollars and cents, it thinks in terms of infuence, disruption and market penetration as well. Google continues to make strategic moves in the video space, it has to. This accquisition may give Google an immediate edge in terms of cost and quality, but it also shows Google's continuing desire to engage in the video space and to try and diversify and increase its market share.
YouTube may seem at times like the white elephant in the room at Google, but existing video is just content (a canvas) waiting to be "re"created, repurposed, re-energised and monetised. When the time comes and we have learned and taken up what online video can be, YouTube is going to be another little cash cow for Google, that just ticks in revenue with every impression or the possibility of revenue for every impression.
Gary Wilson - http://blog.coull.com
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