On2 Technologies, a major player in the video compression space, is being acquired by Google in a stock deal worth approximately $106.5mn.

On2 may not be a recognizable brand but it’s arguably amongst the most important companies on the web as its proprietary video codecs are used extensively in the online video space. Its VP6, VP7 and VP8 codecs have brought high-quality (and high-definition) video to computer screens all over the world.

Given that, through YouTube, Google is a major player in the online video space, the acquisition makes some sense. The VP6 codec is used wildly amongst those offering Flash video in a manner similar to YouTube, although NewTeeVee points out that YouTube is believed to use an open-source version of VP6. NewTeeVee goes on to suggest that Google might even open source VP6 altogether, which would certainly be an interesting move.

This notion is given some credence from Google’s press release, in which Google VP Sundar Pichai states:

Today video is an essential part of the web experience, and we believe
high-quality video compression technology should be a part of the web platform. We are committed to innovation in video quality on the web, and we believe that
On2’s team and technology will help us further that goal.

In an email sent to customers earlier today, On2 explains the acquisition:

Google has indicated to us that they are continually looking to improve video
quality and delivery on the web, and that our video technologies will allow them
to do even more with their products and initiatives. They have indicated that
they are interested in all parts of our video technology. With Google Video,
Google Talk and YouTube, among others, they have a substantial interest in
developing tools and technology that will better support more high quality video
on the Internet. Google has indicated that they believe that our team and
technology will help Google make higher quality video available online. 

If the acquisition of On2 is part of a broader strategy for Google, which it appears to be, the question becomes: what about On2’s existing products and customers? One of the companies I’m involved with is an On2 customer. The email that was sent to customers provides the following FAQs:

Q: What will happen to Flix?
A: Google is acquiring all of On2 and therefore all On2 products. It is too early to discuss specific product plans until the deal closes, however, all existing agreements will remain in effect under their existing terms.

Q: What, if anything, will happen to my license?
A: All agreements you have with On2 remain in effect under their existing terms.  We expect that Google would honor its obligations under existing contracts.

And therein lies the rub with technology acquisitions these. As is the case here, it’s often the technology the acquirer is interested in. The actual products and services that are built upon it? Not so much. On2’s video and encoding software, including its Flix line of encoding products, are probably a lot less important to Google than they are to On2’s customers. As a Flix user myself, it looks like I have one option: hope for the best, prepare for the worst.

Hopefully this won’t become a JotSpot for On2 customers.

Photo credit: -fabio- via Flickr.