Google Deal Boosts YouTube in Battle with Adobe

By buying On2 Technologies, Google gets an advantage over video rival

By Owen Thomas
|  Wednesday, Aug 5, 2009  |  Updated 3:00 PM PDT
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Google Deal Boosts YouTube in Battle with Adobe

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YouTube's profitability could be bolstered by Google's latest acquisition.

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Don't be evil? Forget it. Google wants to own Web video -- and doesn't mind if it rolls over Adobe in the process.

The search engine has just announced a deal to buy On2 Technologies, a video-compression company based outside Albany, New York, for approximately $106.5 million. The acquisition could set the two Silicon Valley companies on a collision course.

It's a crash we'll all watch on YouTube.

On2 is little known outside the tech industry, but its software is heavily used in Adobe's Flash format. And most of the video we watch on the Web is produced in Flash. Including, of course, Google's YouTube, the largest repository of online video.

This deal launches Google from a position of dependency on Adobe to one in which it could put the squeeze on the software firm -- possibly by releasing On2's video technologies for free, industry website NewTeeVee suggests. By cutting YouTube's software-licensing fees, Google could make the site more profitable. Analysts believe that YouTube is losing hundreds of millions of dollars a year, a figure Google flacks dispute without offering specifics.

Google has long held a preference for open-source software like Linux, which it uses in its vast server farms. It may not want to use On2's technology to squeeze money out of others. But it may make video software an unprofitable business. And that's bad news for Adobe.

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