Google announced that it would be acquiring On2 Technologies for 106 million USD. On2 owns the licenses for the VP8 video codec - the same technology which powers Flash video at its core.

Why this is interesting is because of the ongoing dispute between Apple, Google and the Mozilla foundation. Without going into the long story of the issue, the core bone of contention remains

1. Mozilla adds support for the
2. Google says that Theora (based on the open source On2 VP3 technology) is seriously outdated and cannot keep pace with its upgrade plans for Youtube.
3. Firefox says Theora is already better than current Youtube quality.
4. Apple says that H.264 is its preferred codec (even though its closed source and has a prohibitive license), because of availability of H.264 hardware accelerators, that would be a good fit on iPhones and other media devices.

So, as it stands today - there was pretty much a stalemate.

What I am betting is this - Google will probably open source the On2 VP8 (or more likely the VP9, VP10 technology streams) and give Mozilla a technology that is far ahead of anything else.

In one clear stroke, Google will have broken H.264 and Apple’s stronghold on technology (because other iPhone clone makers would not have to purchase expensive codec licenses to put on their devices - which only Apple could have afforded). It opens up the marketplace for hardware vendors to put out their chipsets, which will soon grow to a number to rival H.264 support.

At the end of the day, what it means for the consumer is cheap and easy access to high quality online video through any handset vendor. For Google, it means Youtube’s supremacy will remain unchallenged by a video site that Apple could have created, offering high quality video accessible through… the iPhone only !

It will be interesting to see how this battle pans out - given that Eric Schmidt no longer enjoys his board seat at Apple … for obvious reasons!