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Computerworld - Google Inc. shelled out more than $100 million for a company that builds video compression technology, a move at least one analyst calls a very smart buy for the money.

Google announced today that it's acquiring On2 Technologies Inc. for about $106.5 million. On2 Technologies is a well-known, if not overly financially successful, company that builds video compression technology. The acquisition, if it passes stockholder and regulatory muster, is expected to close in the fourth quarter of this year.

"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," Sundar Pichai, a vice president at Google, said in a written statement. "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."

Dan Olds, an analyst with The Gabriel Consulting Group, told Computerworld that the acquisition is a good move for a company that needs cutting-edge video. "On2 has some of the best video compression and encoding technology going," he said. "This technology is going to be very useful for Google. Video compression is a big deal when you serve up as much video as Google does.

"Compression means more video per spindle of disk and less bandwidth cost to serve it out to users. The On2 stuff, plus their people, will help Google keep YouTube cutting edge, and having that technology incorporated into Chrome will pay some dividends, too."

Olds emphasized the importance of Google getting On2's developers. If Google had simply wanted On2's current technology, it could become a customer. What Google wants, he noted, is the engineers who will keep innovative video technology coming. And that should be a boon to On2, as well, since the company has been struggling financially.

"This is really a technology ownership story," said Olds. "On their own, On2 hasn't been a great financial success. They've had sizeable losses in each of the last five years. On2 does have important technology and a decent customer list, but hasn't been able to monetize it. Google will probably be able to do a much better job of getting a return on those assets and this technology will go a long way toward defraying Google's own expenses in video tech development and the operational costs involved in hosting and serving video."

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