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While On2 Technologies (AMEX: ONT) has strong video compression solutions, the company failed to get much traction over the years (a key reason was the licensing fee structure). It's been especially painful for shareholders.
But today there was some good news: Google (NASDAQ: GOOG) agreed to purchase the company for $106.5 million in stock. On the news of the deal, On2's shares spiked 49% to $0.57.
A key reason for the deal is for Google to bolster its fast-growing YouTube property. All in all, On2's technologies will help reduce bandwidth usage, which should translate into lower costs. This is critical for YouTube because of the revenue generation is far from easy. After all, the ad market is particularly soft. Also, there is still skepticism about the branding advantages of online video.
On2 also should be helpful in Google's mobile efforts (through its Android software platform). Simply put, there should be lots of growth in this category.
Finally, Google may have plans to come up with its own video system to compete with Adobe's (NASDAQ: ADBE) Flash and Apple's (NASDAQ: AAPL) QuickTime. And, no doubt, Google has the market clout -- and technologies -- to be a worthy contender.
Tom Taulli is the author of various books, including The IPO Primer and The Complete M&A Handbook
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