Google to Open Source the VP8 Codec
Several readers noted Google's reported intention to open source the VP8 codec it acquired with On2 last February — as the FSF had urged. "HTML5 has the potential to capture the online video market from Flash by providing an open standard for web video — but only if everyone can agree on a codec. So far Adobe and Microsoft support H.264 because of the video quality, while Mozilla has been backing Ogg Theora because it's open source. Now it looks like Google might be able to end the squabble by making the VP8 codec it bought from On2 Technologies open source and giving everyone what they want: high-quality encoding that also happens to be open. Sure, Chrome and Firefox will support it. But can Google get Safari and IE on board?"
We're all very quick to hit Google when they do something wrong. This one pretty clearly is "do no evil". Thanks Google!
Open-sourcing it alone means next to nothing: there are open-source h.264 codecs. The community still can't use it without a thorough patent examination, a universal royalty-free patent license, and an indemnity guarantee.
According to some things i read the other day, the hardware support for h.264 is really just a programmable DSP in most cases, so they could program support for VP8 if it were being seriously considered, and that appears to be the direction of things.
that's all.
I think that your position is flawed in two major respects:
One, codecs are, largely, infrastructure type software. They exist to do the unsexy-but-necessary job of getting content from point A to devices B, C, and D as effficiently and quietly as possible. Like networking protocols, interoperability and standardization are key, you want to be able to release a video and have it Just Work, no matter the end software or device, the same way that you can pretty much assume that any modestly sophisticated computer will speak TCP/IP correctly enough. Performance counts, since bandwidth and disk space, and battery life are all not free; but, as with operating systems, "compatible" generally beats "superior". Also of note, competition and growth do occur among infrastructure software, they just tend to be strongly shaped by the value of compatibility, and so growth and change tend to come about either through backwards-compatible evolutionary shifts, or through sudden, swift changes.
Two, there isn't much evidence supporting the thesis that FOSS destroys competition. It does tend to drive down prices(and, to be fair, it is quite possible that it destroys the role of the "proprietary-but-cheap 2nd or 3rd string player", either replacing it with free software, or with the services of "free as in freedom but not as in beer" software integrators and consultants); but, even in markets where the price is basically zero, you can usually find, at the very least, several FOSS projects duelling for users. Quite a few markets don't even go that far. If anything, by providing a solid baseline, they force proprietary vendors to compete harder.
In the specific case of video codecs, the proprietary market was already largely uncompetitive before Google showed up. Everything was either h.264(or very close variants, like VC-1), at the mercy of the giant-pool-o'-MPEG-LA-patents, or various more or less obscure legacy crap.
http://www.on2.com/index.php?603 I found them on on2's site. I assume those VP8s are at maximum quality, but if those are real, and this is fully open sourced, Theora AND H264 are in for a beating. I imagine that this will replace a lot of the internet... video if it's really that good.
.... google can also just implement the new codec on youtube... the whole world will follow.
Hmm, let's try to put it into a computer software context. If the only optimization level your compiler had was "-Op" which did perfect optimization by doing a brute-force search over all possible sequences of machine code of a certain size (let's assume that the input data distribution is known), but using this compiler option then required several years of computer time to finish the compilation, this wouldn't be "good" (i.e., useful) in most scenarios, and no one would do any optimization at all.
In other words, attaining (or even trying to attain) perfection in a specific goodness metric almost always causes other goodness metrics to give very non-optimal results. Another example of this is the "over-fitting" problem in machine learning.