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http://blog.chromium.org/2011/01/more-about-chrome-html-video-codec.html
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http://en.wikipedia.org/wiki/X264
(It also happens to be widely-regarded as the best h.264 encoder at the moment too.)
H.264 is an open, but patent-encumbered standard. Flash is an essentially closed standard in that there's a dominant implementation on both the "encoder" and "decoder" side.
Arguments that Google is being pragmatic by bundling flash ring insincere because dropping h.264 is so non-pragmatic in that it will shove people back to relying on flash for web video indefinitely.
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