Google thinks that by introducing a new web image compression standard the web can be speeded up and storage saved.
Do we need a new image format to add to JPEG, GIF and PNG? Google thinks we do and all because its new WebP format can reduce a the file size by 40% compared to a JPEG of the same quality. This is important because, according to Google, 65% of the total traffic is down to JPEGs. So a reduction in image size could speed things up quite a lot.
The new compression algorithm is lossy so it is effectively and alternative to JPEG and it derives from Google's VP8 video codec. Essentially WebP is the frame compressor in the VP8 video compression scheme with the result packaged into a RIFF container. RIFF has the ability to be extended and while the basic container adds only 20 bytes to an image it can also accept additional tags for metadata.
To test that its new compression algorithm was actually better, Google tested it with 1 million images and this is where the 40% file size reduction figure comes from. Google estimate that this saving could be better when starting from a raw uncompressed file. In fact the estimate is flawed in a number of ways. The first is that the random JPEGS almost certainly haven't been compressed in an optimal way and probably contain more information than they need. On the other hand the WebP compressions have been adjusted to give the smallest file size without compromising quality. A fairer comparison would have been optimised JPEG versus optimised WebP.
Of course this all depends on the subjective assessment of image quality and to check it out you can compare them on a site Google has prepared. In case you are wondering how you can view the results of the new compression algorithm - the answer is that they have been decompressed and are shown as PNG format, which being lossless gives the same result as decompressing the new format.
The second big problem with introducing a new format is getting people to support it. Currently there is a patch for WebKit in preparation and hence Google Chrome is likely to be the first browser to support the new format. Currently there is no news as to when or if any other browsers will support WebP. What this means is, until we have universal support for it, who is going to want to use it?
After all, the choice is to make images 40% smaller but to run the risk that the end user can't actually see them.