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Noticed any differences when using Google’s (s GOOG) Hangouts video chat lately? If you did, then you may be one of the lucky users who has already received an upgrade to 720p HD video. The company quietly started to roll out HD for Hangouts to a subset of its users in the last few weeks and hopes to complete the rollout soon. But the change isn’t just a quality upgrade – it’s part of a bigger move towards open standards that will eventually bring us video chat in the browser without the need for any plugins.

To enable HD, and prepare for this plugin-free future, Google quietly started to transition Hangouts from the H.264 video codec to VP8, an open and royalty-free video codec the company released back in 2010. Google’s Vice President of Engineering Chee Chew told me during a recent interview that the switchover from H.264 to VP8 should be more or less invisible to consumers, with some possibly noticing a little less choppiness. “It will be cleaner, better video,” Chew said.

One of the key advantages of VP8 is that it will enable Hangouts in HD, something that Chew said simply wasn’t possible with H.264, because handling HD streams from 10 participants would have required too much processing power. The new video format also makes it possible for Google to serve up better-looking streams at low bit rates, which is especially important when it comes to mobile video chats.

What birthday hats have to do with the future of video chat

But the move to VP8 isn’t just about looks. It’s also a first step towards letting users video chat in the browser without the need for any plugins, thanks to an emerging standard for real-time audio and video communication called WebRTC. Google has been a big proponent of WebRTC, and integrated it into the desktop and Android versions of its Chrome browser.

The company hinted at plans to utilize WebRTC for Hangouts when it launched the video chat platform two years ago. So what took Google so long? Chew told me that the Hangouts team first concentrated on optimizing the experience for end users, and that the standard had to mature. But there were also less obvious problems that have so far prevented Google from fully embracing WebRTC for Hangouts. Yes, we are talking about birthday hats, scuba glasses and cat whiskers.

Hangouts have for some time offered users the ability to apply silly effects to their video chats. These effects, which use facial recognition to make sure that the cartoon birthday hat is actually on top of your head, are rendered on the sender’s client side, and there’s currently no easy way to do this with WebRTC. “We will eventually move over to WebRTC,” said Chew, but this process may take several more months.

However, eventually, WebRTC could actually provide an even more immersive video chat experience, explained Chew. That’s because when the video becomes a native HTML element, it will be even easier to add overlays and other, more subtle improvements.

No more third-party code to run Hangouts chats

One of the more immediate consequences of the switch-over to VP8 is that Google is phasing out the use of third-party code provided by the video conferencing technology vendor Vidyo. Google started licensing technology from Vidyo back in 2008 when it first brought video chat to Google Talk, and the companies continued to cooperate when Google launched Hangouts and eventually absorbed Talk and other messaging clients in that platform.

Talk and Hangouts relied on Vidyo’s implementation of the H.264 codec as well as the company’s scalable video coding technology, which essentially allowed Google to seamlessly switch to a lower bitrate in the case of network congestion.

With the move to VP8, all of that is being replaced – but Vidyo CEO Ofer Shapiro actually seemed understanding of Google’s motives when I talked to him about the switch this week. “The need to install something is somewhat of a barrier” to the use of video chat, he acknowledged, adding that a royalty-free codec like VP8 was promising as well.

That’s why, moving forward, Vidyo actually wants to support WebRTC and open video codecs. The company is announcing Wednesday that it will contribute client-side scalable video coding technology to VP9, the next generation of Google’s open video codec. Vidyo will also cooperate with Google to incorporate some of its technology into enterprise versions of Hangouts. Both companies haven’t said yet what exactly they’re working on, but it’s possible that Google would want to make more inroads in the corporate world to take on traditional video conferencing vendors.

Codecs, browsers, standards: welcome to a hybrid world

Google wants to switch over all of its users to VP8 by the end of next week and add the ability to do HD Hangouts soon after. However, the complete switch-over to VP8 may take a bit longer. Mobile clients can’t be forced to upgrade, so there will be some time in which VP8 and H.264 coexist — what Chew called a “hybrid world.”

That pattern will likely repeat once Google moves Hangouts to WebRTC in a few months. Chrome, Firefox and Opera support WebRTC natively, but Microsoft(S MSFT) has actually been trying to push for a different take on the standard that isn’t based on the VP8 video codec, and Apple (s AAPL) has given no indication that Safari will ever support WebRTC. “Some browsers will have the plugin to fall back on,” acknowledged Chew, but others will be able to run Hangouts completely without a plugin.

Eventually, he hopes that all users will be able to start their video chats in their web browsers without the need to download any additional software. “The role of the plugin will diminish,” he said.

Updated at 7:40am with additional details on the timeline for the HD and VP8 rollout.

WebRTC logo image courtesy of Flickr user Tsahi Levent-Levi.