So if Google's announcement has little affect on Web clients, i.e. to video consumers, it could get interesting on the server side, i.e. video distributors, where Google, via YouTube, is the 800 pound gorilla. While Google is shunning native H.264 client support in favor of the presumably more open (and undoubtedly less expensive) WebM standard, it hasn't made a like decision for its Web properties. On YouTube's still optional HTML5 site, the vast majority of content is in H.264, but who knows if they're not quietly using their vast server farms to re-encode all of this into WebM -- much like they did when YouTube first it first adopted HTML5/H.264 back in 2007 (ironically enough, to support Apple TV). This actually seems quite likely, however the big unknown is whether Google would then drop H.264 content from YouTube.
If my earlier suspicion that Google's announcement is all about their exerting even more control over Web video content, then it's likely they would play hardball and force Apple's hand by doing just this. No Flash, no H.264, no YouTube for all those iOS users. How such a scenario would play out is too many moves down the chess board for my crystal ball. Perhaps Apple would buckle and support Flash (doubtful), WebM (more likely) or develop some other codec-agnostic plug-in technology for Safari (even more likely). Maybe they'd try and line that hardball right back up the middle by confirming the rumors and turning iTunes into a Web site, integrating it into Safari and making it a viable YouTube alternative. Who knows, but much like the earlier music battles between various encoders and storefronts, it will certainly be fun to watch.