Google is developing a new image format called WebP (pronounced “weppy”) which is a sister format to its WebM project for videos. WebP provides lossy compression for photographic images. In a large scale study of 900,000 web images, WebP images were 39.8% smaller than jpeg images of similar quality.

How WebP works
WebP uses predictive coding to encode an image, the same methodology used by the VP8 video codec to compress keyframes in videos. Predictive coding uses the values in neighboring blocks of pixels to predict the values in a block, and then encodes only the difference (residual) between the actual values and the prediction.
The residuals typically contain many zero values, which can be compressed much more effectively. The residuals are then transformed, quantized and entropy-coded as usual. WebP also uses variable block sizes.

WebP is only supported in Chrome and Opera browsers. Google products such as Gmail, Picassa Web albums, and Google Instant Previews also support WebP.

Convert your favorite collection from PNG and JPEG to WebP by downloading the precompiled cwebp conversion tool for Linux, Windows or Mac OS X. Here is the download link.

How to convert images to the WebP format
Use cwebp on the command line to convert PNG or JPEG image files to WebP format. You can convert a PNG image file (say: image.png) to a WebP image with a quality range of 80 with the command:

cwebp -quality 80 image.png -o image.webp