Adobe announced today a new image format for storing raw camera data. Dubbed DNG (for Digital Negative) this format is meant to be a common interchange for the fast proliferating collection of proprietary raw image formats. By some estimates there are over 60 different raw image formats out there. Because of this, there are really only a couple of software vendors that can afford to get into the raw image processing game. It appears that Adobe hopes to level this playing field with this new specification.
To understand the significance of this, it is important that you understand how raw image formats work and why they are different. When most modern cameras (not using the Foveon sensor) advertise take a picture, they have a grid of sensors. These sensors only measure intensity but not color. To capture color data, a color filter (called a Bayer filter) is placed over the sensor so that each little sensor only sees one color (typically Red, Green and Blue). That means that the camera only knows one color value at each pixel. This raw data is then processed using a set of complex algorithms to produce an image that has all the color information for each pixel. For each pixel in the raw data, these algorithms reconstruct the missing color data by looking at the surrounding pixels and guessing. Because of this guessing, there are multiple ways to process this raw data -- and there is the possibility that these algorithms and guessing will get better in the future. Because of this, all serious cameras offer a raw mode where the raw (or close to it) sensor data is saved in a special format and the complex demosaicing algorithms can be done later on a computer.
So, raw images are fundamentally different from regular images in that they store raw sensor data before it has been processed.
The rub comes with the fact that each camera manufacturer has a proprietary raw format (or two or three) and some generally crappy software for dealing with it. Companies like Adobe (with the Adobe Camera Raw plugin for photoshop) and Capture One have been waging a guerilla war to create products to read all of these formats. If Adobe can succeed in getting camera manufacturers to implement this format in their cameras, life for many photographers could become much much easier. But this isn't a sure thing. Camera manufacturers are very aware of the business benefits of lock in. They do it with lens mounts and with their software suites. Canon or Nikon may see their proprietary formats as an advantage in the marketplace. Nikon even charges for the software to convert its raw format while Canon and most other manufacturers provide it for free.
I haven't gotten a read from my buddies in Microsoft imaging, but I'm hoping that DNG is a huge success. Assuming that Adobe doesn't try to assert its own proprietary control over the format (Postscript anyone?) it may just let the camera manufacturers concentrate on making cameras and leave the software development up to a third party marketplace.
[update: RichB points out that there is also an open source utility for dealing with raw camera data called DCRaw and built by Dave Coffin. Apparently Photoshop (and Capture One?) build on some of Dave's work.]