AOL in Negotiations to Buy Red Hat

Can you imagine AOL users running linux? That's funny....

Full Story: http://www.washtech.com/cgi-bin/udt/WTW.PRINT.STORY?client=washtech-test&storyid=14759

AOL Time Warner Inc. is in talks to buy Red Hat Inc., a prominent distributor of a computer operating system, an acquisition that would position the media giant to challenge arch rival Microsoft Corp., according to sources familiar with the matter.

The Red Hat negotiations –which are still fluid – are the latest indication that AOL Time Warner, the world's largest media company, is looking for alternatives to software made by Microsoft, whose Windows operating system runs 90 percent of the world's PCs. The longtime competitors have fought over an array of rival consumer technologies lately, including online subscription services, instant-messaging systems and Web-based video and audio players.

Officials of AOL, Red Hat and Microsoft declined to comment.

To counter Microsoft's desktop hegemony, New York-based AOL Time Warner could use the deal to couple its America Online software, the market leader with more than 33 million Internet subscribers, with Red Hat's operating-system technology, sources said.

The AOL online software, which consumers can install for free from the Web or a compact disk, is now designed to run on Microsoft's Windows operating system. But the AOL software could be configured to override Windows and launch a version of Red Hat's Linux operating system, sources said.

With such a move, AOL Time Warner could potentially make significant inroads into Microsoft's bread-and-butter business. An even graver challenge to Microsoft would be for AOL Time Warner to develop a rival operating system that works exclusively with the media giant's own Internet service provider, its Web browser or proprietary content.

This is not the first time AOL Time Warner has explored alternatives to Windows. There were rumblings last year, during a flash point in the rivalry between the two tech titans, when AOL Time Warner was scouting for an acquisition or partnership with a firm that could provide a competing operating system.

AOL Time Warner has already tried to counteract Microsoft on other fronts, including rebuilding its Netscape Web browser business to better compete against Microsoft's dominant Internet Explorer. Netscape technology has been incorporated into a Gateway Inc. tabletop Internet terminal and Sony Corp.'s PlayStation 2 video-game console. Linux also runs the Sony product.

It was unclear yesterday what price tag Red Hat could fetch. With a market capitalization of about $1.45 billion and about 600 employees worldwide, Red Hat reported $68.2 million in revenue in the nine months ended Nov. 30, down 10 percent over the same period a year earlier.

 

Good Points, gb. I was joking about AOL users running linux; I really don't think that's the immediate intention here.

Although I think you're correct in their plan to diversify their revenue streams, I wouldn't go so far as to imply that they have little or no vision in creating synergy between their acquisitions.
On the contrary, it seems nearly everything the company does is carefully calculated to strenthen its position in the marketplace. They've integrated many of the other products you mentioned (WinAmp, Navigator, IMs) into its core business in order to strengthen its appeal, while also allowing these products to continue to be available to those outside of its immediate reach.

I think a RH aquisition would follow the same strategy. Initially, the company would continue to operate with much of the same autonomy as before. In the future, they could allow its users to optionally install a streamlined and customized OS to the user. Damn...would that mean ANOTHER cd in the mail?

Then again, maybe they just want to use the penguin....what do you think?

 

AOL's overall agenda seems to have been to dominate media and content delivery. Keep control of the method of delivery, and you control your advertising revenue streams. We have seen this from the beginning, with AOL choosing to remain a proprietary service, while the rest of the industry tried to reinvent themselves around the internet.

Acquisitions such as WinAmp and Netscape were beneficial to AOL not because they were money-makers (they weren't) but because they gave AOL the ability to lessen their dependence on other companies warez- again to maintain control. With the slow emergence of broadband, AOL will be able to leverage these assets to deliver the types of content that current and future ad target audiences- oops, I mean subscribers - will demand. AOL will also do so while minimizing their dependence on their chief competitor in this industry- Microsoft.

The Time Warner-AOL 'merger' is another example. They not only gained access to the pipes they needed to move into the new arena, they also gained access to the largest source of original content in the world (something MS has very little of). Much of ANY media content is undercover advertising, as any "feature" on a new product will prove. AOL, no doubt will exploit this to its advantage, as well.

A RH acquisition would be no different, IMO. It seems they are once again looking to control the method of delivery of their content. Newer, specialized ways of accessing the Internet are becoming more common, and will undoubtedly be the most popular way of using it in the future (although not in the traditional way we use it today). In keeping with their "AOL Anywhere" strategy, an investment in RH would allow them to create and develop new (Read: non-Wintel) ways of accessing their network.

I agree that they are not purchasing the OS; they couldn't if they wanted to- it’s free for all. What they are getting is exactly what you stated: the brand and the talent. If they are looking for a money-maker, a purchase would be ill-advised. The high P/E ratio of Red Hat would make this a poor-buy. In fact, what they probably plan to use RH for could probably be accomplished with a partnership. The money saved on the purchase, would more than offset any earnings they would receive. But then, they wouldn't have what they are really after in the first place- control.

 

It looks like both sides are denying the rumors:

http://news.com.com/2100-1001-819578.html?legacy=cnet&tag=pt.msnbc.feed..ne_8551983

"...the two companies are not near an acquisition deal, nor have they discussed one. Representatives for AOL Time Warner, Durham, N.C.-based Red Hat and Microsoft declined to comment. Still, even if the two companies are not considering a merger, AOL Timer Warner could license Red Hat for use on PCs or other devices for use with its online service."