Will Redhat Become a Division of AOL Time-Warner?

[Janina Sajka]

AOL in Negotiations to Acquire Red Hat
Deal for Distributor of Linux Operating System Could Lead to a New Challenge
of Microsoft

 By Alec Klein
Washington Post Staff Writer
Saturday, January 19, 2002; Page E01

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 archrival Microsoft Corp., according
to sources familiar with the matter.

Red Hat, a publicly traded firm based in Durham, N.C., sells products and
services based on the Linux operating system, the freely available software
developed collaboratively by volunteers. Linux is designed for a wide
variety of gear, running corporate computer servers and consumer devices
such as personal computers, cell phones and video games.

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 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 greater 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 how much money 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.

The software company reported a profit of $1.8 million, or a penny per
share, in the nine months, compared with a loss of $10 million, or six cents
a share, in the year-ago period.

Red Hat makes its money by packaging Linux for commercial and consumer use
and by providing services and support to customers who use it. The operating
system itself is freely available on the Internet -- thanks to an initiative
by a programmer named Linus Torvalds who organized volunteers to write the
original source code. Unlike Microsoft, which does not fully divulge its
code, the Linux code is available to anyone who agrees to make modifications
publicly available.

Linux has yet to be adopted widely by consumers, largely because it requires
some technical proficiency to install. But it is popular with the tech crowd
and, according to industry estimates, runs about 30 percent of all computers
 servers -- the powerful computers that function as hubs on a network.

Red Hat has claimed such big clients as Amazon.com Inc. and International
Business Machines Corp., providing software and support for IBM servers that
use the Linux operating system.

-- 
	
				Janina Sajka, Director
				Technology Research and Development
				Governmental Relations Group
				American Foundation for the Blind (AFB)

Email: janina at afb.net		Phone: (202) 408-8175

Chair, Accessibility SIG
Open Electronic Book Forum (OEBF)
http://www.openebook.org