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January 21, 2002

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Overview of an AOL-TW Purchase of Red Hat Linux

Part I: What AOL-TW Gets and Does Not Get in a Red Hat Acquisition

Mike Angelo -- 21 January 2002 (c)

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. (AOL in Negotiations to Buy Red Hat, Alec Klein, Washington Post Staff Writer, Washtech.com (The Washington Post), January 19, 2002.)

There are unconfirmed reports that AOL-Time-Warner wants to acquire Red Hat Linux. Although some observers are touting this as a good thing, we do not see it that way. Please keep in mind that, in our opinion, AOL's success has been in the media and marketing arenas -- not in computer technology and software development. One case-in-point is how botched was the Netscape browser software development after AOL took over the Netscape Communications Corporation (NSCP).

Red Hat Incorporated (RHAT) publishes Red Hat Linux, now at version 7.2, the Red Hat eCommerce Suite, and other Linux and Open Source software items. It employees some 600 people and, at least in the United States, is the best-known Linux distribution provider.

What AOL-TW Does Not Get in a Red Hat Acquisition

The obvious prize AOL-TW likely seeks in its desires to takeover Red Hat is the Linux operating system (OS). However, something AOL-Time-Warner's investors might not realize but ought to know is that Red Hat Incorporated does not own the Linux OS.

Linux is Open Source software. That means that anyone who abides by the public license that governs the Linux source code may freely modify and/or distribute Linux -- in accordance with that public license. And that means that AOL-Time-Warner, or anyone else for that matter, may modify, use, and/or distribute Linux for free -- as long as they adhere to its public license.

The implication of that is either AOL-Time-Warner is just plain stupid or there is something else that AOL-TW is after in its attempts to acquire Red Hat Linux. Hold that thought.

Moreover, in a sense Linux is a huge community of software programmers, coders, and developers. The Linux community includes many people and organizations that contribute to Linux development, distribution, support, software, marketing, and so forth. Additionally, the Linux infrastructure is well distributed throughout this ubiquitous Linux community. An AOL-Time-Warner acquisition of Red Hat Incorporated will not include acquisition of that huge Linux community and infrastructure, other than the Red Hat portion of that community.

Certainly, the Red Hat people have been and are a very important and instrumental part of the phenomenal growth, development, and deployment of Linux. However, without the great efforts of the entire Linux community including Red Hat, Linux likely still would be a little known, primitive, and sparsely deployed operating system.

Even so, there is little if any guarantee that all of the some 600 Linux community people that now are Red Hat employees would stay with an AOL-Red-Hat organization. Moreover, history suggests many, if not most, would not stay with an AOL-Red-Hat company.

The case in point is AOL's takeover of Netscape Communications Corporation. When the AOL takeover of Netscape was announced, there were lots of very upset Netscape employees. My recollection of that is that in order to stave off a mass exodus of Netscape people; AOL had a meeting(s) with the Netscape employees, which seemed to calm the Netscape mutineers down some.

AOL did manage to stop an immediate, critical-mass mutiny and exodus of Netscape people. However, many if not most of those Netscape people upset with the AOL takeover left AOL-Netscape, one-by-one, over a period of time. Two major players in the original Netscape Corporation that no longer are with AOL's Netscape are former Netscape CEO Jim Barkesdale and the Netscape browser's creator and Netscape Corporation founder Marc Andresseen.

Without Andresseen, Barkesdale, and many other key pre-AOL takeover Netscape people, Netscape floundered. It has taken Netscape more than three years to update its technologically outdated Netscape Communicator 4 browser suite. During that time the once dominant Netscape Web browser suite has been kicked off the Windows desktop by Microsoft's Internet Explorer (IE) and is struggling to stay on the Linux desktop.

Should AOL acquire Red Hat and should history repeat itself, do not be surprised if many of the people now at Red Hat leave AOL-Netscape. So far that makes three things AOL cannot buy by acquiring Red Hat, the Linux OS, the Linux community, and the Red Hat people.

Not only did many Netscape employees jump ship after the AOL takeover, but many (likely millions) of Netscape users bailed out too. So, if history repeats itself do not be surprised if an AOL takeover of Red Hat Linux results in many current Red Hat users jumping ship, just as Netscape users flocked away from Netscape after the AOL takeover there.

Moreover, AOL generally has a poor image in the eyes of many of the more sophisticated, experienced, knowledgeable, and professional computer users, which is a fair description of Linux users. We doubt that AOL-TW will be able to buy the more sophisticated, experienced, knowledgeable, and professional computer Linux users by purchasing any major Linux distribution. That makes four things AOL cannot get merely by acquiring Red Hat, the Linux OS, the Linux community and infrastructure other than Red Hat, the Red Hat people, and the Red Hat Linux users.

What AOL-TW Does Get in a Red Hat Acquisition

It's likely the real prize for AOL in its Netscape acquisition package was the Netscape portal. The portal potential just might be what AOL-TW seeks in a Red Hat acquisition.

After AOL takeover, development of the Netscape browser suite became a disaster. Since AOL acquired Netscape Corporation, the once dominant Netscape browser-suite lost that dominance to Microsoft's Internet Explorer (IE) browser. Before the AOL takeover, Netscape was at the forward tip of browser-suite technology and pioneered browser standards. Now, it is Microsoft and its Internet Explorer that is setting browser standards while Netscape has been reduced to playing catch up.

However, Netscape did manage to maintain browser dominance on the Linux desktop until early 2001. In part that was because Microsoft's Internet Explorer is not available for Linux.

In April 2001, Red Hat started to drop the Netscape browser as the default browser from the Red Hat Linux distribution. In an exclusive MozillaQuest Magazine interview with Red Hat spokesperson Melissa London, she told MozillaQuest that Red Hat planned to drop the Netscape browser from future Red Hat Linux distributions, and replace it with the Mozilla browser-suite.

The news that Red Hat planned to drop Netscape from its Linux distribution broke in our 19 April 2001 MozillaQuest story, "A Red Hat Linux 7.1 Preview: What's Under the Newest Fedora". There, in an exclusive interview, Red Hat's Melissa London said, "A future release will likely see the drop of Netscape 4.7x." She further stated "The plan is to drop the Netscape browser as soon as Mozilla has equal functionality. It is close now, so if that release happens to be Mozilla 1.0, then . . . it will be the sole browser. If functionality is not equal, we will continue to ship both until such a time when Mozilla is a comparable and better replacement."

At that time the Mozilla development roadmap called for Mozilla 1.0 release in May 2001. Mozilla 1.0 has yet to become a reality.

When Red Hat released its Red Hat Linux 7.2 distribution in October 2001 Netscape no longer was the default Web browser. Mozilla 0.9.2.1 is the Red Hat Linux 7.2 default Web browser on the GNOME desktop and Konqueror is the default browser on the KDE desktop. Red Hat Linux does not include Netscape 6.anything. It does however include Netscape for 4.78 -- but not as the default browser.

Mandrake Linux and SuSE Linux spokespeople also indicated their displeasure with the Netscape browser in exclusive MozillaQuest Magazine interviews.

In essence, the Netscape browser has been kicked off the Linux desktop too. However, if AOL-Time-Warner takes over Red Hat, then it could make AOL-Netscape's browser the default Red Hat Linux browser. Moreover, it could make Netscape the only browser included with Red Hat Linux.

The importance to AOL of making Netscape the default and perhaps the exclusive browser-suite for Red Linux is the portal aspect of the Netscape browser suite. That portal aspect comes into play in the included, pre-set bookmarks, the pre-set bookmark buttons on the personal toolbar, and the pre-set URLs in the Netscape Sidebar.

Perhaps the most important of these portal devices are the Home button on the personal toolbar, the default startup page, and the default search engine. In the Netscape browser these all take you to Netscape's Web site.

The Washington Post article about the buyout negotiations does not put a price tag on the deal. However it does mention that Red Hat has a market capitalization of about $1.45 billion . . . reported $68.2 million in revenue in the nine months ended Nov. 30 . . . reported a profit of $1.8 million . . . in the nine months.

Rather than spend millions on a Red Hat buyout to get the Netscape browser and its portal packages back on the Linux desktop, AOL-TW-Netscape might do better in the long run to produce a better Netscape browser -- one that will earn its place on the Linux desktop.

Linux users are pretty darn savvy. If the Netscape browser is not the best browser available for Linux, users will replace it with a better browser. If AOL-TW-Netscape wants its Netscape browser and the portal package that accompanies it on the Linux desktop, it needs to produce a Netscape browser that will earn its place on the Linux desktop.

More to come in Part II. Please stay tuned.

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