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By Alec
Klein,
Washington
Post Staff Writer
Saturday, January 19, 2002;
9:14 AM
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.
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 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.
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 blueprints to Linux are 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.
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