SuitWatchFriday, January 23, 2002
Look ma, no hat
On Saturday, January 19, Washtech.com published a piece by Alec Klein, a Washington Post staff writer, titled "AOL in Negotiations to buy Red Hat". [1] Added Klein, "according to sources familiar with the matter."
Klein called Red Hat "a prominent distributor of a computer operating system" and said the acquisition "would position the media giant to challenge arch rival Microsoft Corp."
The rest of the story was stamped out by the Clash of Titans template that shapes a huge percentage of business news -- especially where the subject is something about which the author knows almost nothing else. Mix scant facts with some war metaphors and the story writes itself.
How little Klein knows becomes clear with this sentence: "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."
Now Linux, as we know, does many wonderful things. But its market penetration as a desktop operating system rounds so close to zero that AOL has never bothered to develop a client for it.
Here's another doozy: "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."
First, AOL's client runs on Windows and Macintosh. Not just Windows. Its instant messaging client does run on Linux and various kinds of UNIX. But it's inconceivable that either is in a position to load another operating system when they start up as an application. Or that users would tolerate it.
It goes on: "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."
What bread and butter business? Operating systems? Office applications? Servers? Microsoft has vast bakeries and dairies in all of those categories. And are we to believe that millions of AOL customers would rather not run all their other Windows (and, for that matter, Macintosh) apps -- that all they care about is (or would be) running AOL?
Then there's this: "AOLTime 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."
Okay. In the Linux world we're grateful that AOL has continued to fund Netscape and Mozilla development, but browsers ceased to be a business the moment Microsoft began giving away Internet Explorer for free. As for the Gateway tabletop internet terminal [2], the "connected touch pad" ran AOL with a Mozilla Gecko browser on embedded Linux. Launched in 2000, the appliance was cheap and well promoted on the Gateway and AOL sites, and in company's stores. We even covered it with a cover story in Embedded Linux Journal. It also failed to sell.
Anyway, Reuters picked up the story, which then appeared all over the place: The San Francisco Chronicle [3], CNET [4], MSNBC [5] and so on. The Associated Press picked up the story [6], and led off with, literally, nothing: "Both companies declined to comment Saturday on a published report that AOL Time Warner Inc. is negotiating to buy the Linux distributor Red Hat Inc. The Washington Post reported late Friday that AOL Time Warner Inc. was in talks to buy Durham-based Red Hat, citing sources familiar with the situation."
Here's what I wondered: Why didn't Kara Swisher get this story? Kara covered AOL for the Washington Post for many years, and now writes for the Wall Street Journal. She is far and away the leading authority on the company, where she is literally an insider. [7] If AOL were floating this story anywhere, I would guess, it would be with Kara. They certainly wouldn't deny her the story if it had any substance. But her last story in the WSJ was about Google. Nothing about AOL. The online version of the WSJ picked up the AP story. But that was about it. The Journal clearly thought it was a waste of ink (if not pixels).
Then on January 22, the Washington Post followed up with a story, also written by Alec Klein, under the headline "AOL Denies It, Red Hat Are Talking". [8] Klein wrote, "Yesterday, after a flurry of media and internet commentary on a deal and expressions of concern by Red Hat employees about a possible takeover, an AOL spokesman said no deal is in the works. Sources close to AOL said that informal, fluid talks between the companies began as early as April, but they ere not aware if the talks were continuing as of yesterday." Translation: this was never more than a rumor. Oddly, the piece repeated much of the same wacky stuff (quoted above) that appeared in the first piece.
I believe it makes complete sense for AOL and Red Hat to be talking. AOL is clearly threatened -- as are we all -- by Microsoft's constant attempts to leverage monopoly positions in operating systems and desktop software. Moves with both .Net [9] and Web Services [10] threaten to put the squeeze not only on companies like AOL, but on the Net itself as a platform. Microsoft CEO Steve Ballmer considers Linux the "number one threat" to Windows. [11] And Red Hat is the leading Linux company.
AOL has never had any appetite for what we might call the systems business. When they bought Netscape a few years back, they scraped Netscape's server products and services off on Sun Microsystems. But the world needs a Linux systems business of sufficient power to truly serve as a strategic (and not just a de facto) threat to Microsoft's intentions with .Net and Web Services.
IBM, Compaq, HP and some other large systems companies are putting Linux to use all over the place, but they're not stepping forward to confront Microsoft's intentions toward the Internet, which we all share as common infrastructure. Is AOL willing, able or even interested in doing that? Given its background as a media company, it seems unlikely. But somebody has to. And whoever that is would need to factor Red Hat into their strategic plans.
[1] <http://www.washtech.com/news/media/14759-1.html>
[2] <http://www.cnn.com/2000/TECH/computing/11/10/aol.gateway.reut/>
[3] <http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2002/01/21/BU158274.DTL&type=business>
[4] <http://news.com.com/2100-1001-819243.html>
[5] <http://www.msnbc.com/news/690661.asp>
[6] <http://seattlepi.nwsource.com/business/aptech_story.asp?category=1700&slug=AOL%20Red%20Hat>
[7] <http://literati.net/Swisher/>
[8] <http://www.washingtonpost.com/wp-dyn/articles/A21895-2002Jan22.html>
[9] <http://microsoft.com/net/>
[10] <http://msdn.microsoft.com/msdnmag/issues/0900/WebPlatform/WebPlatform.asp>
[11] <http://www.wininformant.com/Articles/Index.cfm?ArticleID=19609>