Who wins if AOL swallows RedHat?

Trick question


It's hard to imagine of a deal that would allow Microsoft to pose as a champion of choice and plurality, but the acquisition of the leading Linux company by dismal media conglomerate AOL/Time Warner may just do the trick.

According to the Washington Post AOL/Time Warner is in "fluid" discussions to acquire Red Hat, the only consistently profitable Linux operation. "Fluid" means one of two things: either they're all sitting in a huge jacuzzi, or nothing has been agreed.

The sources' affiliations aren't identified, let alone named, and the pairing looks improbable. The two have very different interests that intersect only slightly, and Red Hat's high stock to earnings ratio makes it a poor buy, even for a buyer that urgently needed its assets.

Remember that Time Warner merged with AOL to provide the former with an electronic delivery platform - although it already had one, with an extensive cable TV franchise - and the latter with content.

Red Hat, meanwhile, is the predominant enterprise business server Linux, with interests in developer tools and embedded systems.

Only of one of those three areas is likely to be attractive to AOL. The other two, if it needs them, can be acquired though partnership, rather than spending cash. AOL is if anything, withdrawing from enterprise business software, with its ownership of the iPlanet venture (the server half of the Netscape acquisition) elapsing in March. Most of the employees were transferred to Sun last year.

However AOL is highly anxious - as shown in leaked strategy memos last year - at losing its Net franchise. Microsoft has shown every indication that intends to drain the oxygen from future web transactions, and in order to so, wants to squeeze AOL off the PC desktop. AOL has already touted Linux in web appliances and appreciates that a box giving access to AOL content and instant messaging doesn't need to be a Wintel PC.

The trouble is, buying RedHat is the most convoluted and most expensive way of buying such an alternative to Wintel. For example, see Robin Miller's review the $799 OEone Linux PC/appliance. OEone is a modest outfit, but proves that you don't need to own any assets except a little imagination and a few good programmers: the OEone UI is based on Mozilla's XUL toolkit, an asset AOL has helped nurture.

Expensive mergers (and Red Hat would indeed be one, with its $1.6 billion market cap) tend to appeal to the big swinging dicks in corporate planning, and look no further for the likely suspect for this rumour. As the Post's Alec Klein, who wrote the merger story, wrote here in December, ex-AOLer Bob Pittman was passed over for the CEO post in December. This might be his way of showing the AOLers can still punch their weight.

Whatever. If this expensive nuptial takes place, it certainly adds a little rebel chic to the AOL-TW Death Star.

But let's not forget boys and girls, that Linux would be serving but one purpose: providing a pipe to AOL-TW's content, TV shows and its news plugs about that content. A survey of US network TV news last year indicated that a third of morning broadcast 'news' stories were promotional features, and 20 per cent of all stories were plugs for the owners' other products (now sourced below). They were, as we saw with the Time front-page splash for the new iMac, thinly-disguised advertorial.

In other words, it may be a Linux computer, but a Linux computer that's solely serving a gigantic information and entertainment congolmerate. And that will be enough to make folk nostalgic for Clippy the Paper Clip.

Remember that for all its vices, Microsoft has next to no media content, and once you're away from your computer, The Beast has very little power to make to your daily cultural intake any more dismal and bland; while that's the entire raison d'etre of the AOL-Time Warner "synergies". We're baffled that anyone should find that absorbing a successful Linux enterprise company to achieve such ends is anything to celebrate. Maybe they should be spending less time with their computers? ®

Bootnote: "A November 19 report by the Project for Excellence in Journalism found that the network news shows spent 33 per cent of their air time selling something; on average 20 per cent of the stories were for books, TV shows, music or products their company produced" - "The Wages of Synergy" by Janine Jaquet in The Nation, Jan 7-14 2002 issue (p20).


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