Monday January 21 01:50 PM EST
Analyst: AOL Merger Would Destroy Red Hat Linux
By Robyn Weisman, www.NewsFactor.com
According to published reports, Internet giant AOL Time Warner (NYSE: AOL - news) is in talks to purchase Red Hat Inc.(Nasdaq: RHAT - news), the most influential U.S. distributor of Linux operating system (OS) software, services and support.
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Officials from both companies have declined requests for comment, with Red Hat spokesperson Melissa London saying that Red Hat does not respond to rumors as a matter of company policy.
Although the reasons behind the possible acquisition remain unspecified, analysts have suggested that AOL may be attempting to better position itself for a drawn-out battle with Microsoft Corporation (Nasdaq: MSFT - news).
Going to Microsoft's Core
Over the past several years, Microsoft has made inroads into AOL's core business through its MSN Internet gateway service. Although AOL remains the undisputed global online leader with over 33 million subscribers, MSN has started to play catch-up.
Analysts have indicated that AOL could employ Red Hat's technologies in a number of ways. For example, Red Hat's Linux OS could be used to reconfigure AOL's proprietary software to override Windows, which runs on over 90 percent of the world's desktops.
Or, AOL could even use the acquisition to develop a rival operating system, which users would have to install in order to take advantage of AOL's popular Internet interface.
Analyst: AOL Not a Software Vendor
Giga Information Group vice president Rob Enderle told NewsFactor that AOL might want to acquire Red Hat in order to develop a competing OS, to reduce its dependence on Microsoft technology.
The Linux OS "represents everything Microsoft isn't, and Red Hat is the strongest Linux player," Enderle said.
However, Enderle told NewsFactor, AOL's acquisition of Red Hat, were it to come about, would probably be a disaster.
"AOL, at the end of the day, is not a software company, and this acquisition would be outside of its expertise," Enderle said. "[The company] knows so little about the market that there's a good chance that it would destroy Red Hat's business rather than getting its benefits."
Enderle cited AOL's earlier acquisition of Netscape as an example of how such a strategy can go awry. When AOL first acquired Netscape, the merged companies were to act as partners. But in time, Netscape became little more than an afterthought, losing most of its market share.
Coke and Bottled Water
Forrester principal analyst Carl Howe told NewsFactor that AOL "could be buying for a number of reasons, but it's still premature," Howe said. "I'd like to know more about the why, but there is just no fact to go on."
Despite all the Microsoft-related rumblings, Howe pointed out, AOL could be trying to purchase Red Hat for its excellent -- and undervalued -- automated support network.
In any event, Howe said, comparing Microsoft to Red Hat Linux does not make much sense because they provide different sets of assets and are not targeting the same markets.
"As an analogy, Microsoft is like Coke. It's closely held and offers a specific [range of products and services]," Howe said.
In contrast, Howe commented: "Red Hat is like bottled water. Water is about distribution and branding more than it is about substance."
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