>
>AOL in Negotiations to Acquire Red Hat
>Deal for Distributor of Linux Operating System Could Lead to a New Challenge
>of Microsoft
>
>  By Alec Klein
>Washington Post Staff Writer
>Saturday, January 19, 2002; Page E01
>
>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.
>
>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 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 greater 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 how much money 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 Linux code is 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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