Monday, January 21, 2002

AOL in Negotiations to Acquire

AOL in Negotiations to Acquire Red Hat ( ::: This story ran over the weekend, and I’m still not sure I have figured out what the advantage is to AOL (or Red Hat, for that matter). AOL is primarily a consumer company, with more than 30 million subscribers. Red Hat is a distributor of otherwise free software to techies and corporate customers – and I’d be willing to bet the overlap in customer base is less than 100,000 today.

One quote in the story is almost laughable: “But the AOL software could be configured to override Windows and launch a version of Red Hat’s Linux operating system, sources said.” Come again? Not only are the technical difficulties of configuring a dual-boot machine very real, but the prospects of consumers maintaining competing OS’s on their machine solely for the purpose of checking e-mail seem awfully small. AOL is the predominant content provider today – people pay them $20+ per month for access to reliable content. But AOL is not an OS, nor are they expected to be. AOL is an icon on a desktop – a desktop provided by Microsoft. To fight this war will be to subject AOL/Time Warner stock to a punishing battle it simply cannot win. Do you think the Time Warner folks are scratching their heads over this one? The battle for the desktop OS is over, and in fact will migrate to the web over the next 36 months. The battle for the “web desktop” is far from over – so why isn’t AOL focused on that?

AOL has been an unparalelled success when it comes to delivering a consumer experience online. But its handling of past tech acquisitions is hardly impressive. Early online denizens should remember GNN (O’Reilly’s Global Network Navigator). Acquired back in 1993, it was dead a year later. Then there’s Netscape, acquired in 1999. Today, all of Netscape’s tech talent is gone, and Netscape’s value to AOL is as a home page with eyeballs. Compuserve was acquired, only to morph from a pioneering online service to an AOL clone. In each case, it’s hard to make an argument that consumers benefitted from the acquisitions. It’s further difficult to argue that AOL benefitted materially from them either.

So what will a Red Hat acquisition mean for consumers? For Red Hat? AOL? Send me your thoughts…

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