What on earth is going on?

Last Updated on September 30, 2010 by Dave Farquhar

AOL-Time Warner in talks to buy Red Hat? I found this this morning. It’s intriguing, but I can’t decide if a buyout would be a good thing or a bad thing. After all, Netscape was in decline when AOL bought it. It nosedived afterward. Obviously, the problem was twofold. When AOL acquired Netscape, they didn’t acquire all of its mindshare. Some of the most talented people got fed up and left. You can take Jim Barksdale or you can leave him. The loss of Marc Andreesen and Jamie Zawinski, though, was substantial.
The second problem was that AOL wasn’t serious about competing. They bought a browser technology and basically sat on it. Netscape 4.x was fundamentally flawed, as even Zawinski acknowledges, although I would argue it was no more fundamentally flawed than IE 4.x. The Gecko engine, on which Netscape 6.x is based, is solid technology, even though it took longer to get to market than anyone had hoped. Although Netscape 6.x won’t bowl anyone over, other browsers based on the technology, such as Galeon, are absolutely fantastic. But AOL chose to release a half-hearted browser with the Netscape name on it and continued to use the IE engine in its flagship product even after the favorable agreement with Microsoft that prompted AOL to do so in the first place expired.

That begs the question of what AOL would do with Red Hat if it owned it. Red Hat is still the big-name player in the Linux field, but Red Hat is concentrating on the server market. You can still buy Red Hat at retail, but on the desktop, Red Hat is arguably #3 in popularity now behind France’s Mandrake and Germany’s SuSE. Red Hat is the only Linux company that’s making money, but that’s largely by selling consulting. That’s not AOL’s core business. At this point, AOL is more of a media company than a technology company. Software just gives AOL more outlets to sell its media content. Consulting doesn’t do that.

The best possible scenario for a Red Hat buyout would be for AOL to, as Microsoft puts it, “eat its own dog food,” that is, rip out the infrastructure it bought from other companies and replace it with the technology it just developed or acquired. Since AOL is largely powered by Sun servers, it wouldn’t be terribly difficult to migrate the infrastructure to Red Hat running on Intel. Then AOL could give a big boost to its newly-acquired services division by saying, “We did it and we can help you do it too.” They can also cite Amazon’s recent successes in moving its infrastructure to Red Hat Linux. There is precedence for that; after AOL bought Time Warner, the entire company started using AOL for e-mail, a move widely questioned by anyone who’s used anything other than AOL for mail.

Of course, it would be expected that AOL would port its online service to Linux, which would create the truly odd couple of the computing field. AOL, meet sed and awk. Red Hat would certainly lose its purity and much of its credibility among the Linux die-hards. AOL would bank on making up the loss by gaining users closer to the mainstream. AOL could potentially put some Linux on its corporate desktops, but being a media company, an all-out migration to Linux everywhere within is very far-fetched.

To really make this work, AOL would either have to enter the hardware business and sell PCs at retail using its newly acquired Red Hat distribution and newly ported AOL for Linux and possibly an AOL-branded office suite based on OpenOffice, or it would have to partner with a hardware company. Partnering with a big name seems unlikely–a Compaq or an HP or an IBM wouldn’t do it for fear of retaliation from Microsoft. Sun has never expressed any interest in entering the retail computer business, and even though Sun loves to take opportunities to harm Microsoft, Sun probably wouldn’t cooperate with AOL if AOL replaced its Sun infrastructure with Red Hat Linux. Struggling eMachines might be the best bet, since it’s strictly a consumer brand, has a large presence, but hasn’t consistently turned a profit. But AOL could just as easily follow eMachines’ example, buying and re-branding low-end Far East clones and selling them at retail as loss-leaders, taking advantage of its lack of need for Windows (which accounts for roughly $75 of the cost of a retail PC) and making its profit off new subscribers to its dialup and broadband customers. A $349 PC sold at retail with a flashy GUI, decent productivity software and AOL is all the computer many consumers need.

The advantage to this scenario for everyone else is that AOL would probably dump more development into either the KDE or GNOME projects in order to give itself more and higher-quality software to offer. The official trees can either take these changes or leave them. Undoubtedly, some of the changes would be awful, and the official trees would opt to leave them. But with its 18 years’ worth of experience developing GUIs, some of the changes would likely be a good thing as well.

The more likely scenario: AOL will buy out Red Hat, not have a clue what to do with it, and Red Hat Linux will languish just like Netscape.

The even more likely scenario: AOL will come to its senses, realize that Red Hat Linux has nothing to do with its core business, and the two companies will go their separate ways.