Microsoft is getting into the e-reader game. Well, sort of. Microsoft and Barnes & Noble on Monday announced a partnership in a new entity that will build on the digital reading strengths of both companies.
Specifically, Microsoft is investing $300 million into a Barnes & Noble subsidiary that aims to accelerate the transition to e-reading. Temporarily dubbed Newco, the subsidiary brings together Barnes & Noble's digital and college businesses at a post-money valuation of $1.7 billion.
That gives Microsoft a 17.6 percent equity stake in the new venture. Barnes & Noble will own about 82.4 percent of Newco, which will have an ongoing relationship with its retail stores. The official name of the subsidiary has not yet been decided.
A Revolution in Reading?
The companies gave a peek at one of the first fruits of Newco: a Nook application for Windows 8. The app will extend the reach of Barnes & Noble's digital bookstore to giving hundreds of millions of Windows users around the world access to its digital content catalog.
"The shift to digital is putting the world's libraries and newsstands in the palm of every person's hand, and is the beginning of a journey that will impact how people read, interact with, and enjoy new forms of content," said Andy Lees, president at Microsoft.
Lees is betting the complementary assets of Microsoft and Barnes & Noble will accelerate e-reading innovation across a broad range of Windows devices.
"We're at the cusp of a revolution in reading," he said.
The Windows 8 Play
We asked Greg Sterling, principal analyst at Sterling Market Intelligence, his thoughts on the new partnership between the companies -- companies that were involved in patent litigation until this deal was struck.
Microsoft and Barnes & Noble have now settled the suit. Barnes & Noble and Newco will have a royalty-bearing license under Microsoft's patents for its Nook e-reader and tablet products.
"Window 8 tablets have not hit the market. However Nook is a relatively successful product after the iPad and Kindle and Microsoft is likely 'hedging' its bets here. This way it has a stake in a successful tablet platform and can potentially use it as an avenue to market," Sterling said.
"Nook is based on Android but like Kindle Fire can be modified to marginalize Google," he said, adding that "it's possible" there might be future Nook devices running a Microsoft OS.
Competing in Education
Although much of the focus is on popular titles, Barnes & Nobles said including its college business is an important part of Newco's strategic vision. That's because the company's popular Nook Study software will offer students and educators a technology platform to distribute and manage digital education materials in the market.
Education could be a niche for Nook, but market-leading Amazon is also pushing in that market. In July 2011, Amazon rolled out Kindle Textbook rental. Students can save up to 80 percent off textbook list prices by renting from the Kindle Store. Tens of thousands of textbooks are available for the 2011 school year from leading textbook publishers such as John Wiley & Sons, Elsevier and Taylor & Francis.