Microsoft announced a $300 million investment in Barnes & Noble’s e-reader and tablet business on Monday, giving the software giant a late entry into the race for digital publishing and online education.
The move comes six months before Microsoft is due to launch its new touch-enabled Windows 8 operating system, and the inclusion of a Nook app on Windows tablets should allow them to compete with Apple’s iPad and Amazon’s Kindle Fire, tells Reuters.
With its 17.6 percent stake in Barnes & Noble’s Nook business, Microsoft gains access to a vast library of book titles and direct contact with the bookseller’s hundreds of university bookstores.
Amazon once had close to 90 percent of the e-book market, but since then, a handful of players, including Apple, Google, and now Microsoft, have edged in.
Nook tablet with the latest version of Windows, and perhaps even Microsoft Office, could eventually siphon off a lot of consumers from the more expensive iPad.
“Our complementary assets will accelerate e-reading innovation across a broad range of Windows devices, enabling people to not just read stories but to be part of them. We’re at the cusp of a revolution in reading,” said Andy Lees, a president at Microsoft, according to The Washington Post.
Representatives of the two companies expressed enthusiasm for using the Windows 8 Nook application. Andy Lees said the app will “accelerate e-reading innovation across a broad range of Windows devices.” William Lynch, CEO of B&N, said the partnership will “bring world-class digital reading technologies and content to the Windows platform.”
“It’s a good strategic deal,” said Sid Parakh, an analyst at fund firm McAdams Wright Ragen. “It gets Microsoft in the game for e-readers, and gives them access to a market that has been growing nicely and they’ve basically sat out of. It also makes Windows 8 a more compelling platform from an e-readers perspective.”
The Nook still remains an underdog. It is ranked fourth in sales with 3.5 percent of the market, according to International Data Corp. research. But the market for tablets is expected to explode as schools turn to the devices for teaching and more businesses use them instead of laptop computers, analysts predict.
With the deal Barnes & Noble gets a much-needed capital injection and a way to enter the digital books market outside the United States. The new unit will be run by Barnes & Noble and will maintain a relationship with the U.S. bookstore chain’s nearly 700 stores.
“It gives them a much larger partner with deeper pockets, it gives them increased reach,” said Morningstar analyst Peter Wahlstrom. “In the last two years they’ve had their backs against the wall.”
As part of the deal, Microsoft has dropped a patent lawsuit against Barnes & Noble over the Nook, which runs on Google’s Android system, and will get royalties on those patents.
There is a possibility that future Nook models will be based on the Windows operating system, but executives would not comment on that in a call with analysts.