HUA HIN, Thailand – Software giant Microsoft made a big move on e-books this week when the company agreed to invest around US$600 million in Barnes & Noble’s Nook e-reader. The deal will give the company a 17.6% share of a new subsidiary, which will include the e-book division and Barnes & Noble’s bookstores unit, which operates more than 640 outlets.
The investment, to be made over the next five years, aims at helping Microsoft battle rivals Amazon and Apple in a new arena for it. Shares in B&N surged over 50% following the announcement and closed at their highest value for over two years.
Microsoft is taking another gamble by signaling its intentions to shift from desktop software such as Windows and Office despite the fact that it still generates 85% of its revenue from them. Recent high-profile partnerships and acquisitions include last year’s deal with Nokia whereby it would provide the operating system for Nokia handsets, a much sought partnership with Yahoo to enable it to catch Google in the search market, and the buyout of Skype for $8.5 billion.
The B&N deal, which only initially accounts for 0.5% of Microsoft’s estimated $60 billion cash reserve, is strategic for both companies. The software giant needs more offerings and a decent application and digital content store if Windows 8 is to make headway into the tablet and touch-screen market, and B&N needs the cash and the capacity to significantly expand its digital book business.
By using the Windows platform, which still runs on over 90% of the world’s computers, B&N can expand the customer base for its already popular Nook e-reader.
Amazon has the lion’s share of the US digital book market with around 60%; Barnes & Noble claims to have around 27%. The Nook has been the bookseller’s fastest-growing business, with a 64% year on year sales surge in the most recent quarter. B&N still struggling to boost profit, with reported earnings from its digital business falling 42% to $163 million in the fiscal year that ended in April 2011. This latest tie up should result in a win-win situation for both companies.
The move comes around six months before Microsoft is due to launch its latest touch-enabled operating system, Windows 8. Being able to include a well-established e-book platform