comScore

Wait, what?

Looks like you came here from Geekosystem. Don't worry, everything is still here. We've just combined forces with The Mary Sue to bring you more and better content, all in one place.

Barnes & Noble Forms New eBook Subsidiary With $300 Million From Microsoft

While the rise of eBooks has been centered around Amazon’s Kindle devices and the Apple iPad, the NOOK from the last big-box book seller Barnes & Noble has remained a noble, if distant, competitor. Now, B&N has announced that it has formed a strategic partnership with Microsoft, forming a subsidiary company comprised of its digital and college businesses combined with $300 million from the software giant.

According to B&N, the new subsidiary company will be referred to for the time being as “Newco” and is valued at around $1.7 billion. For their investment, Microsoft will take 17.6% equity share in the company while B&N retains the other 82.4%.

Not surprisingly, the first order of business for Newco will be to bring B&N’s digital content to Windows 8. Microsoft is pushing its mobile devices pretty hard, but lacks a strong content base. Meanwhile, its primary competitors — Apple, Amazon, and Google — already have established marketplaces for movies, books, and music. Rather than re-invent the wheel, Microsoft seems to be shortcutting by throwing money into B&N’s plan.

For B&N, the deal could give them greater market penetration in an already crowded space. Though the NOOK has a strong spec list, and a price point equal to the Kindle Fire, it hasn’t managed to capture public attention nearly as well. That despite B&N beating Amazon to the punch by launching a back-lit eInk eBook reader weeks after Amazon announced it was working on such a device. A deal with Microsoft could expose more users to B&N’s digital content, and give the bookseller a leg up in the industry.

There are a few strange aspects to this partnership. For one, the NOOK is currently built on a forked version of Google’s Android mobile OS. Given that Microsoft has a large stake in Newco, this makes their relationship seem a bit awkward. However, it could herald the coming of a non-Android NOOK, but that’s pure speculation.

For another, the B&N’s press release mentions that Microsoft’s involvement hinged upon the two companies settling some patent litigation issues. From the press release:

Barnes & Noble and Microsoft have settled their patent litigation, and moving forward, Barnes & Noble and Newco will have a royalty-bearing license under Microsoft’s patents for its NOOK eReader and Tablet products. This paves the way for both companies to collaborate and reach a broader set of customers.

Nothing like settling a lawsuit to form the foundations of a lasting business relationship.

Interestingly, the press release also notes that a study into how Newco could be spun off into its own company. Again, from the press release:

On January 5, Barnes & Noble announced that it was exploring the strategic separation of its digital business in order to maximize shareholder value. Barnes & Noble is actively engaged in the formation of Newco, which will include Barnes & Noble’s digital and College businesses. The company intends to explore all alternatives for how a strategic separation of Newco may occur. There can be no assurance that the review will result in a strategic separation or the creation of a stand-alone public company, and there is no set timetable for this review. Barnes & Noble does not intend to comment further regarding the review unless and until a decision is made.

Spinning off the NOOK, digital distribution, and college businesses would be an odd move for B&N. Especially since one of the selling points B&N has pushed with the NOOK was special kiosks in every brick and mortar stores for free NOOK servicing. Leveraging their physical presence was a smart move by B&N, and one wonders how well the NOOK would fare without that kind of assurance. People are, after all, probably more used to dealing with B&N in person than, say, Amazon.

Where the deal will take the two companies is unclear at the moment, but it does signal that neither Microsoft nor Barnes & Noble are interested in throwing in the towel just yet. It may be a long way to the top of the tablet and eReader market, but there’s ample room to grow in third place.

(Barnes & Noble, Techcrunch via Techmeme)

Relevant to your interests

Filed Under |

© 2014 The Mary Sue   |   About UsAdvertiseNewsletterJobsContributorsComment PolicyPrivacyUser AgreementDisclaimerContactArchives RSS

Dan Abrams, Founder
  1. Mediaite
  2. The Mary Sue
  3. Styleite
  4. The Braiser
  5. SportsGrid
  6. Gossip Cop