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Microsoft Carves Out a Nook

What to make of Redmond’s $300 investment?
May 4, 2012

I’ve called Microsoft’s alliance with Facebook a “tech bromance”; this week’s news of Microsoft’s partnership with Barnes and Noble looks more like a marriage. It has a $300 million dowry, for one thing.

First, a backgrounder, in case you missed the news: Microsoft will be making a $300 million investment in a new Barnes and Noble subsidiary, called Newco for the time being, but which is essentially made up of its Nook business. B&N will own about 82% of the subsidiary, with Microsoft holding the rest. Not only is this a marriage; it’s a marriage that came after a fight: Microsoft and B&N had formerly been engaged in a patent dispute. More details on Newco can be found on the Microsoft site.

Why does this make sense for both parties involved? For Barnes and Noble, it’s an obvious shot in the arm for the Nook division–which B&N had been contemplating spinning off for some time–and ammo in the fight against Amazon, which publishers have feared could gain a monopoly on e-books. B&N’s CEO William Lynch called Microsoft an “ideal partner” in a conference call, according to PC Mag–and he explained why: “Few companies own more screens worldwide than Microsoft.”

That explanation points to why the move makes sense for Microsoft, as well: it gets its hands on an e-reading app for its customers. Microsoft said that one of the first things its customers could expect would be a Nook app for Windows 8, which is due out later this year.

As someone who has fretted aloud over the state of the Nook on this blog, I find the news heartening. A Goldman Sachs analyst called the partnership “a game-changer.” B&N stock soared. Suddenly, you could be pretty sure the Nook wasn’t going anywhere soon–except, maybe, to Redmond.

And while B&N will extend its footprint on virtual real estate–the countless Microsoft screens around the world–Microsoft will actually get a toehold in brick-and-mortar stores. MSNBC’s Martha White points out that Microsoft has tried out branded retail locations in the past, only to be met with ridicule from tech bloggers (a snarky bunch are we), not to mention general disinterest from consumers. It’s funny: Microsoft, Amazon, Apple, and Barnes and Noble are all technology companies, to one extent or another–but only Apple and B&N have track records of success in retail. And even in our increasingly virtual world, retail still matters: “The actual value proposition of a physical store is clearly there,” an analyst told White.

In the same way that there’s something to be said for a physical slab of paper, there’s something to be said for a physical store. This is a partnership about e-reading: about making the physical book virtual. But it’s also a partnership about retail: about giving hardware and software a place to live–a physical point of sale, a little dot of its own on the map. 

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