Microsoft hasn't saved Barnes & Noble

But the software maker's new investment in the Nook may help to move the bookseller off the critical list.

By Jonathan Berr Apr 30, 2012 12:05PM
Shares of Barnes & Noble (BKS) skyrocketed more than 80% early Monday after Microsoft (MSFT) announced plans to invest $300 million in a new subsidiary that will combine the book retailer's Nook and college textbook businesses.

Under the terms of the arrangement, Microsoft will receive a 17.6% stake in the new company, which does not yet have a name. Barnes & Noble will own the remainder. The deal values the enterprise, which will have a relationship with the bookseller's bricks-and-mortar stores, at $1.7 billion.

The venture will expand Barnes & Noble's digital bookstore to potentially hundreds of millions of customers by developing a Nook application for Windows 8, which Microsoft is expected to release later this year. Microsoft and Barnes & Noble have also settled their patent litigation. (Microsoft owns and publishes Top Stocks, an MSN Money site.)

The move surprised investors because many assumed Barnes & Noble's plans announced earlier this year to explore a "strategic separation of its digital business in order to maximize shareholder value," pushed by Michael Glickstein, the chief investment officer with G Asset Management LLC, a Barnes & Noble investor, would fail. Surging Nook sales have not been enough to overcome sluggish sales in its off-line stores. The company has lost money in three out of the past five quarters, and analysts expect Barnes & Noble to continue to lose money for the foreseeable future. Glickstein, of course, was pleased with the announcement.

"With the new Windows roll-out, there are so many things you can do with the Nook beyond e-reading," Glickstein told Bloomberg News. "Now that Bill Gates and Microsoft are in on the tech side, it's absolutely compelling."

Not quite.

The two companies don't just have a hurdle to overcome. They have to clear a Grand Canyon-size chasm. According to the latest data, Barnes & Noble has about 30% of the e-book market to's (AMZN) 60%. The picture is even bleaker in the tablet market, where Forrester Research estimates Apple's (AAPL) iPad market share at 73% and notes that none of the Android tablet makers have more than a 5% share. 

The move is clearly designed to flank Apple and Amazon, though their names are nowhere in the companies' press release. Earlier this month, the U.S. government filed suit against Apple and five book publishers accusing them of fixing prices on digital books. The suit was seen as a huge win for Amazon because the alleged illegal activities were designed to thwart Apple's aggressive e-book discounting.

Publishers who are eager to counter the growing power Apple has over them will surely be quick to back Microsoft and Barnes & Noble. Unfortunately, consumers probably won't buy the new Nooks without huge discounts. The new partnership will also have to spend aggressively on promotion.

Monday's announcement has not saved Barnes & Noble. At best, it takes the beleaguered retailer off the critical list.

Jonathan Berr does not own shares of the listed companies.

Apr 30, 2012 6:15PM
Come on B&N and Microsoft can defeat Apple and Amazon if you think about it; they just have to decide to do it.
Apr 30, 2012 1:27PM
Gee, you'll be able to download and read books on your Nokia Lumia phones and tablets running Windows 8. Well, that's aleady true but it will add a books category to the Windows Mraketplace.
May 1, 2012 1:20AM

Apple's almost cheating on it's taxes, Apple and Amazon are price fixing eBooks and somehow Microsoft's the bad guy. Me thinks the Apple and Google should duke it out and destroy each other.

May 4, 2012 2:44AM

Face it microsoft just sucks....they need a complete look at their inventory if they want to compete with apple....and as far as the collaboration b/w Microsoft and B&N really doesn't make that much of a difference....I can't even remember the last time I bought a book from B&N....The IPAD is much better than the NOOK and if Apple goes through with the IPAD mini then goodbye

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