The story is rather simple: Microsoft is investing in the formation of a strategic partnership in a new Barnes & Noble subsidiary referred to as “Newco,” which will bring together the Redmond, WA company with the consumer and College businesses of Barnes & Noble. Microsoft will make a $300 million investment in Newco at a post-money valuation of $1.7 billion in exchange for an approximately 17.6% equity stake. Barnes & Noble will own approximately 82.4% of the new subsidiary, which will have an ongoing relationship with the company’s retail stores.
The story gets much more interesting when you look through the lens of the looming e-textbook/digital learning opportunity. Lest we forget, Barnes & Noble College Booksellers, Inc. operates bookstores at more than 600 U.S. colleges and universities giving the company an impressive beachhead from which it could distribute mobile educational devices most likely preloaded with course material. That sounds impressive and while Nook boasts Nook Study, a technology platform for the distribution and management of digital education materials in the market, Nook Study is primarily (if not exclusively) a PC-based download. That leads us to the need of a 9-inch tablet for the educational market. Barnes and Noble CEO William Lynch has said that the existing Nook devices are not aimed at the education market (that is save for lit courses).
A 9-inch tablet running the Windows mobile OS makes sense for a few reasons one being the popularity and familiarity that students have with Office as an important productivity tool for note taking, report writing and countless other scholastic tasks. With Office running in the cloud, a student will have some flexibility to create anywhere be it on a PC, tablet or Smartphone. This is not to say that Apple does not offer solutions for productivity, but at this point there is no Office for the iPad limiting portability across devices.
Stepping back, both Microsoft and Barnes & Noble are taking aim at a common enemy: Amazon. To date, Amazon sells and rents a lot of college textbooks but has done little in e-textbooks (as digital rendered PDF books or apps). B&N has a clear advantage in this space and partnering with Microsoft might give them the muscle to become a leader in the growing area of digital content for the educational market. Apple remains a major threat with its iBooks Author, iTunes and iTunes U ecosystem but many institutions bristle at being locked in to Apple’s closed architecture, leaving the door open to a competitor with strong publishing roots.
Not all is crystal clear in this deal: Does the Microsoft partnership signal B&N’s departure from the Android fold? Recent surveys showed that the Amazon Fire was the most popular Android devices with the various Nook Tablets not even hitting the low end of the radar screen. Is it time to move to Windows? And then there are something like 705 retail outlets bearing Barnes and Noble’s name. While they may be a drag on the balance sheet, the newco cannot throw them under the bus or they will forfeit their relationships with publishers who rely on those stores for distribution and visibility.
And then there’s Nokia, and this one’s a head-scratcher. Nokia and Microsoft announced their alliance in Nokia Reading, a platform for the distribution of e-books on Lumia Smartphone (and later other Windows devices). Alas, you could argue that this was primarily an international deal to give Nokia greater leverage with telecom providers, but B&N too is looking to make an international impact and will likely use some of Microsoft’s investment dollars to build international channels. So where does that leave Nokia?
Those involved directly or indirectly in this deal is a who’s who of the technology and content space: Apple, Amazon, Microsoft, Barnes & Noble and even (indirectly) Google. Google cannot afford Microsoft to add helium to its Windows mobile efforts so stay tuned for more on Google in this area, although the search giant recently torched its relationship with e-book resellers. The plot thickens.