May 02, 2012 at 09:09 AM EDT
Why Microsoft’s Deal with Barnes & Noble is Vital to Windows Success
Microsoft Corp. and Barnes & Noble announced Monday a joint venture where Microsoft will invest $300 million for a minority stake in the new venture called "Newco".
(IBTimes) -- 05/02/2012 --

Microsoft Corp. and Barnes & Noble announced Monday a joint venture where Microsoft will invest $300 million for a minority stake in the new venture called "Newco".

The deal ends a number of lawsuits between Microsoft and Barnes & Noble. The joint venture will also put apps for the Nook e-reader on Microsoft's next generation Windows 8 PCs. The investment will also allow Newco to accelerate B&N's Nook bookstore in international markets and give Barnes & Noble capital to slug it out with the e-book reader's industry leader Amazon.

"It's going to allow us to really explode the innovation within our reading technology," said William Lynch, chief executive of Barnes & Noble. "Microsoft has a great history of working on R&D and developing some interesting reading technology, and I think we've done the same."

Microsoft will invest $300 million in the new division and it has committed to paying an additional $305 million over the next five years. The partnership is not exclusive to Microsoft and B&N can pursue other alliances with other companies.

The joint venture also marks Microsoft's next step into a high-stakes battleground with competitors Apple, Amazon and Google in the electronic book market. Microsoft is lagging in its offerings of digital books and magazines. Microsoft's content offerings chiefly come from the Xbox platform and mostly involve music, games, videos, software and apps. The deal with Barnes & Noble will give the software giant the content is sorely needs in order to compete with Apple and Amazon.

The deal also gives Microsoft an opportunity to break into the $5.5 billion college market. The college textbook industry is on the verge of digital migration. Currently the market is dominated by Apple's iPad but college students would appreciate the cheaper alternative that Barnes & Noble's e-reader provides.

The deal is the latest in a series of high-profile partnerships that Microsoft has forged as it attempts to catch-up in key markets. Microsoft has a patent deal with Facebook for Skype integration. The Windows maker has struck deals with Nokia and Bing in order to crack the smartphone and Internet search markets respectively.

 Microsoft and Barnes & Noble didn't announce any plans for future products but it's reasonable to expect that Nooks will now favor Microsoft's platforms. There could also be Windows-powered e-reader in development but that's still in the realm of speculation at this point. What is clear is that the Microsoft and B&N deal will lead to highly competitive e-reader market than ever before.

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