Barnes & Noble, Microsoft team up
NEW YORK — Books and bits united Monday as Microsoft provided an infusion of money to help Barnes & Noble compete with top electronic bookseller Amazon. In exchange, Microsoft gets a long- desired foothold in the business of ebooks and college textbooks.
Microsoft Corp.’ s $ 300 million investment sent Barnes & Noble Inc.’ s stock zooming up $ 7.07, or 52 percent, to close trading at $ 20.75. The opening price of $ 26 was a three- year high. Microsoft’s stock rose 4 cents to $ 32.
The two companies are teaming up to create a subsidiary for Barnes & Noble’s ebook and college textbook businesses, with Microsoft taking a 17.6 percent stake.
The agreement underscores the importance of electronic bookstores as traditional booksellers and technology companies jockey for position in the increasingly competitive market. While no definitive numbers exist, e- books are believed to account for some 20 percent of book sales in the U. S.
For Microsoft, the investment is a way to get back into the e- book business. It has dabbled in the field since at least 2000, but never developed much traction. It was Amazon that blew the market open with the 2007 launch of the Kindle, creating a potent challenge to Barnes & Noble’s brick- andmortar bookstores.
Major Microsoft competitors Apple and Google now have their own e- book stores. All three companies are building businesses that encompass hardware, software and content in an “ecosystem,” and ebooks and readers are part of the puzzle.
With that perspective, the deal is very important, said Walter Pritchard, an analyst with Citigroup. But he doesn’t expect any near- term financial impact from the deal, noting that even if the MicrosoftBarnes & Noble venture is successful, it leaves the Nook a distant second in the e- reader market, behind the Kindle.
The deal gives Barnes & Noble ammunition to fend off shareholders who have agitated for a sale of the Nook e- book business or the whole company, but the companies said Monday that they are exploring separating the subsidiary, provisionally dubbed “Newco,” entirely from Barnes & Noble. That could mean a stock offering, sale or other deal.
The deal also puts to rest concerns that Barnes & Noble doesn’t have the capital to compete in the e- book business with market leader Amazon. com Inc. and its Kindle, said analyst David Strasser at Janney Capital.
The investment also means that Microsoft will own part of a company that sells tablet computers based on Google Inc.’ s Android, one of the main competitors of Windows Phone 7, Microsoft’s smartphone software.
Microsoft also said the deal means that there will be a Nook application for Windows 8 tablets, set to be released this fall. The app is likely to get a favored position on Windows 8 screens.
There’s already a Nook application for Windows PCS, but none for Windows phones.
William Lynch, the CEO of Barnes & Noble, said Nook software will continue to be available on devices like the iphone that compete with Windows Phone.
He declined to say whether it was Barnes & Noble or Microsoft that initiated the discussions, but he said the talks had been going on since before the beginning of the year.
The Nook has pleasantly surprised publishers, who worry about Amazon’s domination of the e- market. Unveiled to skeptical reviews in 2009, the Nook is estimated to account for about 25 percent of the U. S. e- book market. The Nook helped to cut Amazon’s share from what was believed to be 90 percent to around 6065 percent.