- The Washington Times - Monday, April 30, 2012

Software giant Microsoft and book retailer Barnes & Noble are teaming up in an effort to become power players in the rapidly expanding e-book market.

The stock of Barnes & Noble, facing difficulties with its brick-and-mortar locations, soared on news that Microsoft is paying $300 million for a minority stake in the company’s digital reader business.

The software giant will receive a 17.6 percent stake in the new Barnes & Noble subsidiary, tentatively named Newco, which is valued at $1.7 billion and will focus on Barnes & Noble’s Nook e-book and college textbook sales.

“We have been circling the relationship for quite a long time,” Microsoft President Andy Lees told the Associated Press. “When you think of different types of reading and what’s going to happen when that goes digital, it’s really quite dramatic to be bringing that to Windows customers.”

Teaming up with Barnes & Noble will “accelerate e-reading innovation across a broad range of Windows devices, enabling people to not just read stories but to be part of them,” Mr. Lees said.

The pairing could give Barnes & Noble a boost in its quest to take on industry leader Amazon’s Kindle in the booming e-book market while providing Microsoft with a chance to succeed in the digital reader market.

“Amazon.com gets all the attention,” said Jeff Kagan, a wireless and telecommunications industry analyst based in Atlanta. “The market thinks that Amazon is young and creative and innovative. It is looked at as cutting-edge, but Barnes & Noble is looked at like the retail store that’s being dragged into the e-book world.”

But this deal could give Barnes & Noble the boost it needs to turn the table on Amazon and other e-book competitors.

“This partnership could, if it’s done well, transform Barnes & Noble and raise them into the space that Amazon plays in now, and that’s what they want,” Mr. Kagan said.

Barnes & Noble’s stock opened at $26, a three-year high. In the early morning hours, it was trading at $24.09, up $10.41, or 76 percent from the previous day. It closed at $20.75.

Meanwhile, Microsoft noticed a mild gain, closing at $32.01, up 3 cents from the previous day.

For Microsoft, this is yet another attempt to succeed in the e-book market.

“Microsoft is a successful company when it comes to operating systems, but every other business it tries to get into doesn’t work,” Mr. Kagan explained.

As part of the deal, Microsoft will include a Nook application for purchasing books on its upcoming Windows 8 tablets. Analysts say there could a greater partnership between the two companies in the future, with perhaps a future generation of the Nook that uses Windows 8 as its operating system.

Barnes & Noble announced in January it is exploring the possibility of separating its digital and print businesses, but the company said it has not made a decision.

Microsoft has a long-standing interest in the e-book field. It launched e-book software in 2000 but was never able to build a substantial library of books. It is discontinuing the software Aug. 30.

Barnes & Noble, based in New York, currently runs 691 bookstores in 50 states. The companies said that the subsidiary will have an ongoing relationship with Barnes & Noble’s retail stores, but what that relationship will be is unclear. The investment comes in the wake of the recent bankruptcy and closing of Borders, the nation’s other leading retail bookseller.

“The whole reason the Nook business is expanding so rapidly is because bookstores are committed to it and know how to market the product in that environment,” said Michael Norris, an analyst at Simba information.

*This article was based in part on wire service reports.

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