Monday, Microsoft and Barnes & Noble announced their new partnership that may give them the upper hand in the college textbook and e-reader industry against the fierce competition of Apple and Amazon.com. The collaboration aims to separate and create a subsidiary of the digital and college business part of the Barnes & Noble bookstore.
Microsoft’s Buy-In Offer
Microsoft is expected to pay an initial $300 million for a 17.6% equity stake, which is valued at $1.7 billion, in this new subsidiary that will finally launch Microsoft into a new area of expertise: digital books. This will leave Barnes & Noble with the larger portion, 82.4% of the subsidiary.
In addition to the initial investment, Microsoft has also agreed to pay $180 million of revenue sharing guarantees over the course of three years and to help introduce the subsidiary into international markets, Microsoft has committed to another $125 million contribution over the course of five years.
New Nook App
This partnership will also introduce the birth of a new Nook application that works with Windows 8, and for those of you who don’t know what a “Nook” is, it’s the Barnes & Noble rendition of the Amazon “Kindle”. Both the Nook and the Kindle e-readers have been in news headlines with their shockingly high sales figures in 2011, and again in the first quarter of 2012, and continue to stay in competition as the top two e-reader brand names on the market.
There couldn’t be a better time for the expected launch (fall 2012) of Windows 8; the newest version of Microsoft’s universally known operating system for computers, which is designed as a touch-tablet friendly system this time around.
What the Partnership Means
The partnership between Microsoft and Barnes & Noble brings to light several opportunities for all involved. Barnes & Noble will now have extra capital to work with that will help them battle against their biggest competitor, Amazon. They will also have an investor (Microsoft) who is willing and able to kick in financial investments in future endeavors, if all goes well.
Microsoft will benefit because this is their chance to break into the e-reader industry with an already successful company. Then, when Windows 8 is released, Microsoft will have a broader platform to promote their new software, and they will also be able to encourage e-reading on many different types of Windows-operated devices. Finally, Microsoft will also have their hands on something that has been an asset to companies in the digital media market, like Amazon, Google, and Apple – a content distribution system that is already live and active.
This partnership demonstrates that Microsoft and Barnes & Noble are banking on the projections for e-book sales. While the current percentage of e-book sales is less than a mere 5%, the forecast expects that e-book purchases will increase to one-third of book sales, according to Microsoft president, Andy Lees, and this is expected to occur within the next few years.
Time will only tell how much of an impact this partnership between Microsoft and Barnes & Noble will have in the e-reader, software, and self-publishing industries.