Amazon and Apple dominate e-books, but Microsoft’s partnership with Barnes & Noble will challenge them in a shifting digital publishing market.
Microsoft’s announced partnership with Barnes & Noble will challenge the existing market, bringing a solid contender to the game, accelerating e-reading adoption and changing how people consume, create and share digital content.
As part of the deal, Microsoft is set to invest $300 million for a 17.6 percent investment stake in “Newco,” the temporary name for the joint venture. Barnes & Noble will own the remaining 82.4 percent share as it pushes e-reading technologies and spins off its Nook Digital and College businesses.
Former Enemies, Now Partners
Many analysts thought a venture capital firm would join with Barnes & Noble, so Microsoft’s involvement comes at a surprise. But the idea makes good sense for both companies, thought the two were previously opposed in a legal wrangle over Nook e-readers.
Microsoft and Barnes & Noble fought over Nook’s alleged patent infringement, an issue the partnership will render moot. Instead of battling each other in courtrooms, the new subsidiary will join them together with royalty-bearing licenses on Microsoft’s patents, which comes in handy with future Nook e-readers and other tablet products.
Also, Microsoft will likely offer Barnes & Noble’s Nook app on its Windows 8 system to push e-book, magazine and newspaper content to its customers. The collaboration brings world-class digital reading to Microsoft’s platform as well as millions of users to expand Barnes & Noble’s business.
The partnership also opens up the possibility of a Windows 8 e-reader, boosting the profile of the upcoming OS and connecting Barnes & Noble to a massive group of consumers.
Barnes & Noble’s e-readers were able to break through and capture a niche in the e-reader and entertainment tablet markets. Still, the company has been unable to parlay that early success into catapulting the brand further, a feat Amazon was better able to achieve with its Kindle e-reader.
The giant online-retailer developed its Kindle Fire, then aggressively priced it and offered a subscription service to give customers a direct link to content, strategies which increased its popularity and sales with consumers.
A Boon for Both Parties
The infusion of Microsoft’s investment, as well as its Windows platform audience, will fuel more innovation from Barnes & Noble, which made strides in this area just last week with its GlowLight e-reader. The device debuted in a unique category Amazon isn’t able to match, providing a nice boost for the bookseller’s business as it attempts to gain ground in the market.
The proposed deal also opens the door for Microsoft to have a greater presence in the exploding tablet market, at a time when it is ripe for educational expansion. Windows tablets barely register against iOS and Android products, considering both Amazon and Barnes & Noble’s tablets use a modified Android OS. Developing more offerings with an established player gives Microsoft a jumpstart in an area where it lacks.
The timing is significant for competitors like Apple as well. The Department of Justice is suing Apple and publishers Penguin and Macmillan about their agency pricing model, saying it violates antitrust laws. The lawsuit destabilizes an e-book market — complete with offerings, publisher agreements and prices — which is ripe for another competitor to enter.
While the courts debate the case’s antitrust merits, Amazon is taking advantage of Apple’s legal woes to push forward in the e-book industry on its own pricing terms. More consumers already buy e-books for Kindle than iPad, so Amazon can capitalize on Apple’s DoJ troubles to rake in book sales and attract new users, expanding an already large market share in e-books against rivals like Barnes & Noble. But, not so fast, there.
The game-changing partnership boosts formerly minor rivals like Barnes & Noble and Microsoft into contention during the transitional tumult, transforming the e-reader and the tablet market in the process.