The Windows maker is determined not to lose that lucrative ebooks market to Amazon or to the iPad, but at the moment it lacks a compelling vehicle to challenge either. Windows 8 plus Nook, it hopes, will provide one. And the new operating system may yet achieve that; after being praised for its clean design by critics across the board, it's well suited to ereading.
Microsoft's investment of $300million for a 17.6 per cent stake in the Nook business values the subsidiary at $1.7 billion. William Lynch, chief executive of Barnes and Noble, said the $300m will go "mostly to fund international roll-out" of digital stores and develop Nook software for Windows.
Even after Barnes & Noble’s market cap surged to $1.3billion, the subsidiary is still worth substantially more than its parent. It's a situation that brings back memories of the height of the original dotcom boom, when Freeserve, the internet service provider run by Dixons, was valued at more than its parent company. Now, Dixons itself is struggling against Amazon and has disappeared from the High Street, while Freeserve has largely been absorbed into Orange.
Burgeoning education markets, with 20,000 apps for education in the iOS app store alone, show that this is a sector that is only going to enlarge. That’s in sharp contrast to the physical books market – Amazon is not only taking over from Barnes & Noble, but even its own top product for the last three years has been the Kindle ereader, which does away with physical books altogether.
The move will see Microsoft settle all its patent disputes with Barnes & Noble, and it will also pay Microsoft a license fee for its Android-based operating system. It will create a new company, called Newco, that will own Nook and the Nook Study software that is popular with US schools and teachers. Again, it’s easy to see where Microsoft sees the future of Windows 8.
But that analogy with Freeserve is telling: the pioneering ISP struggled because it failed to innovate - Microsoft and Nook must be careful to keep the new business ahead. And when the competition is Apple and Amazon, it would, even allowing for the success of the Xbox, be a brave punter who bet on Microsoft. But the indications are that Nook's integration with Windows 8 will be software rather than hardware - perhaps Microsoft is in fact betting on the end of the ereader all together.
