Barnes & Noble teams up with Microsoft, splits off NOOK & College

Barnes & Noble teams up with Microsoft, splits off NOOK & College

Is this the end of the chain bookstore as we know it?

Quite possibly (sorry, Books-A-Million…I’m not ignoring you but you do feel different than a Borders, Barnes & Noble, Waldenbooks, Crown Books).

Since this story is (largely) about books, it may take an hour or two before you see it on the news, but this really is a big story.

I don’t see the press release on the Barnes & Noble website yet…I’ll link it when it shows up there. I’ve only gotten it as an e-mail.

Here is the key thing:

“The new subsidiary, referred to in this release as Newco, will bring together the digital and College businesses of Barnes & Noble.  Microsoft will make a $300 million investment in Newco at a post-money valuation of $1.7 billion in exchange for an approximately 17.6% equity stake. Barnes & Noble will own approximately 82.4% of the new subsidiary, which will have an ongoing relationship with the company’s retail stores. Barnes & Noble has not yet decided on the name of Newco.”

Boom! Microsoft pumps a bunch of cash into Barnes & Noble.

One of the very interesting parts will be what that “ongoing relationship” with the retail stores will be.

Sure, NOOK software will be quickly available for Windows 8. That opens up many more users for B&N (although Windows users generally may already be using the Kindle app and the B&N reader app).

This may worry some of you:

Andy Lees, President of Microsoft said:

“Our complementary assets 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. We’re on the cusp of a revolution in reading.”

If you don’t want your reading revolutionized, sorry. 😉

I want to get this out to you right away, but I do expect the story to develop a great deal over the course of the day. What is it going to mean for Amazon and Apple? For Book-A-Million? For independent bookstores? It will be intriguing to watch stock movements today.

The news will solidify when B&N and Microsoft host a webcast at 8:30 AM Eastern Time this morning (about 45 minutes away as I write this).

That’s probably when it will break.

Update: the press release is on the B&N site now:

Press Release

The same press release is on the Microsoft site:

Press Release

Update: Yes, the story has broken:

Wall Street Journal article

CNBC article

AP via Seattle PI

Update: I thought I’d give you a little background on two parts of this.

First, something that’s involved is Microsoft having sued Barnes & Noble. That was announced on March 21 of 2011:

The basics of the claims have to do with the Android system allegedly infringing on Microsoft’s patents.


Foss Patents blogpost

gives you a pretty good overview.

Those suits can go on for a very long time, and this was still progressing.

This deal settles the legal situation between the two of them. It might seem odd that Microsoft is paying the money if it was the one suing. B&N may be paying them money for using the patents, which may make the amount that Microsoft pays effectively less.

The other thing is that Microsoft used to sell e-books.

They had a .lit (short for literature) format, which they introduced in the year 2000, and which they were phasing out. I wrote about it in this

earlier post

Microsoft may have just been too far ahead of the game. In 2000, e-books were obviously used mostly on computers…we didn’t have tablets and EBRs (E-Book Readers).

They still have an active website

Microsoft was allowing people to download the application until August 30th of this year, although materials basically had stopped being sold on November 8th of 2011.

That’s both good and bad, in my mind. It shows that Microsoft was interested in books a long time ago (in tech years), and may still have people with experience (even though it may be largely run by B&N).

The bad news shows a willingness to abandon a format in the commercial market…

As always, I’m interested in your opinions on this.  Feel free to comment on this post.

This post by Bufo Calvin originally appeared in the I Love My Kindle blog.

12 Responses to “Barnes & Noble teams up with Microsoft, splits off NOOK & College”

  1. Scott Foster Says:

    Hi Bufo,

    The news has also made it to NPR’s “Morning Edition”, which credits AP with the story. I heard the news on the radio first, then went to your blog next!

    I’m curious to see what happens, but I have the feeling Microsoft is late to the party this time. My other initial reaction is that independent bookstores stand to benefit, especially if they are clever with their marketing.

    Link to the NPR story:


    • Bufo Calvin Says:

      Thanks for writing, Scott!

      Yes, it’s interesting…Barnes & Noble, even though they’ve been innovating lately, probably isn’t perceived by the public as a cutting edge company. I would say the same thing is true of Microsoft (ironically, when they were the young hip thinkers to IBM’s Big Blue establishment).

      Linking the two may be perceived a little bit like the Blacksmiths’ Guild investing in the Buggy Whip cartel after cars have arrived.

      Microsoft was also early to the party…so early that the party was happening yet, and they left before everybody started dancing. 😉 I’ve updated the post with some insight on that.

  2. Tom Semple Says:

    I understand this as the deal that B&N has been looking for, but am less clear on what Microsoft gets out of it.

    On things concerning Windows, I turn to Paul Thurrott (also a Kindle fan, though he was highly critical of Kindle Touch):


    He seems as baffled as I am, though he points out that microsoft has previously listed e-readers as a windows 8 ‘device type’. I can indeed see Nook getting more traction as a win8 device (with Microsoft’s financial backing) than as a crippled Android device (while being legally pressured into paying royalties to Microsoft for patent infringement). This way, both companies put the lawsuit behind them and move ahead with a partnership.

    Could they have come up with a more boring name than ‘Newco’? I suppose the similar sounding ‘NookCo’ would have been too derivative.

    Anyway, this reminds me of the much larger deal Microsoft made with Nokia for adopting Windows Phone 7. We still don’t know how that will pan out (though the Nokia Lumia 900 looks like a great device), but here again Microsoft felt they needed to pay someone a lot of money to try to reclaim a space that they used to have some popularity in, only to ‘fail’ and have their momentum drop to zero. I think these are risks Microsoft needs to take if they want to remain relevant in a post-iPad/iPhone world. Whether the Newco venture will be successful remains to be seen, but it should be interesting!

    Does Microsoft now turn its legal guns on Amazon (again because of alleged Android patent infringement)? In any case, maybe this will make people stop whining about how the DoJ is handing Amazon a monopoly on a silicon platter.

    • Bufo Calvin Says:

      Thanks for writing, Tom!

      I like the “silicon platter” line. 🙂

      Honestly, I’m not sure it’s a wise move for Microsoft. They’ve already had a failure with e-books…and I think one can reasonably say it’s because they didn’t understand the market. Microsoft kind of dabbles in things because, I don’t think they have a super clear vision of where things are going to be ten years from now. Of course, one could argue that nobody has that, but I do think Amazon tries to think that way. I think Apple has a vision, although it isn’t very reality-dependent. That doesn’t mean I think they are wrong..I just think that they have a vision, and whatever happens in the world, they can follow it. Amazon, on the other hand, is seeing forces in the world, anticipating where they might go, and shaping the world to fit it. 🙂

      More philosophical than you expected, huh? 😉

      • Tom Semple Says:

        Apparently ‘Newco’ is a placeholder name, accounting for the blandness.

      • Bufo Calvin Says:

        Thanks for writing, Tom!

        Yes, the press release made a point about that, although not all of the coverage has. 🙂

        I have to say, it did remind me of the original Rollerball movie, where the giant corporations were just named things like “Food” and “Energy”. 😉

  3. Edward Boyhan Says:

    Much speculation about a Windows 8-based nook, or alternatively a windows 8 tablet positioned as an EBR. Have not seen much analysis yet as to what impact (if any) this will have on Amazon. BN stock up smartly today. Some are questioning the $1.7BN valuation of Newco.

    Not clear if all the details of spinning off the nook business have been finalized — seems the spinoff is what investors want, but much of the analysis may be wishful hoping.

    Liberty Media (John Malone) is a major investor in Barnes & Noble, and they had an interest a while back in wanting to acquire the Nook business — settled instead for a monetary investment.

    No one today was talking about where Liberty fits in all of this (if at all).

    It seems that Wall St places little value on the bricks and mortar business — so I think they are toast — just the timings and details to be worked out. Stores could be around for years yet, but if they fold up and die, where does that leave the big6 publishers — most of their activities and business models are still focused on print — if the stores go, how do they distribute product?

    Interesting days ahead

    • Edward Boyhan Says:

      For Barnes and Noble this is an important investment at a critical time. To grow the Nook innovations, they are going to need cash. This deal provides that (although they arguably could have gotten cash through other channels).

      For MS I think the reasons are also pretty clear. Later this year they are coming to market with a new operating system, Windows 8, with a UI optimized for tablets and other ultra-portable form factors. Given that Intel is also bringing to market the Ivy Bridge and Clover Trail processors (both good choices for Intel-based tablets and Ultrabooks). Given also that Windows 8 will also run on ARM chips (and they are coming to market this year with quad core cpu’s), you have a kind of “perfect storm” for MS in terms of opportunity to open up some new market areas.

      However, as Apple and Amazon have shown, you can have the best H/W and S/W combinations in the world, but unless you have content, you are going nowhere. The BN investment give MS access to a company with quite a few content relationships already in the can.

      Finally, keep in mind that for MS $300 million is chump change; so too the $1.7BN valuation of Newco wouldn’t put much of a dent in MS coffers. If this deal proceeds in a positive direction a complete takeover of Newco by MS is not out of the question. For MS this is a low risk investment that fills some holes in their evolving W8 product strategy, and if successful, has a lot of upside potential.

      It seems like a no-brainer to me. 😀

  4. Perceptions of the players « I Love My Kindle Says:

    […] I’ve seen a number of people asking what Microsoft is getting for the $300 million it is putting into Barnes & Noble, which I’ve written about here. […]

  5. John Aga Says:

    I am surprise that you are surprised by the news that MIcrosoft is partnering with Barnes and Noble to the tune of $300 million. There are several reasons why this makes sense.

    First, Microsoft Windows 8 Mobile. The Nook give Microsoft a platform with name recognition to implment their alternative to Apple/Android operating systems.

    Second Microsoft intends to implement Windows 8 Mobile onto Smartphones so now you have a tie in between a Nook/Microsoft Tablet and the Windows 8 Mobile Smartphone market.

    Third, XBox360-XBox Live platform. This platform includes online single and multiplayer gaming. In May 2012 XBox Live rolls out the huge success MInecraft on XBox Live. A huge variety of other social gaming options via a XBox Live portal and the Nook table. I could see this working on a Nook Tablet as the vehicle. The XBox Live platform also includes streaming video through an Xfinity app and partnership with Comcast. I can see a nice fit with a Nook table and streaming on t.v. content. Perhaps even as a remote DVR interface to record programming remotely. XBox LIve includes a growing app marketplace of its own.

    Fourth, Barnes and Noble content to includes books, music, movies, and of course the lucrative textbook market. With financing from MIcrosoft it would not have to stop there. With B&N as the portal, this could grow into a marketing and distribution portal for many, many other product areas.

    • Bufo Calvin Says:

      Thanks for writing, John!

      I think the question on all this for me is whether there is a cachet to Barnes & Noble that is better than Microsoft doing it themselves, and taking B&N through the rest of the patent suit.

      In other words, is a NOOK running Windows significantly superior in the market to, say, a “Microsoft XTab” that was associated with the XBOX (which, as you point out, is a good brand that is already being sold as a media center)? I would think they could develop an Xtab for less than $300 million.

      On your fourth point, Barnes & Noble doesn’t do much with downloadable digital content except for e-books. They sell DVDs, and they used to sell music CDs. I don’t see giving a lot of money to B&N as a digital media (again, excepting e-books) brand in the market.

      You could certainly be right that Barnes & Noble is more valuable as a media brand than Microsoft (hello, Zune…yet another Microsoft entity, like .lit, that was dropped by them).

      That’s part of why I was asking those questions, to look at perceptions. 🙂

  6. Round up #89: more from Judge Chin, Microsoft’s tablet « I Love My Kindle Says:

    […] There are two things that particularly relate to e-books and EBRs (E-Book Readers); will it compete with the Kindle Fire; and did they tie it into their deal with Barnes & Noble? […]

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