A recent announcement from Microsoft (News - Alert) has unveiled yet another expensive purchase from the American software giant, this time in the form of a $300 million investment in book retailer Barnes & Nobel (News - Alert). This joint venture marks what could result in a complete separation of the Nook ebook reader division of Barnes & Noble from the company.
As of now, however, plans are to create a Barnes & Noble subsidiary which will house the book retailer's digital and college businesses, and will also include the development of a Nook application for Microsoft's up-and-coming Windows 8 desktop OS.
Microsoft's $300 million investment gives it a 17% stake in the new Barnes & Noble subsidiary, giving it a valuation of $1.7 billion, despite the fact that Barnes & Noble's entire market cap was $792 million at the time the deal was made. Obviously, the rest of the company will be owned by Barnes & Noble.
The decision goes back to January when Barnes & Noble made the announcement that it was looking into spinning out its Nook business which hasn't been seeing much profit against competitors like Amazon's Kindle line or Canada's Kobo ebook readers — despite the generally favourable reviews Nook devices have received from the media. Regardless, Barnes & Noble stated that sales were "worse than expected" and that investment in the Nook business was damaging its bottom line.
Interestingly, this deal holds a few conflicts for Microsoft. For one thing, it's investing in what could ultimately be a competitor to its Windows 8 tablets which are just on the horizon. For another, Nook tablets are Android (News - Alert) tablets, meaning Microsoft is investing in a rival platform. It is possible that Microsoft may be planning to roll out all Nook devices in the future with its own tablet OS but that seems unlikely, as it would take quite a bit of effort to build new code from the ground up. Who knows what the future will bring, though, as Microsoft's been pulling some uncharacteristic moves lately.
Edited by Brooke Neuman