The new Nook partnership is a strange alliance

Barnes & Noble is creating a subsidiary to handle its Nook business. And Microsoft is sinking $300 million into it, making it a joint venture.

Remember, last year, Microsoft sued B&N over its Android-based devices. And B&N put up more of a fight than anyone expected.

And that’s the rub in this. Now B&N is paying Microsoft the royalties that it wanted.

Perhaps this means that at some point in the future, B&N will use some embedded version of Windows 8 for its tablets rather than Android. This would give Microsoft the ability, and perhaps the incentive, to make B&N tablets and e-readers sync very seamlessly with PCs running Windows 8.

Microsoft may not be able to advertise that ability too loudly due to antitrust concerns, but there might even be a way to make an end run around that: PC manufacturers.

PC manufacturers already bundle all sorts of things. When you buy a $250 PC from a big-box store, you can expect the desktop to be littered with icons. So if B&N pays the PC manufacturers a few dollars to pre-load the Nook application, that means their PCs will work very seamlessly with Nook-branded devices.

But that will also cut into B&N’s margins, which are already thin.

Some analysts are spinning this as a big, low-risk win for Microsoft. Microsoft isn’t a Wall Street darling anymore, but they still have a pile of cash. The question is how much they’ll get back in royalty money. Maybe they make their $300 million back and then some. Maybe they only make part of it back. Since they have the money, they might as well take a chance with it.

B&N is bearing the bigger risk. They have half of Amazon’s market share and less momentum.

But I find it interesting that Microsoft is sinking $300 million into the joint venture, and Gartner expects right around 300 million PCs to ship in 2012. Is Microsoft giving the joint venture they money they need to get the Nook app pre-loaded on the big-name PCs? If half those PCs are brand-name PCs headed for consumers, B&N just happens to have $2 to pay for every PC. If a third of them are, then B&N could pay $3 instead.

That seems like a risky move to me. Then again, I’m not an anti-trust lawyer.

2 thoughts on “The new Nook partnership is a strange alliance

  • May 2, 2012 at 8:39 am
    Permalink

    I think this is more about BN spinning off the viable parts of their business – running college bookstores and the Nook – to give the brick-and-mortar stores a go. (then inevitably fold them in a few years)

    • May 2, 2012 at 5:29 pm
      Permalink

      That’s a good thought, Doug. Preserve shareholder value by breaking the business up into viable and nonviable pieces, and if the shareholders choose to continue to invest in the dying piece of the business, then it’s on them.

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