Microsoft Corp. (Nasdaq: MSFT), the world's biggest software company, announced it'll invest $300 million into a new business with Barnes & Noble Inc. (NYSE: BKS) to burnish the future of the Nook.
The two companies said there'll be a new division of Barnes & Noble, the operator of about 1,300 bookstores from a base in New York, valued around $1.7 billion.
After a 52 percent jump on Monday, that amount is about $500 million below the total value of Barnes & Noble itself, whose shares traded Tuesday at $19.73. Microsoft shares traded at $32.16, valuing the Redmond, Wash., software concern at $270.4 billion.
Why would Microsoft adopts this strategy:
Battle with Apple for eyeballs. Lacking its own tablet so far to battle Apple Inc. (Nasdaq: AAPL), the world's most valuable technology company, Microsoft has developed Windows 8, which will be rolled out in PCs, laptops and smartphones this year. Nook's OS will be moved from Google Inc.'s (Nasdaq: GOOG) Android OS over time, the companies said.
Apple has already sold more than 66 million iPads in slightly more than two years. Meanwhile, Amazon.com Inc. (Nasdaq: AMZN), the No. 1 e-retailer, has sold millions of Kindles and as many as 10 million Kindle Fires in the past six months, so why should Apple be left out?
Obtain content. Consumers want to use their e-readers and tablets to enjoy content. Microsoft doesn't have very much, so setting up with Barnes & Noble, whose Nook can access millions of titles, plus library books, and which will get B&N's college bookstore titles, is a big plus.
As well, Microsoft will be a minority investor in the joint-venture company, leaving major publishing decisions to its partners.
Get a new market. With all the billions spent on Windows 8, Microsoft wants a new market space to connect with its domain, which now includes voice with its acquisition of Skype Technologies last year.
Getting customers at home, in the office and the phone is one thing, but capturing them in the Nook market is another extension into leisure time, where Microsoft's only offering is the Xbox.
Battle Google. Already No. 1 in search, where Microsoft's Bing is No. 2, followed by Yahoo Inc. (Nasdaq: YHOO), the No. 3 search engine, Microsoft gets another push here. Google has already digitized millions of books, including those in university libraries.
Any day, Google expects to close its $12.5 billion acquisition of Motorola Mobility Holdings, putting it squarely into the smartphone and tablet market.
Microsoft, already allied with Nokia Corp. (NYSE: NOK) in smartphones and Qualcomm Inc. (Nasdaq: QCOM), the biggest designer of mobile chips, needs to compete hard against Google, as well as Apple, which sells the iPhone 4S and earlier models.
Don't overspend. A $300 million investment for Microsoft, which reported cash and investments exceeding $59.5 billion on March 31, is chickenfeed. The returns could be giant if the joint-venture is managed intelligently.
Compared to the billions spent for Skype and Motorola Mobility, the Nook deal could turn out to be one of Microsoft's better deals.