NEW YORK—Microsoft Inc. on Monday announced a $300 million investment in Barnes & Noble Inc.’s (B&N) digital media business, including the Nook e-reader.
The two companies will form a strategic partnership, as a new subsidiary to B&N, to grow the company’s Nook e-reader and college textbooks business. Microsoft will own a minority stake in the company.
“The shift to digital is putting the world’s libraries and newsstands in the palm of every person’s hand and is the beginning of a journey that will impact how people read, interact with, and enjoy new forms of content,” said Microsoft President Andy Lees in a statement.
The new company, which is yet to be named, will be 17.6-percent-owned by Microsoft. The structure of the entity also leaves the possibility for a spin-off or outright purchase by either partner in the future.
The news was an immediate boon to B&N’s stock, which surged more than 76 percent on Monday, finishing up at 51.7 percent.
The “collaboration to bring world-class digital reading technologies and content to the Windows platform and its hundreds of millions of users, will allow us to significantly expand the business,” said B&N CEO William Lynch in a statement Monday.
The Nook application will continue to be available on the iPhone as well as Android devices, which compete with Windows Phone 7.
The investment by Microsoft gives B&N more capital in its fight with Amazon.com Inc.’s Kindle e-book reader. Analysts have wondered for a while whether B&N had the capital to compete with the much larger Amazon in the long run, but this strategic partnership largely erases that doubt.
It also alleviates some concern from B&N’s shareholders who have vocally pined for a spin-off of the Nook business, which could be lucrative for B&N. This partnership monetizes some of Nook’s value, and also leaves the door open for a sale down the line.
Microsoft has been interested in the e-reader business for years—it first developed software for e-book reading in 2000, but the technology failed to catch on and there were few hardware manufacturers at the time to capitalize on the technology.
“Microsoft doesn’t really care about being in the book business. They want to be in the digital-customer business. They have to look at how they are going to stay relevant, because so far Microsoft tablets have had little to offer. The bookstore is a stepping stone toward relevancy for them,” wrote Forrester Research analyst James McQuivey, according to MarketWatch.
B&N has almost 700 stores in 50 states. In the tablet computer market, Apple’s iOS iPad is No. 1, followed by a slew of devices running Google Android. Both the Nook and the Kindle Fire are Android-based devices.