Skip the navigation

$300M investment in Nook delivers next to nothing for Microsoft

But pay-off may be around the corner as OEMs and Microsoft start shipping smaller tablets

May 7, 2013 01:53 PM ET

Computerworld - Microsoft has gotten little from a 2012 investment of $300 million with Barnes & Noble, analysts said, but it's poised to reap some rewards as it and its partners start to ship smaller tablets.

On April 30, 2012, Microsoft and the bookseller announced a new co-owned subsidiary that included Barnes & Noble's Nook business. Microsoft's contribution was a $300 million investment, a relatively small amount for the Redmond, Wash. developer, which spent $8.5 billion in 2011 for Skype.

The investment brought Microsoft a 17.6% stake in the new company, which was given the name Nook Media LLC last October after several months of using a generic placeholder, NewCo.

Other parts of the agreement guaranteed Barnes & Noble an additional $305 million from Microsoft over the following five years, settled the patent litigation between the two companies, and promised royalty payments to Microsoft from Barnes & Noble's Nook e-readers and tablets.

A year into the deal, Microsoft has little to display.

"They've gotten nothing up to now," said Carolina Milanesi, an analyst with Gartner, in a Monday interview.

When the collaboration was unveiled last year, experts speculated that it might lead to a Windows-based e-reader or tablet powered by Windows 8 or Windows RT, the two new operating systems that at the time were six months in the future. That did not happen.

A Nook app for the new OSes -- designed for the tile-style "Modern" user interface (UI), formerly "Metro" -- was promised when the deal was signed. While many, including IDC analyst Bob O'Donnell, expected that app to debut alongside Windows 8 and Windows RT, it didn't hit the Windows Store until early February -- about three months after the operating systems reached retail.

Except for that app, there have been few outward signs of a payoff for Microsoft. But experts cautioned against rushing to judgment.

"This was more an investment in an organization," said O'Donnell. "How that continues to play out we'll just have to see."

"It's a lot like other investments Microsoft's made. It will take a while to come to fruition," echoed Wes Miller of Directions on Microsoft, a Kirkland, Wash. research firm that focuses exclusively on Microsoft's moves.

That fruition may come soon.

Microsoft's loosening of Windows 8 certification requirements in March will lead to smaller, less-expensive tablets powered by the OS, the kind that are much better suited to e-reading than the current crop of 10-in. and larger tablets, like Microsoft's own Surface RT and Surface Pro.

"Looking at form factors, the 7-in., 8-in. tablet is a great form factor for consumption," said Milanesi. "With that size and Windows RT, Microsoft could do more with books, or with Xbox from a content gaming perspective."

Our Commenting Policies