Microsoft’s decision to invest $300 million in Barnes & Noble’s Nook e-reader business earlier this year was a fascinating move that aligns the Redmond company with Amazon.com’s archrival in the digital reading industry.

But was it a smart bet by Microsoft?

An analysis by media news site PaidContent.org suggests that it wasn’t, at least not based on the Nook’s direction. Barnes & Noble’s latest financial results show the Nook business struggling as it tries to keep up with the Kindle. In particular, aggressive pricing by Amazon is making it difficult for Barnes & Noble to boost revenues.

As PaidContent’s Laura Hazard Owen explains, “Barnes & Noble also attributes falling Nook device revenues to price cuts. But the company is going to have to keep dropping prices on its e-readers and tablets to stay in line with Kindle and with budget tablets like Google’s Nexus 7 and the anticipated iPad Mini. It can’t increase prices to increase revenues.”

We’ve yet to see any major product announcements by Barnes & Noble, but the companies are expected to start with a Nook app for Windows 8. Their partnership was the result of settling their previous patent litigation.

In the meantime, along with Microsoft’s Nokia partnership on Windows Phone, this is starting to feel like a pattern, where Microsoft bets on a well-known brand in decline, in hopes of benefiting if its partner is able to turn things around with its help.

(Thanks to Isaac for the link)

Comments

  • guest

    “But was it a smart bet by Microsoft?”
    Ans: A rarity?
    I don’t think betting on a brand in decline is MS’s preferred pattern. It’s simply the result of it failing so badly in so many high profile and important areas and then having to remount another attempt, now years late, when the only partners left available are ones MS’s competitors passed on because they were already defective. And let’s keep in mind that MS’s brand itself in decline, as confirmed by numerous brand surveys. So even if they weren’t late, leading partners want to work with companies who are ascendant, like Apple and Google. And those recent DELL PC sales numbers spell even more pain for MS ahead.

  • http://www.intrinsicstrategy.com/ FrankCatalano

    Worth noting the investment was also in B&N’s college business, which PaidContent all but ignores in its analysis. But you can’t draw a conclusion on the wisdom of an investment unless you look at everything in which it was invested.

  • http://www.facebook.com/peter.lavitt Peter Lavitt

    Perhaps MS is looking at another avenue that B&N offers. B&N is a publisher as well as a bookseller. They also have infrastructure and bandwidth to spin out a marketplace similar to Amazon (at least in theory). They currently sell hard copy music and movies, which means they have contracts in place with the music labels and Hollywood.From my point of view, B&N has done a lot of the groundwork to compete with Amazon, and others on many fronts.Now if they just had a partner that could fund the expansion. Plus with Border Books out of the way, and purchased wholesale last year by B&N the runway looks set for an all out assault on the virtual as well as brick and mortar fronts. Let’s remember that B&N doesn’t label it’s website as “booksellers”, It is purely B&N.com. I am interested to see what is going to happen.

  • http://www.christopherbudd.com Christopher Budd

    Like Frank notes, the analysis seems to be skewed/incomplete. And there’s an argument to be made that a foothold in college is of huge long-term strategic value beyond just money (how many folks were made Apple partisans because they got a Mac of some kind in college….lots I think).

    But too, the question of if it’s a good or bad bet is a bit immaterial. I can’t see any other viable option. Like @9584ba8ffce7377e51f2d0c15a20a6b1:disqus has said: Microsoft is on the back foot around tablets and B&N wasn’t in a strong position either. Joining together gives them both more hope than going it alone. It may not work still, but they’ve got a better chance than before.

    Put another way, I said last WInter that the B&N Nook was likely the first casualty of the Kindle Fire. That it’s still around today is a victory of sorts.

    • http://www.intrinsicstrategy.com/ FrankCatalano

      It’s also interesting to me that PaidContent never published my comment asking about why the college business wasn’t factored in when the judgment was made that it was a poor investment for Microsoft. I mean, it still might be a bad investment. But the judgment is made on partial information.

      • http://www.christopherbudd.com Christopher Budd

        Sounds like bad research to me and they know it and don’t want to admit it.

  • http://about.me/samirsshah Samir Shah

    There are not ONE but TWO tablet businesses and Surface with Windows RT/Windows 8 Pro is high end one AND NOOK TABLET WITH WINDOWS PHONE 8 with a PRICE TAG OF APPROXIMATELY $200 IS ANOTHER ONE.
    Instead of Nokia and others building Windows Phone 8 tablets Microsoft can build a Nook tablet which already has market and distribution presence at approx. $200 low end that competes with Nexus 7.

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