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5/9/2013
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What Nook Could Buy Microsoft

Microsoft has reportedly made a $1 billion offer to buy Nook, Barnes & Noble's e-reader business. What could it gain from the deal?

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Microsoft has bid $1 billion to buy the digital assets of Nook Media, the e-book business led by Barnes & Noble, according to a report published late Wednesday.The news sparked immediate enthusiasm on Wall Street, where the bookseller's stock price was up 18% as of early Thursday afternoon. But, despite the excitement, an all-important question remains: If Microsoft goes on to consummate the rumored deal, what will it get out of the acquisition?

TechCrunch broke the news, claiming it had acquired internal documents that revealed not only Microsoft's offer, but also plans to phase out Nook's Android-based tablets by the end of 2014. An anonymous source told The New York Times that the documents are authentic and only a few weeks old. According to the Times, which noted that Nook was valued at $1.8 billion as recently as December, it is not yet clear if a deal will be closed. Microsoft has so far declined to comment, but the Times source claimed any announcements are at least weeks away.

To an extent, Microsoft's ostensible interest in e-books is a natural evolution. It invested $300 million in Nook Media in April 2012, and Microsoft VP Andy Lees asserted that his company saw great potential in the partnership.

"Our complementary assets will accelerate e-reading innovation across a broad range of Windows devices, enabling people to not just read stories, but to be part of them," he said at the time. "We're at the cusp of a revolution in reading."

[ Is cool Blue the antidote for fiery red anger? Read Windows 8 Users See Red: Is Microsoft Listening? ]

What the alleged revolution entails is still far from clear. To date, Microsoft's investment has produced only a Nook app for Windows 8, as well as occasional rumors that e-books could play a headline role in future Surface devices.

Nook took a beating during the holidays, slashing prices in the face of increased consumer preference for devices such as Apple's iPad and Amazon's Kindle Fire. Even so, the Barnes & Noble e-book ecosystem still boasts millions of users. Microsoft remains a dominant force in the enterprise but has struggled to find similar success among consumers, outside of its Xbox business. Redmond could perceive Nook as a useful asset as it attempts to rectify this imbalance.

TechCrunch reported that once Nook hardware is discontinued, the company will distribute e-books via third-party apps. Which platforms will be privy to these apps is not yet clear. But even if Microsoft opens Nook to iOS and Android -- and doing so could certainly be profitable -- the software giant could still tailor its acquisition to drive Windows sales.

The education market, for example, is shifting from physical books to tablets, and a Nook-optimized Windows 8 device could serve this market well. Even before the rumor broke, Microsoft's internal apps team was reportedly working closely with its Nook counterpart, suggesting that even if Barnes & Noble's e-books are available on all platforms, the Windows version might offer a differentiated, premium experience.

Windows 8 still trails iOS and Android in total mobile apps, and though Microsoft has made recent progress in this regard, it still lacks a killer title to differentiate it from the competition -- i.e., Windows 8's version of Halo. The fact that Microsoft will soon offer a complete OS at the iPad Mini's price point could persuade consumers to join the Win8 bandwagon, but a well-executed Nook tie-in has potential of its own.

There have also been indications that Nook might hook into Microsoft Office, perhaps allowing users, for example, to publish to an online bookstore directly from a Word document. This sort of synergy could benefit Redmond in multiple ways. Though some users view older versions of Office as adequate for their needs, Microsoft has added features -- ranging from Bing apps to its Office 365 subscription model -- to compel customers to upgrade. The strategy has already paid off, and if Nook is integrated into the mix, the product suite's appeal will only be enhanced.

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Michael Endler
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Michael Endler,
User Rank: Author
5/10/2013 | 6:18:56 PM
re: What Nook Could Buy Microsoft
The active user base is evidently 7 million or so users. That's a lot of people, but it's not all that clear what "active" means--e.g. how many books each person buys. So it's hard to say how easily Microsoft can leverage existing collections to push people toward Surface or Windows 8. The fact that Nook is currently on Android is another factor-- would these people switch if Microsoft tried to make Nook Windows-exclusive?

Based on the scant information out there, if Microsoft completes the purchase, I think it would make sense to keep Nook open to several platforms but to make it a premium experience on Windows. This could be accomplished through Surface hardware designed to be a great e-reader, extra software functions, ties to other parts of the Microsoft ecosystem, etc. If Microsoft could pitch Nook as the best, most cost-effective option for college textbooks, that would help too. There's definitely potential here, if Microsoft can execute.
mbowles201
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mbowles201,
User Rank: Apprentice
5/10/2013 | 1:38:31 PM
re: What Nook Could Buy Microsoft
So are we saying, don't buy a Nook this weekend?
D. Henschen
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D. Henschen,
User Rank: Author
5/10/2013 | 1:25:15 PM
re: What Nook Could Buy Microsoft
If guessing the opportunity to upsell Nook owners to Surface is part of the mix. Nook owners with even modest collections of content might want a device that takes them into the future if the Nook goes away. But what's the Nook customer base worth?
cbabcock
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cbabcock,
User Rank: Strategist
5/9/2013 | 10:58:32 PM
re: What Nook Could Buy Microsoft
There are reasons cited above that I hadn't considered before for Microsoft to buy Barnes & Noble's Nook. It could be $1billion, well invested. Charlie Babcock, InformationWeek senior writer
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