Why Microsoft's Barnes & Noble Nook Nab Makes Sense

Barnes & Noble has been trying to figure out what to do with its digital book business for months now. The Nook platform has managed to attract a wide and diverse user base with some compelling software and some nice hardware. But while its digital business flourished, Barnes & Noble’s struggling retail business dragged on the cash-starved company. Now, thanks to a well-timed investment from Microsoft, it looks like it will become the official ebook and digital magazine platform for Windows.

This morning Microsoft wrote a check for $300 million for a 17.6 percent stake in Barnes & Noble’s Digital Division, which will be spun off. The working title of the new company is "Newco," which leads me to believe this deal may have happened very quickly. ("WinNook? NookWin? Nook8? You know what, Newco is ok for now.") One of the first acts of business will be to develop a version of the Nook software for the slew of Windows 8 tablets hitting the market this fall, although I have to believe this process is already well underway. The more interesting question is how this move will affect Amazon's plans to release Kindle software for Windows 8. It will definitely happen, but you can bet Jeff Bezos' lawyers are eyeballing contracts right now.

This is a great move for Microsoft, which has a hole in its content offerings when it comes to digital books and magazines. Apple has managed to make iTunes the go-to source for apps, movies, TV shows, magazines, newspapers, apps, podcasts, and educational videos. I am pretty sure you can also buy tunes there as well. Microsoft's content offerings—or at least the premium offerings you have to pay for—have grown out of the Xbox platform, and mostly involve music, games, videos, and, of course, software and apps. If Microsoft wants Windows 8 tablets to compete with Apple as a digital media platform, it needs to offer books and magazines. For a company like Microsoft, $300 million is the price of playing catch up.

The deal also puts Microsoft in a great position to break into the $5.5 billion college market. The textbook industry is on the verge of a complete digital migration—and yes, I really mean it this time. Right now, the Apple iPad is the dominant tablet with more than 1.5 million devices deployed in schools and 20,000 educational apps for iOS. Likewise, Amazon has been selling into the college market since it launched the in 2009, although its content relationships are its real advantage.

When Windows 8 tablets hit the market, Barnes & Noble Digital—aka Newco—will be waiting with prime, potentially exclusive content relationships.

All this comes as good news to Nook users. After spending years buying content on the Nook platform, they have a lot invested in its continued success. Don't be surprised if Microsoft manages to tie in its back end so that every Nook user is soon logging in with a Windows Live ID. Just like Apple, Microsoft wants to be your primary supplier of all digital media. Whoever owns the transaction makes the money.

The deal seems like a winner for all parties. Barnes & Noble gets capital to compete against the likes of Amazon and Apple, Microsoft fills a hole in its content portfolio, and Nook users get to rest easy that their ebook platform of choice will be around in three years.

What will this mean to the actual Nook tablet and Nook reader devices? Hopefully nothing. PCMag just gave the Nook Simple Touch with GlowLight an Editors' Choice for ebook readers and the is one of the most affordable, easy-to-use Android tablets on the market. Even so, it is clear the value of Nook is more about software than hardware.

The silver lining in all this is that the deal settles an ongoing patent dispute between the two companies. Microsoft was asserting rights to certain patents used in Android. Just goes to show you what is possible when we all get along.

Now if only we could get Apple and Samsung to with each other.