The booming digital books market is often depicted as a two-horse race between Apple’s iBookstore and Amazon’s Kindle ecosystems. While the former has a proven record of dominating businesses it enters, the Kindle is the undisputed leader with an estimated 70% share of the US e-reader market.
But the Barnes and Noble’s Nook platform is no pushover. Even though the Nook only has a 22% share of the e-reader market, Nook readers account for 27% of digital books sold in the US, according to a Goldman Sachs report. This means that while Nook readers are fewer than Kindle users, they likely read more voraciously. Which makes Microsoft’s decision to pick up a 17.6% stake in Barnes and Noble’s Nook division an enticing prospect.
The deal which values the Nook subsidiary at $1.7 billion —around $400 million more than the parent entity itself— indicates Microsoft’s intention to step into a business in which it currently has practically no presence. The Nook subsidiary will now be spun off into a new company that, Microsoft has said, will focus on the e-book and education markets. Initial outcomes of the deal will include Nook software for Windows.
It could also have implications for the booming tablet market. Kindle’s Fire Android device already accounts for more than half of all Android-based tablets in the US. Microsoft could well build a competing device off the Nook that, like the Fire, is a versatile e-reader on steroids.
Microsoft can be innovative when it wants to. The Xbox is a thriving gaming and entertainment device with a hot-selling product in the Kinect peripheral. Windows Phone 7 has been well received despite selling poorly.
There has been extensive analysis over the last few weeks, including on these pages, of electronic publishing’s competitive landscape. Depending on who you ask, both Apple and Amazon are seen to be bullies seeking to corner the market. Microsoft is by no means an underdog. But a re-energized Nook, backed by Microsoft’s firepower, will give both Apple and Amazon something to think about.
Nook: a late starter but a potential winner? Tell us at firstname.lastname@example.org