Microsoft is in talks to acquire Barnes & Noble’s Nook Media unit for close to $1 billion, according to a report in TechCrunch, which Bloomberg Businessweek confirmed with a person briefed on the discussions. The markets seem to like that deal, at least for the beleaguered bookselling chain. Barnes & Noble stock is up nearly 18 percent today, while Microsoft shares are basically flat.
Such a deal evokes two passengers holding hands and romantically looking off the back deck of the Titanic. Barnes & Noble’s share of the e-reader market has remained stubbornly fixed at around 25 percent, and tablets like the Nook HD haven’t fared that well in the market amid stiff competition from Apple, Google and Amazon. Meanwhile it lags heavily in the race to furnish its tablets with unique applications, and has had to turn to rivals for help. Earlier this month, it did a deal with Google to bring Google’s Play app store, along with its Chrome browser and Gmail service, onto its devices.
Though NookMedia group was always capable of developing standout hardware—the Palo Alto, Calif.-based unit is staffed with former Palm veterans—the battle to draw customers into digital ecosystems now requires much more. Amazon, for example, will roll out a television set-top box; reports today from the Wall Street Journal suggest mobile phones are in the offing this fall. Developers writing apps for Amazon devices will then have even more ways to reach potential customers, as they do in the world of Apple, with its iPad, iPhone and Apple TV set top box. The Nook group does not have the resources or the brand name to compete with that.
Meanwhile, Microsoft needs all the help it can get to add content to its digital universe. Buying Nook Media would bring in a catalog of millions of e-books and give users of its phones and tablets a home-grown reading option, beyond downloading the Kindle or Nook apps for Windows 8. It would also allow Microsoft to beef up its hardware capability at a time when it is committed to designing more of its own devices, like Surface tablets and Xbox game consoles. And it already owns about 20 percent of Nook Media, after a $300 million investment last year.
Over the last few years we’ve witnessed the creation of three increasingly comprehensive digital ecosystems—from Apple, Google and Amazon—that are battling to control the time, attention and dollars of both consumers and developers who make games, social networks and other applications. (Facebook is also trying to elbow into the fight.) Microsoft and Barnes & Noble were both late to the party, and even these small lags put them at serious disadvantages. A combination makes natural sense—but they still need a lifeboat.
