Microsoft's $300 million investment in B&N's digital business is about more than ebooks. Much more. Or at least I hope so. Success in this venture will not be measured by sales of ebooks. Microsoft should instead use this as an opportunity to create an end-to-end consumer experience that rivals Apple's and has the advertising income potential to make Google jealous. But how will that happen by investing in the distant #2 player in the ereader space?
Microsoft has spent billions over the years as it repositions itself from the makers of Windows and Office into a much broader brand. They've done a good job as Microsoft is one of the most recognized brands on the planet. But is it really considered a consumer brand like Coke or (wait for it) Apple? Even though they've built an amazing customer base with Xbox and the innovative Kinect accessory, I'd say the answer to that question is "no."
Barnes & Noble isn't exactly up there with Coke or Apple, but the B&N brand conjures up other images Microsoft could benefit from (e.g., trusted in-person retailer, growing digital content retailer and even a place where you can get answers to your questions about nooks and books). The initial investment with B&N is about the .com world, but who says the larger relationship has to be online-only?
Think about the nook areas in today's B&N superstore and consider what they could become with a broader Microsoft alliance. I'll bet you didn't know that there are almost 20 Microsoft Store locations in the U.S. That sounds a lot like Apple's strategy, right? It remains to be seen whether Microsoft can create the same sort of buzz or ROI in their stores that Apple has managed to achieve, but why go to the trouble and expense of creating a larger standalone presence when a store-within-a-store might be even more effective? What if B&N stores added mini Microsoft Stores in each of their locations? The foot traffic is already there and what a great place to showcase and sell that new Windows 8-based nook they'll undoubtedly create.
This isn't just about selling Windows-based nooks in brick-and-mortar stores though. This new alliance needs to sell devices, ebooks, music, video, apps and more. The nook platform is almost exclusively about ebooks. Compare that to Apple's platform where ebooks are probably a rounding error for iTunes. B&N desperately needs to diversify their business beyond ebooks and Microsoft has the cash to help make it happen.
Let's also not forget about how the Xbox could fit into all of this. Xbox is one of the brightest stars in the Microsoft product portfolio and Microsoft needs to get some mojo in the mobile/tablet space. Given the ongoing decline of print book sales it might make a lot of sense for B&N to reduce their superstore title count inventory and make even more room for that Microsoft section I described above.
The brick-and-mortar presence is something Amazon doesn't have, at least not yet. This is a great opportunity for B&N to use that to their advantage, assuming the deal goes further than the digital investment.
All of this might never happen, of course. As a publisher and a consumer I'm still intrigued by the possibilities though, even if it only means B&N is now funded to be a more serious ebook retailing competitor for Amazon.