B&N and Microsoft: Why It's Not About Ebooks

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.

Comments

[John Holdcroft]

Love this play. Microsoft gets additional access to BN's Higher Ed target market and BN can tread the waters of Microsoft fans as well. Seems mutually beneficial and a worthy competitor (though not equal) to the Apple/Amazon/Google juggernaut of new media companies out there. If I was a baseball manager, I may not pitch this against the other team's No. 1, starter and expect to win. But at least now BN (and MS) can be reintroduced to the conversation.

[James Moushon]

Great foresight, Joe. You’re right on spot with this blog.
B&N and Microsoft are a perfect match. They would offer the piece that is missing from Amazon; a physical location (store-within-a-store). Somewhere readers can go to kick the tires, review a book and go away with the purchase of a good reading experience (ebooks or pbooks).
Microsoft would bring standardization and upward compatibility (end-to-end consumer experience) to the ebook arena and the connectivity to the digital world surrounding ebooks, knowledge and social media.
I blogged about this topic myself in May 2011 and got a lot of comments from the Microsoft haters. Ebook Industry: Where Is Microsoft?
http://hbspublications.blogspot.com/2011/05/ebook-industry-where-is-microsoft.html
My perspective was from over thirty years in the computer industry.
One of the sections of the blog was Lessons From the Past which discussed how Microsoft solidified the computer industry by supplying products, programming environments, networks and operating systems that worked together.
Education and business would benefit greatly from a standard of sharing comments and ideas right out of the cloud and nonfiction would become a valuable resource not just a large book on the shelf.

[Carlo Carrenho]

Great insight, Joe. On the Barnes & Noble side, it might be a great opportunity to go global fast and efficiently using Microsoft's international presence. From an out-of-the-US point of view, this partnership may represent a real alternative to Amazon.

[Len Feldman]

Joe, I think that you're substituting wishful thinking for reality. The most likely reason that Microsoft did this deal is to use Barnes & Noble as the mechanism for getting low-cost ARM-based Windows 8 tablets to market, the same way that Microsoft is using Nokia as its vehicle to get Windows Phone 7 into the market. Microsoft already has mechanisms for selling everything except eBooks to consumers--the Zune and Xbox Marketplaces. If Microsoft could have partnered with Amazon, it would have done so in a heartbeat, but the reality is that Amazon didn't need Microsoft's money and probably didn't want to deal with Microsoft's influence. (Given that Amazon is located cross-town from Microsoft, it has a better view of the company than most.)

[ONEWOMANMEDIA]

This idea could work so well. There's been a lot of discussion about bookstores, author events and the digital equivalent of both...Such a Microsoft - Barnes & Noble partnership you describe could offer a whole new entertainment experience to everyone, from the non-readers to the hard core ones.

I'm talking about movie-like events where augmented reality, Kinect and other such technology would create out-of-this-world, interactive book experiences for the participants.

[Julia Hidy]

I love books. I love book stores. And it pains me to consider this, but if Microsoft had infused over $1 B to $2 billion into B&N, then I could see Microsoft holding onto the leasehold assets and leveraging the full national chain. Instead, for $300 million, which is chump change to them, they bought the rights of first refusal to B&N's digital platform, technology staff and existing catalog. Gosh, I hope I'm wrong. I truly do. But I smell a gorilla as part of a very shrewd business deal that's gone down. And as the full scope of this transaction unfolds, we'll see whether this is at all to B&N's management's and customers' ultimate benefit.

If Microsoft had wanted stores, they would have bought in several years before when the retail scape was booming. They want and bought electronic and technology assets.

[James Moushon]

Joe: I still agree with you. Microsoft is thinking much bigger than providing a low cost tablet or any other mobile device with this investment. Their thing is software and if they can connect mobile platforms into their other software, they have a winner.
They don't need Amazon to go ahead with this plan. Amazon doesn’t provide any solutions, just the pieces.
Given the success with Apple's approach with storefronts, this gives Microsoft instant access to B&N storefronts where they can market all kinds of software and devices.
Amazon also sees the power of storefronts, that’s why they are setting up experimental stores.

[willem]

Very risky move if you ask me! There is almost no difference in demographics between a B&N customer & the Apple customer - selling a windows 8 tablet to that crowd is going to be a really tough sell & MS could have bitten off a bit more than it can chew especially since their product is almost entirely unproven - in comparison with Apple anyway. Also, the XBox following is a bit of a mismatch with the B&N brand isn't it?

[Rechtsteiner]

This bet strikes me as very similar to the bet Microsoft made on Facebook. Everyone thought Microsoft was crazy for investing in Facebook at that level, at that time. Microsoft gained tremendous insight into social, insight it never would have been able to gain otherwise. They’ll make a very tidy return on their investment to boot. That was smart any way you look at it.

In parallel, Microsoft appears to have placed a very intelligent (and relatively inexpensive) bet into not only the tablet and ebook space with Barnes & Noble and Nook - one they have not previously been able to make - but the complete digital ecosystem necessary to play in today's consumer markets.

Couple this with today's XBox subscription announcement and you can see, in very short order, exactly how Microsoft is looking at changing their game.

[John]

This is just paying B&N to sell a Windows tablet to make Windows Tablets look successful. Windows tablets haven't been successful in the market place yet despite being around for a number of years.

[Freesharehere]

Hi Joe. I totally agree with James. Microsoft always made its unique place in the web world. But on the other hand ebooks have their unique importance. Over all i think we can't differentiate each other.

[Michael Roney]

In over two decades Microsoft has failed to nail the elegant user experience challenge. B&N has come closer, though the Nook product line it not without its flaws. Successful end-to-end is clearly not as easy as Apple has made it look, and that of course, is the key. It will be interesting to see how this turns out.