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How Microsoft's cash will bolster Barnes & Noble e-readers

Doug Gross, CNN
The Nook Simple Touch with GlowLight, from Barnes & Noble, has gotten good reviews since its release.
The Nook Simple Touch with GlowLight, from Barnes & Noble, has gotten good reviews since its release.
STORY HIGHLIGHTS
  • Microsoft's investment in the Nook expands options for Barnes & Noble e-books
  • The Windows 8 operating system could benefit from the Nook's catalog
  • Currently, Amazon dominates the e-reader and e-book marketplace
  • Microsoft spent $300 million for 17.6% of B&N's e-book business

(CNN) -- News that Microsoft has sunk $300 million into a venture with Barnes & Noble sends a clear signal that the computing giant and the bookseller aim to shake up the e-book market with new ammo in their fight against Amazon and Apple.

But whatever impact the move has on sales of B&N's Nook e-readers now, it's the future of the partnership that has truly disruptive potential.

The Nook's considerable catalog of books and other content could become more formidable when married with products like Microsoft's forthcoming Windows 8 operating system -- which is designed to run on tablet computers -- and even its leading game console, the Xbox.

"Microsoft has not successfully gotten outside of PCs in any way other than the Xbox," said James McQuivey, an analyst with Forrester Research who studies both e-readers and Microsoft products, including the Xbox. "Now, if you have the best game console in the world and the highest penetration of a PC operating system in the world and an OK platform for tablets, you really do have an interesting play that Microsoft has stumbled into."

Early versions of Windows 8 have received largely positive reviews. Several electronics companies are said to be building tablets to run the system. But content is king. And with Barnes & Noble's book offerings cooked into Windows 8, it could put the system in the same league as Apple's, which has incorporated iTunes into virtually all of its products.

"This is a key way of getting more content on to the Microsoft platform," Ingrid Lunden wrote for TechCrunch, "specifically e-books content to ensure that its Windows 8 tablets will be able to compete not only against the best-selling iPad but also the Kindle Fire from Amazon, along with the rest of the company's e-readers."

According to Monday's announcement, Microsoft's $300 million is buying a 17.6% stake in B&N's Nook products and books, which are being split off from the company's brick-and-mortar stores.

Currently, Amazon has more than 60% of both the e-book and e-reader market, McQuivey said. Estimates suggest that Amazon, which tends to be stingy with announcing its sales figures, has sold more than 20 million Kindles, including at least 6 million Kindle Fire tablets.

McQuivey says the Nook has probably tallied less than half that.

A Barnes & Noble representative declined Monday to comment on sales figures, saying only that the company has sold "millions" of Nooks.

"What's happening right now is, Amazon is walking away with that business, because Amazon already has the book buyer at a critical point: their website," McQuivey said. "Amazon has almost a chokehold. ... The only way to get around that is if you happen to be a Barnes & Noble customer or you're in the Barnes & Noble store."

What a merging of Nook products and the new Windows 8 operating system could do, he said, is "try to get you before you even go to Amazon."

The Microsoft deal might not have a huge impact on sales of current devices, according to McQuivey. But it sets the table for a future in which a Nook tablet, running Windows 8, could marry content from PCs with content from the Xbox game console and other devices.

Adding at least one tablet to its Nook lineup (McQuivey predicts multiple devices with different-sized screens) would put Barnes & Noble more on par with Amazon, which has had more success with its $199 Kindle Fire than any other would-be competitor to Apple's iPad.

ComScore says the Fire is the top-selling tablet running Google's Android operating system, with more than 54% of that market in the U.S. The second-place device, the Samsung Galaxy Tab, comes in at about 15%.

Whether a Nook-Windows combo could have similar success, of course, remains an open question.

"Clearly," McQuivey said, "this is just a first step."

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