Microsoft's E-Book Bet Looks Promising: Opinion

NEW YORK (Trefis) -- Microsoft(MSFT) recently invested $300 million in a new Barnes & Noble(BKS) subsidiary that will include the Nook business and educational business.

Microsoft's cash infusion will give it a 17.6% equity stake, valuing the subsidiary at $1.7 billion. With this move, Microsoft is jumping into the e-books business, in which it will compete with the likes of Amazon.com(AMZN) , Apple(AAPL) and Google(GOOG) .

Microsoft's CEO Steve Ballmer

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Barnes & Noble is the second largest player in the e-book space, but much smaller than Amazon, which completely dominates the market. Apple has been trying to get a foothold in the space, and recently found itself in the middle of an antitrust investigation by the Department of Justice against major book publishers.

Microsoft will be paying B&N another $180 million as part of a revenue-sharing agreement for the Nook app that B&N will make for the Windows 8 platform. It will also pay it another $125 million to assist the new subsidiary in acquiring local digital reading content and developing new technology. The total payout to B&N adds up to $605 million over a period of five years.

The Enemy of My Enemy Is My Friend

With this new investment, Microsoft has given B&N a much needed cash infusion to compete with Amazon and Apple and secured e-book content for Windows 8, which will enable Windows 8 tablets to compete better with Amazon's Kindle Fire and Apple's iPad.

Thanks to this deal, Microsoft may also gain entry to the educational content market, which Apple has been aggressively courting in the last couple of years with the iPad. Microsoft could also be looking at launching a Windows 8-powered e-book reader with content by B&N.

This may be one of the best strategic moves by Microsoft, which will further improve Windows 8's chances in the tablet market.