Microsoft is reportedly offering to pony up $1 billion for the digital assets of Nook Media, including its ebooks, ereaders and tablets offerings, as the software giant looks to ramp up its mobile strategy.

Barnes & Noble, which owns Nook Media in a joint venture with investors, will reportedly hold onto the college book division if the deal goes through. The question is what Microsoft plans to do with the company and whether its deep pockets will be enough to resuscitate an already faltering business.

?Obviously, the software giant always wanted to enter the e-book market and it was testing the waters,? said Boris Metodiev, a senior analyst at Yankee Group, Boston. ?On the other hand, Banes & Noble is in bad need of financial injection to compensate for the disastrous losses reported in its latest annual report.

?It seems that Banes & Noble will never be successful in a market where its biggest competitor, Amazon, is prepared to sell much cheaper and not make money from its hardware,? he said. ?What I am not sure about is what the next steps would be.

?Would Microsoft use the hardware and replace the existing Android OS with its own Windows one? Or, would it close it down and continue to distribute the Nook ebooks through Microsoft?s tablets? Whichever it is, Amazon is too far ahead in the game and, I am afraid, it is another case of too little too late for Microsoft.?

Tablet competition is tough
Microsoft has been cozying up to Nook for a while as it looks to ramp up its mobile strategy and already owns a stake in the company.

Barnes & Noble and Microsoft initially announced plans to team up a year ago, with the latter making a $300 million investment in the new Nook Media subsidiary and gaining a 17.6 percent equity stage. Nook Media officially split off from Barnes & Noble in October.

The move could make sense for Microsoft, whose own tablets have not made a significant impact on the market. However, it is unclear if Microsoft is interested in Nook?s hardware or its content distribution offerings.

Nook was reportedly already planning to step back from the tablet hardware business with plans to cease operations by the end of next year. Nook ereaders were not to be discontinued at the same time but that business is expected to continue to wind down as consumer preference for all-purpose devices such as tablets grows.

Content distribution
Going forward, Barnes & Noble was planning to focus on content distribution through apps on other manufacturers? devices.

Barnes & Noble had been looking to build a thriving digital business as consumers increasingly move away from buying books from physical retail locations and towards online purchases of both physical books and digital editions. However, that strategy appears not to have been a viable one for the company.

Despite significant investment from Barnes & Noble, the Nook business has been stumbling for some time even as other Android-based tablets such as Kindle Fire continue to grow. Earlier this year, Barnes & Noble said that its Nook unit revenue fell 12.6 percent during the holiday period and warned that it expects to report a bigger loss for its Nook business in fiscal year 2013 than the $262 million loss reported for its 2012 fiscal year.

Part of the problem is that the margins on the hardware are very low, with companies such as Amazon trying to compensate through digital content sales. The issue has only been compounded by growing competition in the tablet space as prices for ereaders and tablets trend downwards and manufacturers try to gain some traction with consumers.

Nook devices have been well-received by reviewers, but have failed to catch on in a significant way with consumers. Nook has sold ten million devices, has more than seven million active subscribers and has an app available for Android, iOS and Windows.

Potential synergy
Nook is already developing content for Microsoft?s Windows 8 devices.

At the same, Barnes & Noble?s retail business is contracting, with the company planning to reduce the number of bricks-and-mortar stores it operates from 689 down to between 450 and 500.

?Assuming unconfirmed media reports about Microsoft acquiring the Nook tablet business are true, it would be significant for Microsoft in that it would add to its hardware and content portfolio,? said Paul Verna, a senior analyst at eMarketer , New York . ?However, I don?t see this as a market mover.

?Microsoft and B&N have both struggled to gain traction against more entrenched players in the tablet space, so simply combining resources won?t necessarily change the dynamics,? he said.

?The potential opportunity lies in taking what many consider an attractive hardware product (the Nook) and making it work within the Microsoft software ecosystem,? Mr. Verna said. ?The challenge will be in having a coherent product/marketing strategy with tablets as different as the Nook and the Surface.?

Final Take
Chantal Tode is associate editor on Mobile Marketer, New York