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Barnes & Noble, Microsoft partnership a good move, but is it enough?

Barnes & Noble Inc. and Microsoft are teaming up to strengthen their relative positions in the ereader and tablet markets, but the move does not automatically rewrite a competitive landscape that is dominated by Apple, Google and Amazon.

While often receiving good reviews for their mobile products, neither Barnes & Noble nor Microsoft have found significant success with consumers for these items. By pooling their efforts, the companies hope to gain a stronger foothold that will enhance their ability to compete against the likes of Amazon, Google and Apple.

?I don?t know if this will really help Barnes & Noble,? said Paul Verna, a senior analyst at eMarketer, New York. ?It helps to have funding and it might help down the line for Barnes & Noble to have an entry into Windows 8.

?I can see why both are doing this because they are both being beaten by their competitors and they see a way to maybe help each other out,? he said.

?But I wouldn?t say that it is a slam dunk that because Barnes & Noble has this equity investment that it is going to radically change the competitive landscape over night.?

Getting schooled
The strategic partnership announced by the two companies creates a new subsidiary that will include Barnes & Noble?s Nook and college businesses.

Microsoft will make a $300 million investment in the new subsidiary, which does not have a name yet, and take a 17.6 percent equity stage.

The funding will conceivably enable Barnes & Noble to invest more heavily in research and design so it can develop more competitive follow up versions of the Nook ereaders and tablets. The money will also likely be used to put more marketing muscle behind Nook.

The new business will be able to take advantage of Barnes & Noble?s role as a leading college textbook retailer and its large retail base of stores.

One of the goals is to build a bigger role for the Nook brand in the college market.

Microsoft and Barnes & Noble both see significant opportunity in the college textbook market. The idea is that students can load up all of their textbooks onto an ereader or tablet and not have to cart around the heavy print editions.

?Microsoft sees an opening there just like Apple did,? Mr. Verna said. ?The college market is seen as an opportunity and an area where ebooks are an easier sell.

?It is an easier sell than trying to convert someone who is used to reading magazines and newspapers in print,? he said.

?Both see that as an area that is fertilizing ground for them.?

Consumer appeal
The partnership will also see the creation of a Nook application for Windows 8, giving Windows customers access to Barnes & Noble?s digital bookstore, which includes ebook, magazines and newspapers.

The potential success of the partnership comes down to how desirable the Nook is to consumers. The iPad is the clear leader in the tablet market and the Kindle Fire has been making significant inroads into the Android market.

?I wouldn?t call the Nook a huge success but I think there is a certain appeal,? Mr. Verna said.

?It is more about what is coming down the pike in terms of new versions and updates,? he said. ?It all comes down to how well they can do selling devices.?

Microsoft is not likely to offer much help here as the company?s track record is lacking when it comes to developing successful mobile devices. For example, the Zune never really caught on as an alternative to the iPod. 

The news follows Barnes & Noble?s announcement earlier this year that it was exploring the strategic expansion of its digital business. 

Barnes & Noble and the subsidiary will have a royalty-bearing license under Microsoft?s patents for its Nook products.

For both companies, this is about being able to better compete against the likes of Amazon, Google and Apple, something they have not been very successful at to date.

?Barnes & Noble can use the cash infusion and the vote of confidence for Nook,? Mr. Verna said.

?Microsoft has been struggling to find its niche in the connected device space and it sees a way to build its own content portals and device support around having the Nook in its stable.?