Microsoft/Barnes & Noble Joint Venture: Winning proposition for both companies

On Monday, Barnes & Noble Inc. and Microsoft announced a strategic partnership in a new unnamed Barnes & Noble subsidiary that, for the time being, is being identified as Newco. Here some comments from retail consultant Maggie Gilliam (Gilliam Insights) on the new venture:

One of the first benefits will be the introduction of a NOOK app for Windows 8 that will extend the immense Barnes & Noble digital bookstore to hundreds of millions of Windows customers worldwide. To date, NOOK has been only domestic. In addition, the NOOK study software will be available on the Microsoft platform for distribution and management of digital educational materials.

It is evident that both Microsoft and Barnes & Noble see new vistas opening in the world of eReading in the form of compelling customer experiences, but neither side is disclosing much at this time. The words interactive and multimedia came out during the conference call, and we can dream about new applications of Microsoft’s Kinect technology, for starters. In any event, Microsoft claims to have a lot to add to eReading besides being a platform provider. And the joint venture gives takes Microsoft into the eReader and eBook world with a library and degree of expertise that both Apple and Google are trying to achieve.

In forming Newco, Barnes & Noble has unleashed some shareholder value—the stock opened up 88.5% on the announcement—but the market clearly isn’t appreciating the company fully. After reaching an intraday high of $26, the stock closed at $20.66, up 51%, where the market value totals $1.2 billion, or less than the company’s 82.6% share in Newco estimated at $1.4 billion. (Editor’s note: Figures are for Monday, April 30.)

Thus, the market is giving negative value to the company’s profitable bookstores, which should not be written off. They are not just important in the sale of eReaders, but for future physical eCommerce, whose success we believe very strongly lies in multiple channels that enable consumers to purchase when, where and how they choose.

Moreover, a good interactive experience at the store level can be a profound contributor to sales success. Apple has demonstrated that stores can be a valuable asset. And Barnes & Noble is succeeding in making its stores family gathering places with dedicated educational play areas for kids. Moreover, stores are the biggest differentiators from Amazon.

Microsoft has its Microsoftstore.com and has opened 18 stores with two more coming this spring. They seem to be doing well, but unlike Apple, Microsoft does not have a list of blockbuster consumer products. On the other hand, Microsoft can sell a broad range of its customers’ products and offer an interesting selection. Barnes & Noble has 700 stores, many in prime locations, and while neither company is making any commitment, possibilities here could be interesting.

We think this JV could be a winning proposition for both companies.


More Retail Insights