The only explanation we can find for Microsoft’s startling decision to invest $300 million in a Barnes & Noble spinoff (valuing it at $1.7 billion) is that the Redmond giant is buying share in the tablet market.For all Microsoft’s struggles to come from behind in the tablet market, it’s actually even worse off in the tablet market–nowhere. So far, Microsoft has played it down, saying it is waiting for its Windows 8 OS, which will be optimised for both tablets and desktops, to make a big tablet push. But in the meantime, Apple (and Amazon) are running away with the tablet market.
It tends to be forgotten, but the Nook isn’t simply an e-reader–it’s also a tablet, which is competitive with Amazon’s Kindle Fire tablet, which has been very successful. (Click here for our report on the Kindle ecosystem.) Even though the Nook’s operating system is technically based on Android, it’s a “forked” (i.e., independent from Google) version of the open source Android, and so the Nook will probably become a Windows 8 tablet at some point.
Interestingly, the new joint venture also includes Barnes & Noble’s College division, which could serve as a useful beachhead for Microsoft to pitch Windows 8 tablets to universities.
It might also mean that Microsoft might be contemplating an “Amazon strategy” of breaking into the tablet market by subsidizing lower-priced tablets than Apple.
Microsoft is also buying into the perilous field of building content ecosystems. This is what has proven to be a key success factor in making a tablet work: so far, the only two truly successful tablets, the Apple iPad and the Amazon Kindle Fire, have come with their own content ecosystem of music, video and books. Microsoft hasn’t done well in that area. Its music ventures have, famously, been a flop. And as for video, well, it would come as a surprise to Microsoft board member (and Netflix CEO) Reed Hastings.
Regardless, we doubt the Nook is a sufficient beachhead for Microsoft into tablets. We estimate Barnes & Noble sold 2 million tablets during the holiday period, which is about half of our Kindle Fire estimate. (Which is itself small compared to the iPad.) It’s not clear what Microsoft is buying, here.
Photo: BI Intelligence
NOW WATCH: Briefing videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.