This morning, Microsoft dropped $300 million to invest in a new joint venture that will be spun out of Barnes & Noble’s digital business.That means Microsoft now owns 17% of a new company that makes a popular product — the Nook e-reader — based on a rival platform, Google’s Android.
Some commenters assume that future Nooks will continue to be based on Android, and that this was part of some brilliant strategy to encourage more Android fragmentation.
But it may not be that complicated.
Having a stake in the Nook creator could help Microsoft solve one of its biggest problems with the next version of Windows: making a clear brand distinction Windows 8 tablets (which are based on Intel-style chips and can run old Windows apps, like regular PCs) from the Windows RT tablets (which are based on ARM processors, don’t run old Windows apps, and are more akin to the iPad).
Previously, Microsoft had talked about there being some kind of labelling program for the two types of tablets. That sounded horribly confusing.
But what if the labelling program is letting third parties make and sell Windows RT tablets under their own brands?
In other words, consumers would simply buy a Nook. They’d get a Windows tablet capable of running thousands of new-style Windows apps.
Just like today, when consumers buy a Kindle Fire, they’re actually buying an Android tablet capable of running thousands of Android apps.
The difference is that Microsoft would actually make some money from these tablets. Google doesn’t make any money from the Kindle Fire because it includes links to all Amazon services, instead of Google services, and because Google gives Android away for free.
Now imagine Microsoft striking deals with other companies to do the same thing. Imagine a Verizon tablet. A Comcast Xfinity tablet. A Facebook tablet. (Microsoft has a small ownership stake in Facebook as well.)
In other words, the branding strategy for Windows RT may be no branding strategy at all. Maybe it’s a pure white-label play.
One more point: Andy Lees was the Microsoft exec responsible for this deal. He was formerly the head of Windows Phone, and a top-level President at the company, reporting directly to Steve Ballmer. When Ballmer took him off Windows Phone last fall, the company swore he was working on something big and important.
Paying Barnes & Noble to drop its lawsuit and make a Windows 8 app? Not such a big deal.
Figuring out a strategy to make Microsoft a player in consumer tablets? That’s a big deal.