Microsoft: Better Late Than Never
Andrés is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Shares of Barnes & Noble (NYSE: BKS) were rising by more than 60% on Monday after it was made public that Microsoft (NASDAQ: MSFT) is planning to invest $300 million in a new Barnes & Noble subsidiary. The deal combines its digital and college businesses, at a valuation of $1.7 billion, with Barnes & Noble owning 82.4% of the new subsidiary and Microsoft holding a 17.6% equity stake. The new venture will produce a Nook eBook reading application for Windows 8, which will offer eBooks, magazines and newspapers to Windows customers in the U.S. and abroad.
The clearest winner from this announcement is Barnes & Noble, the company has established an attractive valuation for its new division, at $1.7 billion that´s almost twice Barnes & Noble market cap before the announcement. Separating its digital and textbook business from the rest of the company also sounds like a good idea; it would bring a clearer differentiation between its most promising areas of growth and Barnes & Noble´s languishing brick and mortar stores.
Also, the book retailer needs fresh funds if it´s going to compete against giants like Amazon.com (NASDAQ: AMZN) and Apple (NASDAQ: AAPL) in the eBook business. Amazon has gained a lot of traction with its Kindle e reader lately, and the online retailer has a wide selection of eBooks at very competitive prices. Barnes & Noble is facing a tough challenge when competing against Amazon.
Apple sold more 11.8 million iPads in the last quarter alone, and has also announced new initiatives in the textbook business in an effort to revolutionize content creation and commercialization via more sophisticated eBooks which include videos and more interactive content. Even if Apple doesn´t have such a big selection of eBooks like Amazon does, many customers are downloading eBooks from Amazon to read in their Kindle application for iPad, so Apple is not helping Barnes & Noble at all.
From the perspective of Microsoft shareholders, the deal is not a definitive game changer, but at least it’s a start at trying to recover some of the lost opportunities in the last years. Microsoft needs to step up its participation in growth areas like mobile computing and digital content, and this alliance with Barnes & Noble is a smart way to move in that direction.
Barnes & Noble provides a big channel for content and at the same time a platform for Microsoft to grow its presence in the tablets market. The software giant is already trying to gain some market share in smartphones via its alliance with Nokia (NYSE: NOK) to build and market Lumia smartphones, the product has not proven its commercial success yet, but it has at least received some positive critiques from industry experts.
The mobile industry is not simply about launching good products, ecosystems are as important as the quality of those products on a standalone basis. Apps, digital content, product integration and cloud storage are critical factors to consider. Microsoft is late to the race on mobile, but at least it seems to understand the rules and is trying to build an integrated platform.
Nobody is expecting a big success from Microsoft´s venture into mobile, but the company has the resources to easily take a third or fourth position in the competition for big integrated mobile platforms. That may not be a breathtaking revolution, but it´s much better than having almost no mobile presence at all. Microsoft is late to the party, and that surely has some serious disadvantages in such a dynamic industry, but you know what they say “Better late than never”
acardenal owns shares of Apple. The Motley Fool owns shares of Apple, Amazon.com, and Microsoft. Motley Fool newsletter services recommend Amazon.com, Apple, Microsoft, and Nokia. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.