Updated Monday, April 30, 2012 at 02:31 PM
(Updated Seattle Times story is here. - Janet I. Tu)
The as-yet-unnamed subsidiary will bring together the digital and college businesses of BN. There will also be a Nook application for Windows 8.
The partnership will have many dimensions "to jointly create compelling experiences across a range of Windows devices," allowing users to buy, consume, create and publish content, BN CEO William Lynch said in a conference call today.
Microsoft and BN have apparently put aside their differences in the creation of this partnership.
Earlier, Microsoft had sued BN, claiming the bookseller infringed on its patents in some of its Nook devices, which run on the Android platform. The news release today notes that the two companies have settled their patent litigation and that, moving forward, Barnes & Noble and the new subsidiary will be paying Microsoft royalties for use of its patents in the bookseller's Nook e-reader and tablets.
While one of the most immediate and concrete results of the partnership will be a Nook app for Windows 8, the partnership is about far more than just an app.
Andy Lees, a president at Microsoft, noted in today's conference call that e-book sales are forecast to grow from less than 5 percent to more than a third of books sold over the next few years. "Clearly, we are on the cusp of a digital reading revolution and this partnership positions Microsoft to accelerate it."
Lees noted that while the partnership agreement includes a revenue share, what's more important, he said, was "defining the future of reading.
"We think we have a lot more to add than just being the platform provider. That really is what this partnership enables us to do," he said.
The partnership will enable Microsoft and BN to look at the future of how people are going to read, interact with stories and how they will learn using these types of materials, he said.
"You'll see a blurring of different content types" -- an area where Microsoft thinks it can add value, Lees said. He mentioned, by way of example, how interactive kids' stories can be, how textbooks might be more interactive and how people can create content. "In these set of scenarios we're going to have a larger role to play than just being the platform provider."
In reply to a question about whether Windows 8 might power Nook tablets in the future, neither Lynch nor Lees would give a definite answer, saying they were not providing a roadmap at this time. Lynch did note that the Nook runs on a Texas Instruments' platform with an ARM-design processor and that Microsoft has said that a version of Windows 8 -- called Windows RT -- is designed to run on ARM processors including TI's.
The new partnership appears to put Microsoft in even more direct competition with Amazon's e-reading and publishing businesses. Lees said Windows 8 -- which already has a Kindle reader app on it -- will continue to be an open platform.
Rick Sherlund, analyst at Nomura, offered his take on the partnership:
Our view is that Microsoft will want to make sure that there are alternatives to Amazon (that sells the Kindle e-reader and tablet as a potential tablet competitor to Microsoft) for digital content and make sure there is a counter balance to Apple's growing partnerships for content and creation of interactive educational content. Microsoft's $25mn-per-year cost reimbursement appears intended to help the new subsidiary secure more international content and build more educational interactive content.