Barnes & Noble, Inc. (BKS), Amazon.com, Inc. (AMZN), Microsoft Corporation (MSFT): Fighting a Losing Battle…

As one of the few people who still likes to read actual books, I love Barnes & Noble, Inc. (NYSE:BKS) as a company. Since the demise of Borders, Barnes & Noble, Inc. (NYSE:BKS) has truly established itself as the dominant bookstore operator in the United States. As an investment, however, I have my reservations.

First, shares of the company have more than doubled over the past year alone. Why? The company lost money last year, is losing money this year, and is projected to continue losing money for the foreseeable future. Also, the company is clearly the loser in the e-books business, which I know the Nook faithful are going to adamantly disagree with, but I believe it to be true.

Barnes & Noble: Today

We all know that Barnes & Noble, Inc. (NYSE:BKS) was the king of booksellers before books went electronic, and everyone had an e-reader, tablet, or smartphone that enabled them to read whatever they want without leaving home. As investors, however, we are much more interested in the current state of the company.

Currently, Barnes & Noble, Inc. (NYSE:BKS) operates over 1,300 bookstores, which include their 650 college bookstores as well, which I think are the last remaining bright spots in this company. The company derives the majority (62%) of its revenues from their retail segment, which consists of their traditional bookstores. B&N College makes up an additional 24%, and is growing each year. Surprisingly, the NOOK division only makes up 13% of the company’s revenues.

NOOK: Losing the battle?

While it is no big revelation that Amazon.com, Inc. (NASDAQ:AMZN) is winning the e-reader war with their Kindle, I am still disappointed at just how little of the market share that the NOOK has been able to capture. With the backing of Microsoft Corporation (NASDAQ:MSFT), I honestly thought that NOOK was going to reinvent itself and steal at least some of Kindle’s customer base.

Between 2011 and the end of 2012, Amazon.com, Inc. (NASDAQ:AMZN)’s market share of the e-reader sector rose from 47% to 55% of the entire market, including the basic Kindle and the Fire models. During the same time period, NOOK’s share held steady at 14% of the market. iPad held 12% of the e-reading market, with the rest dominated by PC reading software (a large portion of which is Kindle for PC).