What’s really going on here?
That brings me to my theory of why Microsoft Corporation (NASDAQ:MSFT) might take the Nook off of the market – to simply keep it out of the hands of its competitors.
Barnes & Noble recently inked a deal with Google that allows Google Inc (NASDAQ:GOOG) to install its Google Play store on Nook devices. Prior to the agreement, Nook had been using a forked version of Android, similar to the Kindle Fire, that locked users out of the Google Play app store. The reason was simple – both Barnes & Noble, Inc. (NYSE:BKS) and Amazon wanted their tablets to be recognized as unique products that showcased their digital media, rather than cheap Android tablets that funneled advertising and app store revenue to Google Inc (NASDAQ:GOOG).
However, desperate times call for desperate measures, and Barnes & Noble finally relented and added the Google Play store, which increases the Nook’s 10,000 available apps to 700,000. Amazon.com, Inc. (NASDAQ:AMZN), on the other hand, still locks users out of the Google Play store, although most Android apps can be legally “sideloaded” onto the devices. Google clearly benefits the most from this deal, as it now has 10 million additional devices connected to its Google Play ecosystem. This will open up Google music and video purchases for Nook users as well.
Meanwhile, there have also been persistent rumors of Amazon bidding for the Nook Media unit. If Amazon were to purchase Nook Media, it would gain a valuable brick-and-mortar partner in Barnes & Noble, Inc. (NYSE:BKS), turning a former adversary into an ally. Amazon could possibly use Barnes & Noble locations as fulfillment and local pick-up centers for online purchases. Barnes & Noble could in turn help launch physical versions of Amazon’s self-published digital offerings, which have experienced lackluster sales. Most importantly, Amazon could phase out the Nook and replace it with its Kindle devices, which would make it the undisputed king of the e-reader market with access to books from both Barnes & Noble and Amazon.
Therefore, with Google Inc (NASDAQ:GOOG) already taking full advantage of the Nook’s weakness and Amazon possibly dreaming up the massive synergies of merging its operations with Barnes & Noble, Inc. (NYSE:BKS), Microsoft thought the best tactic was to simply take Nook Media off of the market.
The Bottom Line
Of course, that still leaves investors pondering what’s next for Microsoft Corporation (NASDAQ:MSFT). Over the past three quarters, Nook Media posted an operating loss of $190.9 million on revenue of $2.18 billion. In its current state, Nook will simply drag down Microsoft’s margins and profits. That leaves Microsoft with two choices – to discontinue Nook’s hardware segment completely or to fund it more heavily to create a flagship line of Windows 8 tablets.
Judging from the dismal sales of the Surface, however, I believe that Microsoft Corporation (NASDAQ:MSFT) will simply discontinue it and reduce it to a cloud-based ecosystem for multiple mobile platforms. That strategy cuts Google Inc (NASDAQ:GOOG) out of the picture, and keeps Amazon at bay. Therefore, investors should view Microsoft’s recent strategy as defensive posturing rather than a real offensive move into the e-books market.
The article Why Does Microsoft Need the Nook? originally appeared on Fool.com.
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