Windows 8 will be available on a much wider range of tablet devices than the current version, and Microsoft is betting it can secure a foothold in the rapidly-growing tablet market dominated by Apple. The explosive growth of tablets is shrinking the market for PCs that made Microsoft's fortune, while Amazon's Kindle e-book reader is also rapidly changing how people buy and read books.
"It's a strategic investment to strengthen Windows 8 as a platform for tablets and e-reading," said Colin Gillis, an analyst at BGC Patners.
Microsoft's deal with Barnes & Noble comes weeks after US authorities stunned the digital publishing world by accusing five of the world's biggest publishers and Apple of conspiring to fix the price of e-books. Apple, Macmillan and Penguin are contesting the allegations.
As part of Monday's agreement, Microsoft will take a 17.6pc stake in a newly formed company that will include Barnes & Noble's e-reader business. Barnes & Noble will own the rest of the business that Microsoft's investment values at about $1.7bn. The tie-up with Microsoft, which is sitting on $59bn of cash, gives Nook far more financial firepower and will allow it to expand outside of the US for the first time. Investors in Barnes & Noble had been pushing the company's management to speed up the expansion of the Nook, which has about 27pc of the e-reading market in the US.
The deal will allow the US book chain to "extend the digital bookstore to hundreds of millions of people in the US and internationally", said Barnes & Noble chief executive William Lynch. If the stakes are high for Barnes & Noble, whose physical stores are stuggling, analysts say they are higher still for Microsoft. The introduction of the Windows 8 operating system - expected in the autumn - will be its most serious effort yet to become a force in the tablet market.
The agreement "will accelerate e-reading innovation across a broad range of Windows devices," said Andy Lees, an executive at Microsoft.
