What's what with Barnes & Noble and Microsoft

In an unexpected twist, Microsoft buried its Barnes & Noble lawsuit hatchet, and formed a partnership. Why did the two make a deal and what comes next? Here's my take.

I predict Windows RT Nook Tablets for the holidays.

I predict Windows RT Nook Tablets for the holidays.

Last year, Microsoft sued Barnes & Noble for breaking patents in its Android-based e-readers. Most companies, like Samsung, when sued by Microsoft over similar claims folded and paid off Microsoft. That's why Microsoft makes more money from Android than it does from its own mobile operating system offerings. But, Barnes & Noble didn't roll over. Instead, the last big bookstore company counter-attacked and they were winning. The International Trade Commission (ITC) seemed to be siding with Barnes & Noble. Uh-oh. So, Microsoft played let's make a deal and created a new partnership with Barnes & Noble.

So, did Microsoft do the deal just because they realized that if their anti-Android patents would be ruled to be FUD? No, but it did have a heck of a lot to do with it. As Alison Frankel, senior writer at The American Lawyer, commented, “Microsoft paid B&N, the patent defendant, a sum of money that exceeded the marketplace value of its investment. How often does a patent plaintiff pay the defendant in a settlement? Especially when that defendant is on the ropes and urgently searching for a strategic investor?”

I know the answer to that one: Never.

If Microsoft had lost this case, they would have had every company that ever signed an Android patent deal with them coming back armed to the teeth with lawyers. It's still going to mean legal trouble though for Microsoft. Frankel added, “So if you're another Android user thinking about saying no to Microsoft when it comes around with a licensing demand, you have to be emboldened by the B&N story: After enduring a year under scrutiny as a defendant, Barnes & Noble ends up with $300 million and drastically improved business prospects. That's not the scorched-earth result you might fear from taking on Microsoft and its lawyers.”

I know some Android fans hate this deal. They wanted to see Microsoft's patents taken to the cleaners. I did too, but Barnes & Noble is a bookstore company that's been struggling and trying to find a nook for itself in the e-book world. That hasn't been easy.

While I like the Barnes & Noble Nook family, and I probably use my Nook Tablet more than any other tablet in my house, most people want iPads or, if they are going to buy an Android tablet, they're going to get Barnes & Noble arch-rival Amazon's Kindle Fire.

So, put yourself in Barnes & Noble's shoes. Would you fight, and probably win, a patent lawsuit that would take years to resolve? Or, would you make a deal and create a subsidiary with a net-value that's greater than your market-cap? Of course you would.

Microsoft had more than the fear of seeing its patent troll ways over-turned driving it to the deal. While Windows 8 has its fans, many other people, like yours truly, thinks Windows 8 will be dead on arrival. Still, as much as I dislike Metro on the desktop, I'll concede Metro might have a shot on a smartphone or tablet... if Microsoft could only get someone to buy a Windows-powered device.

Microsoft owns the desktop, albeit its decade old Windows XP is really what most people use, but it a total non-player on tablets and smartphones. I don't care if Metro on tablets can slide, dice, and more, Microsoft needed a partner who already has a real presence in tablets—sorry Dell, HP, you're fine for PCs and servers, but tablets? I think not—and that company was Barnes & Noble.

Now, we don't know that we're going to see a Windows 8-powered Nook tablet (https://www.zdnet.com/blog/perlow/will-barnes-noble-and-nook-usher-in-a-199-windows-metro-tablet/20389), but I'd bet on it. Nooks don't sell as well as the Kindle Free, but they do sell, they have fans, and with this one move Microsoft can place Windows 8 devices in Barnes & Noble stores around the country.

These Nooks will not be dedicated e-readers. Dedicated e-readers are history. We'll also see a Nook reader app. for other Windows RT devices, but that will be small potatoes.

To be exact, I predict we'll see Windows RT (Windows on ARM) powered Nook tablets in Barnes & Noble stores by the 2012 holiday season. To help create a market for them, Microsoft will arrange for them to be sold for less than cost. I expect, we'll also continue to see Android-based Nooks.

Taken all-in-all, both Barnes & Noble and Microsoft won here. Barnes & Noble got a welcome injection of cash. Yes, I know the history of companies that have partnered with Microsoft—Nokia and Novell for instance—has not been good, but Barnes & Noble needed a deal like this. Microsoft gets to continue, for now, to shake down Android vendors. The boys from Redmond also get a consumer brand and sales channel for its long-suffering device lines.

The losers? Android supporters and software patent opponents. Still, this deal can also be seen a sign of weakness by Microsoft. Other Android companies are going to be a lot less likely to sign on the dotted line when Microsoft's lawyers come calling.

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