• by Thom Forbes , May 1, 2012

When I first heard about Microsoft investing $300 million or so in Barnes & Nobles’ Nook division yesterday, I was reminded of the New York Yankees of a time when George Steinbrenner was still running the show and had a penchant for signing marquee players who were just a little bit past their prime. That’s not to say that the likes of Jason Giambi and Randy Johnson didn’t have productive years in pinstripes; just that they were eclipsed by younger prospects with sprightlier legs.

It would be foolhardy to suggest that either Microsoft or Barnes & Noble are over the hill and into the dale of pining for their glory days. Barnes & Noble has gained a strong perch in e-books –- its Nook readers have about 27% of the U.S. market despite its later start –- and Microsoft is seeding its considerable cash reserve in a number of businesses that may finally take it beyond the OS and business suite software that has been its profit engine for so long.

The big question, though, is whether the alliance will produce enough wins to get the revamped lineup to the big dance or if it will just be somewhat competitive in a league that currently has two juggernauts: Apple and Amazon, with Google always threatening to come up with a blockbuster.

The deal is “clearly motivated by Apple and Amazon as relatively unstoppable forces, each in their own domain,” Forrester Research analyst James McQuivey tells the New York Times. 

The companies are combining R&D, writes the Washington Post’s Cecilia Kang, leading analysts to speculate about a more ambitious tablet that might feature Xbox games and Office software.

“This could be an area where things coalesce for Microsoft,” Allen Weiner, vp of research for Gartner, says. “You look for beachheads that will get you into people’s lives -- education is one of them. Microsoft has not been great in other areas, but things may be coming together now.” 

What the merging of Nook products and the Microsoft’s Windows 8 OS could do, Forrester’s McQuivey explains to CNN’s Doug Gross, is "try to get you before you even go to Amazon." The deal might not have a huge impact on sales of current devices, he says, ”but it sets the table for a future in which a Nook tablet, running Windows 8, could marry content from PCs with content from the Xbox game console and other devices.”

The agreement, which gives Microsoft a 17.6% stake in B&N, values the Nook unit at $1.7 billion. That’s “roughly double Barnes & Noble’s entire market value as of last Friday -- and bolsters the bookseller’s efforts to make its digital business the linchpin of its future growth,” Michael J. De La Merced and Julie Bosman reckon in the Times.

But B&N CEO William J. Lynch Jr. makes it clear that the digital business will “remain closely linked to the brick-and-mortar stores that long made up Barnes & Noble’s empire,” De La Merced and Bosman write. Lynch points out that “there are many cities with high-income residents that no longer have a bookstore after the liquidation of Borders last year,” they write.

“We’re looking to play a little offense with the bookstores,” says Lynch.

Investors in another publicly traded bookseller “had a very different day,” observes John Jannarone in the Wall Street Journal. The controlling shareholder of Books-A-Million offered to take the company private, valuing the 257-store chain at just $49 million, he reports.

“The difference between the two companies is simple: Barnes & Noble has a robust digital business …. Books-A-Million doesn't, and instead is a pure play in the declining business of physical books.” 

In the Wall Street Journal’s main story on the deal, Shira Ovide and Jeffrey A. Tractenberg point out that B&N has lagged far behind Amazon -- which offers Kindle e-reading apps for smartphones and tablets in more than 100 countries -- in its global efforts. 

"We're going to use the proceeds [of the investment] for an aggressive expansion program to take the Nook international," Lynch says.

The deal also puts to rest a patent infringement action brought by Microsoft against B&N. Who won in the end? It’s easy to conclude that it was B&N, and Wall Street’s reaction to the deal would certainly indicate that was the case. Its shares jumped 76% in morning trading and its opening price of $26 was at a three-year high, reports the AP, while Microsoft's stock rose 2 cents to $32. 

But perhaps it’s both parties, writes Alison Frankel in a Reuters blog. “It’s a cliche for settling parties to claim they’re both better off for resolving their differences,” she writes. “Maybe this time it’s actually true.”

And maybe, just maybe, they’ll upset the Applecart and tame the Amazon, too.