Amazon Kindle Faces Big Trouble as Microsoft Backs Nook Line

Barnes & Noble has finally begun to spin off their Nook brand into its own subsidiary company and Microsoft has jumped at the opportunity to be a major part of that effort.  According to an announcement released jointly this Monday, the software giant will be investing $300 Million into the Nook business thereby acquiring 17.6% equity stake.  This could be bad news for Amazon’s Kindle line, which is already facing some of its toughest competition to date in the realm of eReading thanks to the new Nook Simple Touch w/ GlowLight.

Making things even more pleasant for B&N, this arrangement will also involve the settlement of Microsoft’s ongoing patent litigation the bookseller over certain aspects of the Nook’s design.  Microsoft will now be picking up royalties for all Nook products, but in the end this may result in significant savings compared to the cost of legal defense.  Whether or not that is the case, and admittedly I’m not a lawyer so it is purely speculative, this partnership will open up some major new opportunities for advancing the Nook.

In the immediate future we can expect a Nook app for Windows 8.  This will be an important development for both companies as Microsoft is betting big on the potential for tablets using their new OS while Barnes & Noble will need to be ready for the next major push in operating systems.  The nature of the Metro UI that Windows 8 (and its ARM compatible offshoot Windows RT) uses will actually create an even better reading experience than existing Windows reading apps if done right.

More long-term, Microsoft has already alluded to an interest in using Windows 8 to gain a foothold in the eReader market.  While this was mostly an offhanded remark at a recent event, and could therefore have been meant as a subtle emphasis on how adaptable their new operating system is, buying into as big a player in eReading as the Barnes & Noble Nook line is a fair indication that something more serious is going on.

In the face of this, Amazon has to be wondering what to do next with the Kindle line.  While the Kindle Fire is coming out on top of every other Android tablet on the market today, their Android fork might not quite compare to a properly configured Windows 8 installation powering the next Nook Tablet.  Nothing stops Amazon from following suit and licensing the new OS themselves, of course, but this would likely lose them the ability to completely control the user experience enjoyed under the existing system.  Microsoft will certainly allow locked-down version of their software to circulate, but fragmenting the Metro UI is not going to happen.

This might end up being the first step in a major Android vs Windows 8 fight.  The Kindle Fire holds the majority of non-iPad tablet users, but if a new Nook offered superior hardware and an operating system that shines when compared to Android without increasing the price significantly then the tables could turn.  Amazon still has their content distribution and the tight integration that gives them the edge, but the next Kindle Fire might need to be especially impressive to keep consumer interest going.