Microsoft Bets Big on B&N's Nook

Amazon and Apple dominate the e-reader market. But Microsoft and Barnes & Noble are teaming up to make a serious run at the leaders. Microsoft is investing more than $600 million in Barnes & Noble's efforts to launch a digital book and textbook subsidiary called Newco, and to help the bookseller to expand its online business globally.

In return, Barnes & Noble will create a NOOK e-reading app for the new Windows 8 tablet and PC operating system and for smart phones running Windows Phone 7. The deal also settles a patent dispute between the companies.

The arrangement helps fund Barnes & Noble's efforts to compete with Amazon's Kindle business, which accounts for 60 percent of the e-reader market. Meanwhile, Microsoft wants to give Windows a better chance of competing with Apple iOS and Google Android as an e-reader operating system.

Here's where it gets really interesting: Would Microsoft and Barnes & Noble come up with a Windows-based NOOK tablet to go head-to-head against the Kindle Fire, which runs on Android? Neither company has committed to it—but they haven’t ruled it out either.