Pearson (NYSE:PSO) has taken a 5% stake in the recently spunoff NOOK Media LLC division of Barnes & Noble (NYSE:BKS) with an $89.5 million investment.
The investment values NOOK Media at $1.789 billion, unchanged from its recent spinoff. After the Pearson investment, the Barnes & Noble stake will be reduced to 78.2% of the company, with Microsoft (MSFT) owning the remaining 16.8%.
The investment was clearly strategic for Pearson, as a means of providing more seamless technology solutions for the education market. According to Pearson North America CEO Will Etheridge:
"With this investment we have entered into a commercial agreement with NOOK Media that will allow our two companies to work closely together in order to create a more seamless and effective experience for students. It is another example of our strategy of making our content and services broadly available to students and faculty through a wide range of distribution partners."
At the same time, Barnes & Noble filed an 8K indicating that "the Nook business will not meet the company’s prior projection for fiscal year 2013″.
The NOOK is a product in a tough position. While the NOOK HD has aimed to expand its capabilities beyond that of a single-function e-reader, it faces a highly competitive market. Traffic generated by Nooks are a fraction of that from the Kindle and are a rounding error when compared to the iPad. As single-function gadgets are subsumed by smartphones and tablets (see iPod for example), the life expectancy of the standalone e-reader market will be short.
As I've previously written, I don't see a promising future for the NOOK as a general purpose e-reader or tablet. Instead, they should narrow their focus to the educational and early reader markets, where they are better positioned for success. As I wrote last fall:
Barnes & Noble needs to root itself deeply into the textbook market. That market is up for grabs and it seems that Apple or Barnes & Noble will become the likely winner. Barnes & Noble should move quickly to secure the needed partnerships and focus its efforts on winning there.
The educational technology market remains somewhat fragmented. Apple has clearly set its sights on the classroom. I think it's time for Barnes & Noble to focus all of its efforts on this market. If the Nook cannot gain significant market share in the education space, it will have no viable future as a platform.
