US book retailer Barnes & Noble (B&N) formed a strategic alliance with Microsoft, which will see the companies setting up a joint venture that will – among other things – house B&N’s Nook ereader business.

B&N announced it was mulling a spin-out of the Nook line earlier this year, stating that it sees “substantial value” in the business. The company has also previously said that mobile apps are its fastest growing content area, reports said.

Microsoft is to invest US$300 million for a 17.6 percent equity stake in Newco – giving the new business a valuation of US$1.7 billion. As was widely noted, this gives the new unit a higher valuation than Barnes & Noble as a whole – indicating the pressure on its core book retailing activities.

In its most recent quarterly results (to 28 January 2012), B&N said that while sales in its retail unit had increased by 2 percent to US$1.49 billion, sales in the Nook unit – including digital content and hardware – increased by 38 percent to US$542 million. Nook unit sales increased by 64 percent, while digital content – including apps and ebooks – increased by 85 percent.

The companies have also settled a long-running patent dispute, in which Microsoft alleged infringements of its intellectual property by the Nook devices. In a statement, Microsoft said that “moving forward, Barnes & Noble and Newco will have a royalty-bearing licence under Microsoft’s patents for its Nook ereader and tablet products.”

The new venture will house B&N’s College business, as “an important component of Newco’s strategic vision.” The retailer said that its Nook Study software “will provide students and educators the preeminent technology platform for the distribution and management of digital education materials in the market.”

The alliance will also see the creation of a Nook app for Windows 8.

“The shift to digital is putting the world’s libraries and newsstands in the palm of every person’s hand, and is the beginning of a journey that will impact how people read, interact with, and enjoy new forms of content. Our complementary assets will accelerate ereading innovation across a broad range of Windows devices, enabling people to not just read stories, but to be part of them. We’re at the cusp of a revolution in reading,” said Andy Lees, president at Microsoft.