The Billion Dollar E-book

That's a lot of money to pay for a product that may well become obsolete due to the growing versatility of smartphones.

Liberty Media, a deep-pocketed and tech-savvy investor is paying $1 billion for book retailer Barnes & Noble primarily, if not exclusively, for the Nook, B&N's entry in the ebook market and for the promise of e-commerce. What may be the most thought-provoking aspect of this deal is the premium being paid for a product, rather than the bundle of services represented by LinkedIn and others. As a retailer, B&N has its own lists and owns a huge catalogue of book titles so it has some skin to put into the game. It has not been able to convert those assets into growth - or cash - fast enough for today's markets, but Malone's intelligence and ruthlessness may provide the impetus for monetization.

The obstacles are the mobile phone companies and their allies, the uncertain nature of tech innovation and whatever glitches the Nook carries with it. For now, it is enough to say that wherever Liberty goes, disruptive innovation is sure to follow.

Kit Eaton reports in Fast Company:

"Liberty Media's offered $1 billion to buy Barnes & Noble. But it's not because of the bookseller's massive, inviting physical locations--the proposed purchase is most appealing because of one item the store offers: the Nook. Just another sign that the era of the ebook truly has arrived.

There's a billion-dollar offer on the table for bookseller Barnes & Noble, mostly thanks to one single item in the store's inventory--the Nook.

Liberty Media Corp.'s Interactive group is driving the offer to buy Barnes & Noble. These are the folks behind QVC, so they've got all the cash and media cred to back that up. The purchase would happen at a price of $17 per share, valuing the company at over $1 billion--not bad for a company that put itself up for sale last year in a desperate bid to save its business, at a time when its share price was around $15.

B&N's move in August 2010 was driven by slipping print sales in its 720 bricks-and-mortar stores and college book outlets. Rising online sales, changing reading habits, and the arrival of the e-book all contributed to the shift (which was confirmed this week when online bookseller Amazon said ebook sales have outpaced printed versions). Luckily, B&N had the foresight to bite the electronic bullet, and in 2009 launched the Nook e-reader with a color Android second window, fit to steal the limelight from Amazon's plainer Kindle. A year later, B&N took a bigger risk, adopting a full-screen LCD model for the Nook Color.

The Nook Color, attractively priced at $250, was one of the first 7-inch Android tablet PCs. Because its e-reader-centric UI could be easily tweaked to become a more full-featured Android tablet, the Nook won over a new audience. B&N carefully embraced the idea, forming a limited-access app store. Last week, the company revealed it had one million app downloads in the first week. With the Nook, B&N quickly captured some 20% of the ebook market share, which has carried its physical book division, and has since expanded that share to around 28%.

Analysts are reacting to the deal with cautious optimism, most of them citing positive sales results and forward-looking hopes for the Nook. It's tempting to see the news as evidence that the ebook really is the future of reading--people do still want to consume books, just in a different format. While the valuation isn't of the same extraordinary scale as LinkedIn achieved in its IPO, it is a reasonable multiple of around six times the firm's earnings. Books are dead; long live books.