Since its first tie-up with Microsoft was announced in April, BKS has lost nearly 40% of its value. The book business is being cannibalized by eBook readers, and Amazon.com (AMZN) dominates that market. Microsoft needs that momentum to change.
Microsoft has already put $300 million into BKS, based on a valuation of $1.7 billion, so it's lost half that investment already. Buying the whole company would now cost under $1 billion, sofa cushion money for Microsoft.
What would it get? It would get a retail chain that remains strong on college campuses, where textbooks remain a big business. It would get a great channel for Microsoft hardware and software. It would also get a retail channel for its Windows OEMs, which are losing access to the market as companies like BestBuy (BBY) circle the drain.
Within six months Microsoft could have a chain of retail outlets that is bigger than Apple's, often in better locations than Apple. It needs retail coverage to make Windows 8 a success.
Now, there is nothing in the news to indicate this is imminent. It's just my opinion.
Most analysts seem to think that Microsoft does not need a retail channel, and even question its delivery of its own hardware in the Surface. They see a retail presence as a waste of money, and are ready to write off BKS entirely.
I call this Amazon syndrome. The idea is that computers and anonymous recommendations are replacing human contact. While I remain a big fan of Amazon, I don't think this is true. People still need people, and such people remain the luckiest people in the world.
Even if you're downloading a book, don't you want someone to tell you which one to get? If you're spending $500 on something, don't you want to get your hands on it first? Don't you want a place to see the people who bring you the content you love?
So there are risks. But Microsoft has so much it wants to sell, that it needs to sell, and fewer-and-fewer places where people can buy it, or see it demonstrated, in a retail environment. It has no equivalent to the Apple Store -- here is a way to get that equivalent at minimal cost.
Sounds like a no-brainer, but many top executives have no brains.
Disclosure: I am long MSFT.