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Barnesandnoble.com Gets a Big Head

Two more e-tailers are joining forces, hoping together to survive the dot-com carnage besieging the online retail sector. Following's Wednesday's market close, barnesandnoble.com announced plans to purchase Fatbrain.com for $64 million, or $4.25 per share. While the number two Net bookseller will likely never gain enough market share to displace numero uno Amazon.com , barnesandnoble.com looks content to scoop up rival Fatbrain in an effort to expand its newly launched digital publishing and print-on-demand capabilities.

Just a month after launching its eBookStore, barnesandnoble.com is boldly going where Amazon hasn't yet ventured. Hoping to get a leg up on the 800-pound gorilla that dominates the space, barnesandnoble is aggressively pushing its way into the digital publishing sphere and Fatbrain is a key part of that goal.

While Amazon has been busy venturing beyond books to furniture, toys, and new cars, both barnesandnoble and Fatbrain have been quietly tackling the nascent e-books market. Fatbrain's bread and butter is creating hosted online exchanges that enable Fortune 500 firms to distribute published materials to employees via intranet or the Web. The e-tailer also has an established presence in the digital publishing marketplace with its debut of eMatter in October. EMatter was the first-ever secure digital publishing solution launched, creating a new global distribution channel for authors around the globe.

Fatbrain spun off eMatter in March, retaining a 23% stake in the provider of original digital content and distributor of downloadable books. The upstart was subsequently renamed MightyWords after the adage, "The pen is mightier than the sword." Barnesandnoble quickly stepped in this past June, plunking down $20 million for a 30% stake in MightyWords. With the Fatbrain acquisition, barnesandnoble will now own roughly 50% of the digital content provider in its push toward gaining a head-start on Amazon's yet-to-be launched e-book section.

Barnesandnoble.com itself only recently entered into the brand spanking new digital publishing sector, launching the first ever digital bookstore utilizing Microsoft's Reader software just last month. Amazon has since also penned a deal with Softie to sell digital books, but still has yet to set a definite date for its e-book store launch.

It's not surprising Amazon didn't foresee this new development in bookselling online. Online retailers were slow to take the e-book potential seriously until Stephen King recently shocked the publishing world with his grassroots effort to sell his next novel in digital installments over the Web. Besides, Amazon has had its hands full delving into every retail sector imaginable, truly fulfilling the prophesy of becoming the Wal-Mart of the Web.

In March, just as Fatbrain was spinning off MightyWords.com, Stephen King was taking the first literary baby steps in online self-publishing, lending tremendous credence and massive press toward the whole concept of an author's "eMatter," or Web publishing rights. Not foreseeing profitability until 2002, Fatbrain has been in the doghouse lately with investors. In fact, its spin-off of MightyWords into a separate entity was single-mindedly done in order to become profitable quicker than anticipated. But the move came a bit too late, as wary investors sent the stock careening 90% off its 52-week high, leaving Fatbrain scrambling for a deep-pocketed sugar daddy.

Shares of Fatbrain sold off in after-hours following the post-market close announcement, as investors appeared to balk over the scant 11.5% premium paid under the terms of the deal. But investors will likely come to their senses, recognizing the company's slim prospects o