Microsoft has announced a 'strategic partnership' with eReader firm Barnes and Noble.

The firm will invest a total of $300m in a new Barnes and Noble subsidiary called Newco. The partnership consists of a 17.6 percent equity stake for Microsoft and will 'accelerate the transition to e-reading'.  

William Lynch, CEO of Barnes & Noble said: "The formation of Newco and our relationship with Microsoft are important parts of our strategy to capitalize on the rapid growth of the Nook business, and to solidify our position as a leader in the exploding market for digital content in the consumer and education segments,"

"Microsoft’s investment in Newco, and our exciting collaboration to bring world-class digital reading technologies and content to the Windows platform and its hundreds of millions of users, will allow us to significantly expand the business."

First on the cards is a Nook application for Microsoft's upcoming operating system Windows 8. This will expand the reach of Barnes and Noble's digital bookstore as devices such as tablets are released with Windows 8.

It will see the pair take on Amazon, Apple and Google which all sell eBooks via their respective stores. It is believed that the deal could lead to Windows-based tablet, according to analysts.

Andy Lees, President at Microsoft. "Our complementary assets will accelerate e-reading 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."

The two firms have put last year's patent squabbles behind them. Barnes & Noble and Newco will now have a royalty-bearing license under Microsoft’s patents for its Nook eReader and Tablet products.