SAN FRANCISCO (08/28/2000) - Microsoft Corp. and Amazon.com Inc. Monday announced a partnership to deliver electronic books online. Amazon plans to open an online e-book store, offering consumers the chance to buy and download paperless books using a customized version of the Microsoft Reader e-book format. After years of maintaining a strangely distant relationship, the two Seattle-area companies are finally doing business together.

The announcement at the Seybold publishing technology conference in San Francisco means that Amazon would enter a digital content market that it had until now ceded to rival online bookseller Barnesandnoble.com and to other, smaller players. "This represents another milestone for Amazon.com," said Lyn Blake, general manager of Amazon Books.

For Microsoft, the goal is to jump-start the still small e-book market while establishing a leading role for its Reader format.

"Amazon is the largest vendor of books on the Web and could be the largest vendor of e-books," said Dick Brass, VP of technology development for Microsoft. "They could help make e-books happen real fast."

Microsoft Reader includes ClearType, a display technology developed by Brass's group that improves font resolution on LCD screens for Windows users. It includes tools for bookmarking, highlighting and annotation of the text of a book and encryption for copyright protection. The format complies with the emerging Open eBook standard. On Aug. 8, Simon & Schuster and Time Warner released for the first time a small number of e-book titles in Microsoft Reader format through the BarnesandNoble.com e-book store.

Financial details of today's deal were not disclosed, but Brass said it includes a cooperative advertising arrangement and royalties to Microsoft for each book sold in its format. The precise timeline for the opening of Amazon's online e-book store remains unclear, though the book giant hopes it will be by the end of the year.

Until now, Microsoft's lack of a business relationship with the Internet's largest retailer, headquartered only a few miles from its Redmond campus, has been something of an embarrassment to the software maker. To run its massive e-commerce site, Amazon uses powerful Unix servers from Sun and Hewlett-Packard; Windows has never been in the picture, despite strenuous direct sales approaches by Microsoft. When the Redmond software giant announced plans last January to develop e-books with Barnesandnoble.com, the absence of a deal with Amazon was striking.

"I hope it's the beginning of a better relationship between Amazon and Microsoft, not only in e-books but in other things" Brass said. "And I think it will be." Because Microsoft Reader is designed for Windows, Amazon would have to deploy some Windows 2000 Server machines for the e-book store.

The deal announced today is not exclusive. Amazon would offer its digital books in other major formats, including, almost certainly, the rival e-book platform of Gemstar International Group , based in Pasadena, Calif. In September, RCA plans to release the next generation of Gemstar's Rocket eBook and Softbook devices, which are book-like, tablet-form dedicated electronic reading devices.

However, both Barnes & Noble and Amazon plan to use Microsoft Reader as "the preferred format," giving it more prominence on their sites.