By Jeffrey A. Trachtenberg

Of THE WALL STREET JOURNAL

Barnes & Noble Inc. (BKS) acquired Fictionwise, a leading retailer of electronic books, and said it will launch a new e-bookstore this year, as the e-book market heats up.

The purchase, for $15.7 million, comes only a few days after Amazon.com Inc. (AMZN), the country's largest online bookseller, said it is making its Kindle e-books available for reading on Apple Inc.'s (AAPL) iPhone and iPod Touch devices.

"We bought Fictionwise because we like how they've approached the digital and e-book markets," said William Lynch Jr., president and chief operating officer of Barnes&Noble.com. "They have one of the most popular applications on the iPhone, and they really understand merchandising. They also have a lot of institutional knowledge about this space."

(This story and related background material will be available on The Wall Street Journal Web site, WSJ.com.)

At a time when book sales are lagging, e-books have been one of the few publishing categories to show significant growth, although they still constitute only a tiny fraction of book sales. Amid the industry downturn, Borders Group Inc. (BGP) on Thursday said it is laying off 742 employees, almost 3% of the company's work force. This is the third round of layoffs this year at the nation's second-largest bookstore retailer, after Barnes and Noble.

A Borders spokeswoman said the layoffs will primarily affect behind-the-scenes employees, such as training supervisors, merchandise supervisors and store leadership personnel and that the average customer won't notice the change on the floor.

Fictionwise, based in Chatham, N.J., launched in June 2000. The company stocks 60,000 to 65,000 titles and is adding 500 new titles a week, said Stephen Pendergrast, a co-founder.

Pendergrast, who noted that Fictionwise is profitable, said he and his brother, Scott, decided to sell because "the business is exploding and we needed to partner with a corporation that could provide us with necessary firepower." He estimates that Fictionwise has sold as many as five million e-book titles.

The single largest category is romance, which he said now accounts for 50% of all sales. He estimated total e-book sales in the U.S. at $100 million in 2008, although he said that some believe the market is larger. Fictionwise will operate as an independent subsidiary.

Barnes & Noble was an early proponent of e-books, offering Dean Koontz's "The Book of Counted Sorrows" in e-book form in 2001. The retailer reversed course in September 2003, when its online arm ended its e-book sales, citing a lack of public interest in the format.

Now that has changed significantly, in large part because of the success of Amazon's Kindle e-book reader, which enables customers to download its books wirelessly. Amazon unveiled a new version of its Kindle earlier this year with improved battery life. Customers are able to download new best-sellers priced at only $9.99, compared with $25 or more in the bookstores.

Lynch said that Barnes & Noble is still developing its e-book retail strategy and that the retailer hasn't committed to an exact date. "Our strategy is to be platform-agnostic," he said.