Economist Joseph Schumpeter called it “creative destruction” — the process by which technological innovation disrupts, and in many cases destroys, old business models, paving the way for new ones to emerge. It was little more than a decade ago that bibliophiles were bemoaning the loss of traditional neighborhood bookstores, crushed by big-box behemoths like Barnes & Noble and Borders.

Now it’s the brick-and-mortar big boys’ turn to get a taste of disruption — in the form of the exploding online retail and e-book markets, which threaten to consign them to the recycling bin of history.

That’s why media mogul John Malone’s surprise $1 billion offer to buy Barnes & Noble has left a lot of people scratching their heads. It’s likely, however, that Malone is less interested in the company’s 1,300-or-so retail outlets (including 600 college bookstores) than he is in its Nook e-reader device.

As Apple continues to sell every iPad it can produce and Amazon enjoys continued success with the Kindle, the outlines of the digital-reader and tablet markets are emerging. Apple and Amazon have developed powerful and increasingly entrenched leadership positions, and there will soon be a proliferation of devices running Google’s Android OS.

Amazon said Thursday that e-books have overtaken paperback books as the most popular format on its website. Meanwhile, magazine and newspaper publishers are racing to offer their products on tablets.

In other words, it’s clear that after well-over a decade of development — anybody remember the Franklin eBookMan? — the digital-reader and tablets markets appear ready for prime-time. E-books now account for 14 percent of the overall book market, and that percentage is only going up, and quickly.

Barnes & Noble is well-situated to get a piece of the action: the company claims that the Nook already accounts for one-quarter of the e-book market. (Amazon’s rival Kindle product accounts for over 70 percent, although neither company discloses actual sales figures.)

Candidly, the Nook’s success is important, because more competition in the space will help keep prices in check and spur innovation. Sony also has a credible market entrant with its Reader product.

Malone’s company Liberty Media offered $17 per share Thursday — or about $1 billion — for a 70 percent stake in Barnes & Noble, a 20 percent premium over the Thursday closing price. Investors greeted the news warmly, pushing Barnes & Noble shares up over 30 percent — yes that’s higher than Malone’s bid! — in midday market action Friday. As a result, Malone will likely have to sweeten his offer to at least $20 per share.

In a statement announcing the offer, Liberty described Barnes & Noble as being at the “forefront of the transition to digital.”

Credit Suisse analyst Gary Balter said in a research note to clients cited by Reuters that the Liberty takeover could bolster Barnes & Noble’s ability to compete with the likes of Apple and Amazon. “With strong backing of a media company like Liberty, we believe Barnes’ digital business will be able to compete more effectively,” Balter wrote.

Malone’s bid for Barnes & Noble highlights the declining fortunes of the company’s biggest brick-and-mortar rival: Borders filed for bankruptcy protection in February. Borders has not kept pace with the digital revolution, and its future is uncertain. Outright liquidation is a possibility, and it would be a unfortunate to see such a fate befall a company that began 40 years ago in Ann Arbor, Michigan, as a used book store operated by two brothers attending the University of Michigan.

But in such a rapidly evolving market, there are really only two choices: innovate or get left behind.

“The emergence of Amazon and e-books have changed the industry, and Borders has floundered through the transition,” Tony Dearing, the editor of AnnArbor.com, wrote in an editorial following the bankruptcy filing. “A company once known for being ahead of its time, it fell behind the times and has yet to catch up.”

For Barnes & Noble, a Borders liquidation would clearly be a boost, by taking one competitor out of the equation. And fortified by Malone’s backing, assuming the deal is approved and passes the necessary regulatory hurdles, the company stands to emerge fairly well-positioned for the coming battle royal for dominance of the e-book market.

Barnes & Noble indicated in a recent SEC regulatory filing that it intends to make an e-reader–related announcement (could it be a new version of the Nook?) on Tuesday. The company has invited members of the media to a “special announcement” at an event in New York City on that date.

Image: Barnes & Noble