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Google's plan to offer online access to books on a variety of Web-enabled devices could threaten Amazon's Kindle
Amazon may want to keep an eye over its shoulder—Google is readying a deeper push into e-commerce. In the coming months, Google (GOOG) plans to begin selling online access to electronic versions of books. The titles will be available for viewing on any Web-enabled device, be it a cell phone or a laptop. "By end of this year we hope to give publisher partners an additional way to sell their books," Google said in a statement on June 1.
Details, including revenue-sharing arrangements with publishers, are still being worked out, one major publisher told BusinessWeek.com on condition of anonymity. Google also expects to form partnerships with other online retailers, such as local bookstores, so those sellers could provide instant online access to books.
The plan to sell e-books is the latest indication of Google's attempt to expand beyond online advertising and gain a toehold in e-commerce, where Amazon.com (AMZN), eBay (EBAY), and Wal-mart.com (WMT) hold sway. "Google's core growth rate is slowing, and it's starting to look for the next big growth driver," says Laura Martin, an analyst at Soleil Securities Group. In February, Google's YouTube said it is testing ways to let people sell video through the Google Checkout online payment system. Google is also testing Google Product Search, which lets consumers locate the cheapest products at various online stores. Google also runs Android Market, a store that sells mobile-phone applications.
Combined with other Google e-commerce tools and the company's arrangements to make books available online, the e-books project has the potential to increase competition for Amazon and other online booksellers. Technologies that undergird Checkout, Product Search, and Android Market could serve as the basis of an online Google e-bookstore. "Certainly, they've got all the parts they need in place," says Jeffrey Lindsay, a senior analyst at Sanford C. Bernstein.
Some publishers may welcome an Amazon rival
Selling new books would complement Google's existing plan to take online more than 7 million out-of-print and other books. Some publishers may opt to ally with Google in hopes of bolstering a competitor to Amazon, Marianne Wolk, an analyst at Susquehanna Financial, wrote in a June 1 note. Some publishing houses "fear Amazon will garner the same 70%-plus share of e-books that it has captured in online book sales," Wolk writes.
Amazon says it's not worried about the competition. "We don't focus on other companies; we are focused on offering our customers the best possible reading experience," Amazon spokeswoman Cinthia Portugal said in an e-mail. Sony (SNE) has teamed with Google to make many public domain books available to users of its Reader device. The company says it hasn't entered into an agreement with Google around this latest announcement.
Google could grab $100 million to $200 million in revenue from e-book sales in the next five years, Martin estimates. The global market for e-book software, which is currently dominated by Amazon but also features formidable players such as Sony, is growing fast and is expected to rise to $400 million in 2010 from $150 million last year, according to market researcher Outsell. Amazon doesn't release data on sales of Kindle devices or e-book downloads, but CEO Jeff Bezos said in May that when a Kindle version of a book is available, it makes up 35% of the title's sales.
For Google, which generated $5.51 billion in sales in 2009's first quarter alone, e-book sales would be a drop in the bucket. Still, e-books could serve as a test for sales of all kinds of digital content, such as music and videos, says Sucharita Mulpuru, a principal analyst at consultant Forrester Research (FORR). U.S. online sales have held up despite the recession, with nontravel-related purchases expected to grow 11%, to $156.1 billion this year, according to Forrester.
Some analysts even speculate that Google, which doesn't make hardware, may follow Amazon with its own e-reader, says Forrester analyst Sarah Rotman Epps.
Increasing the heat on Amazon wouldn't alone guarantee Google's success. "They have no track record of adding another revenue stream," Martin says. The compan has yet to make money on its forays into social networking, mobile-phone software, and online video clips.
Google Could Undercut Amazon on what publishers pay
Even established e-commerce players like eBay are struggling. "If eBay can't show growth, it's clearly going to be difficult for players to enter the e-commerce space," says Frederick Moran, a managing director at brokerage Benchmark. "But Google definitely has a tremendous brand name and following. If anyone can move into other areas of the Internet, Google is certainly among [such companies]."
Google could sweeten the deal for publishers by agreeing to keep a smaller percentage of the sale price than competitors do. Amazon hasn't announced the percentage of an e-book's price it takes, but it keeps 70% of newspaper subscription sales on the Kindle, according to a statement to Congress by Dallas Morning News CEO James Moroney. In May, San Francisco-based Scribd opened an online store for electronic books that lets authors and publishers distribute content at any price they choose and keep 80% of the profits.
Google's approach of making titles available online, vs. for download, could dispense with many technical hassles for the publishers as well. Today, developers and publishers typically have to go through the laborious task of adapting books to various devices.
And despite Amazon's lead in e-books—on June 1, Amazon announced it will soon start shipping its new e-book reader, the larger-screened Kindle DX that's better suited to college textbooks, newspapers, and business documents—the Kindle is expensive and available only in a handful of countries. "If Google gets into the space, it may force Amazon to get more aggressive with its Kindle," Lindsay says.