Move Over, Amazon? Google Aims to Sell e-Books

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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.

Kharif is a senior writer for BusinessWeek.com in Portland, Ore. Douglas MacMillan is a staff writer for BusinessWeek in New York.

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